[Congressional Record (Bound Edition), Volume 153 (2007), Part 24]
[Senate]
[Pages 33285-33287]
[From the U.S. Government Publishing Office, www.gpo.gov]




           ALTERNATIVE MINIMUM TAX AND 3-PERCENT WITHHOLDING

  Mr. CRAIG. Mr. President, I come to the floor of the Senate today to 
speak about two very important issues to America's taxpayers.
  The first, of course, is the alternative minimum tax on which we had 
a cloture vote this morning. That is a very serious matter. I voted 
against a motion to proceed because I do not believe the best way to 
prevent a tax increase on 25 million taxpayers is to raise taxes 
elsewhere by about $80 billion. There is an old phrase out there saying 
that you are going to rob Peter to pay Paul. Obviously, Peter feels his 
pocket has been picked, but Paul might feel pretty good about it. And 
that is the scheme that was played out here. It is a switch game that 
goes on. The alternative minimum tax is important, but you don't do 
what they are doing. How can you give a tax break that is already going 
out somewhere else and raising taxes to give it? That is the issue at 
hand. I hope the majority is serious about protecting millions of 
middle-class taxpayers by bringing realistic, bipartisan legislation to 
fix the AMT, something both sides of the aisle can and, in all 
fairness, should support.
  Even though I did not support how this legislation was crafted, there 
is a provision in the tax extender package that I wish to highlight 
because it is very important to taxpayers.
  The bill we just voted on contained a provision to delay for 1 year a 
Federal mandate that requires every level of government--Federal, 
State, and local--to deduct and withhold a 3-percent tax on all 
payments of goods and services if that government spends $100 million 
or more for those goods and services. Oh, yes, that is a shuffle game 
that has been going on in the Finance Committees in the House and the 
Senate for some time, and it was slipped in as a way to grab some 
money. I saw that coming early on and began to object to it and began 
to look at the figures on it when others of us were saying: Well, gee, 
I thought that was an ability to raise some more money. I was pleased 
this issue was finally addressed, but what we need is full repeal of 
this terrible tax policy, not just a 1-year delay, although I must say 
a 1-year delay is going to awaken a lot of my colleagues because their 
State, county, and city governments are going to be calling, if they 
haven't already, saying: Wake up, you are putting a substantial tax on 
top of us.
  I have come to the floor of the Senate today to renew a promise I 
made over a year ago. The same day this Senate provided tax relief for 
millions of Americans by passing the Tax Increase Prevention and 
Reconciliation Act of 2005, for which I voted, I pledged to do all I 
could to remove this terrible provision I just talked about that was 
quietly slipped into the conference report as a last-minute revenue 
raiser. So I stand here today to renew that pledge.
  Last year, I told Members of the Senate this provision would not go 
unnoticed, and I was right. Once taxpayers learned what this Congress 
had done in the middle of the night when somebody wasn't watching, they 
began to react. Angry taxpayers from across the Nation are joining 
forces, organizing coalitions, and rallying grassroots support to fix 
this unjust tax policy. I applaud them for their efforts, and I am here 
to help them.
  Let me take a couple of minutes to share what hundreds of angry 
taxpayers shared with me. I want every Member of the Senate to listen 
carefully. I want them to understand how this 3-percent tax withholding 
will affect each and every one of their constituents. I want them to 
understand why this mandatory 3-percent withholding tax is so bad.
  First, 3-percent withholding was justified in the name of closing a 
tax gap. Proponents argued it would improve compliance. I will show a 
chart. They say it will improve tax compliance by approximately $7 
billion over 5 years. I do not agree, and neither do the numbers.
  These numbers are based on the Joint Tax Committee's original 
estimates. These numbers are simply slightly different when we take the 
1-year delay that was in the provision that was on the floor this 
morning into account. But these numbers tell the story of why this is 
such a terrible provision.
  In 2011, the first year this provision goes into effect, this 3-
percent withholding tax accounts for about $6.79 billion in new 
revenue--boom, a big chunk of new revenue. Can't you see the spenders 
on the floor of the Senate salivating as they factor that into their 
budgets and bring down their deficit margins? However, each year after

[[Page 33286]]

this provision only brings in about $200 million. Why is that? I will 
tell you. Because about $5.8 billion will be rightly returned to the 
taxpayers each year thereafter. So it is a big bubble once, but then it 
is a constant tax.
  Proponents argue that 3-percent withholding will improve tax 
compliance by $7 billion over 5 years. It is simply not true. The real 
value of increased tax compliance is only about $200 million. The bulk 
of these revenues, $5.8 billion, are not found. It is not real money. 
They are accelerated tax receipts. Contemplate that into any private or 
public budget or revenue and my guess is an accountant would say you 
are cooking the books; you can't get away with that; that is not real 
money.
  Many of our taxpayers are already skeptical of what we do around here 
and would suggest we are not dealing in the real world in our desire to 
spend money and pay for it in some way. That is exactly what is 
happening. The finance committees in the conference that put this in 
cooked the books. As the pressure builds, that is why, well, we better 
push this back for 1 year.
  Now, even though these estimates say you are bringing in $200 million 
in new revenue, which is a good thing, I guess, I am here to argue that 
the harmful consequence of withholding 3 percent on all payments of 
goods and services--and when I said that, the presiding officer brought 
his head up. The reason he did, and the reason any of us do when we 
hear about these things is, wait a minute, you are taxing goods and 
services of counties and cities and State government. Why are you doing 
that? This is going to far and away exceed the benefit we gain from 
additional tax revenue because somehow it makes its way through, 
obviously, to the constituent at the local level.
  Not only are their numbers misleading you, but the unintended 
consequence of this tax withholding are very serious. Who is going to 
bear the burden of enforcement and implementation--the IRS? The Federal 
Government? Oh, no. The burden is going to be borne by State and local 
governments--your cities, my cities, our counties, our States, and 
companies large and small that do business with our Government are 
going to have to reach into their pockets in advance. The magical 
threshold is $100 million. Well, we say that is only for big business. 
Well, a lot of our cities out there today and a lot of our counties out 
there today and certainly all of our States fit into that category.
  Let me give an idea of what I am talking about. The State 
comptroller's office in my State of Idaho, an office that would oversee 
compliance of all State agencies with this new tax-withholding 
requirement, conservatively estimates it would cost that office, that 
office alone, about $358,000 to implement and about $78,000 a year to 
carry it on. Now, remember this is a State of 1.5 million people. This 
is not 10 million or 12 million or 14 million people. Those are real 
dollars. That is one office in a small State. When you add all the 
other Idaho State agencies and offices that must also comply, those 
numbers will go up. So it is not overstating the case to say.
  That tax withholding will collectively cost my State of Idaho 
millions of dollars to implement.
  Now, think of what it would cost the State of Colorado, substantially 
larger than the State of Idaho, or the State of California, Florida or 
Texas. The numbers get big, and the numbers get staggering. What about 
our city and county governments? They will have to comply as well if 
they spend $100 million a year. That is the threshold.
  Most counties and cities don't even know what is about to hit them, 
but there is one that does, and they figured out how much it is going 
to cost them. Let me talk about Miami, Dade County, FL. They expect 
withholding provisions to cost them $27 million. Let me say it again. 
The new tax withholding will cost Dade County, FL, $27 million. Now, if 
it costs them that, what do they do? They pay it. Do they cut services 
to their constituents or do they go out and raise taxes to offset it so 
they don't have to cut services? Because they are going to be forced to 
pay it by the Federal Government.
  It is not a stretch to say this is going to cost our States, our 
counties, and our city governments millions and millions of dollars a 
year. That cost, as I said a few moments ago, has to be moved somewhere 
else. You either cut the services that the counties or the cities 
provide or you raise taxes to offset. The unsuspecting victim 
ultimately then has to be the taxpayer. Either the services they expect 
from their government are gone or they take a little more out of their 
back pocket.
  Proponents of the 3 percent withholding tax are saying this is the 
best way to make sure everybody pays their fair share of taxes. Well, 
it is a new tax. I disagree. I don't think this is the best way to do 
it. I believe all citizens ought to pay their taxes. I think you and I 
would agree with that. I also believe our taxes should be 
straightforward, transparent, and fair. This new withholding tax is not 
straightforward, it is not transparent, and I suggest it isn't very 
fair. It is simply another way for the Feds to get their hands in the 
hip pocket of every level of government below them and into the poor 
taxpayer's pocket, ultimately.
  The new withholding tax, ultimately, will devastate businesses and 
their customers across the Nation. Let me explain about businesses now. 
It isn't just governments that are going to have to be paying this. If 
you own a business and you have a contract to provide goods and 
services to the cities or the State, or the Federal Government for that 
matter, then the Government will not pay you in full. Oh, my goodness. 
You cut a contract with the Federal Government for ``X'' hundreds of 
millions of dollars to provide goods and services and they withhold 3 
percent before they send you the money. So how are you going to deal 
with that one? Because that is exactly what will happen.
  Competitive contracting? Very tight. We hope the margins are tight. 
We want the margins to be tight. So they will keep your money for 12 to 
15 months because it is withheld. So where do you go then to get the 
money to provide the goods and services? You go borrow it. That endless 
circle goes on. Doing business with the Federal Government will be more 
costly, and, ironically, it will cost the Federal Government more if we 
expect private contractors to deal with our Government.
  Here is the problem with that. It will impact nearly every industry 
in our Nation and it will negatively affect nearly every business or 
organization in America that contracts with a government entity to 
provide goods and services. Many industries, especially health care and 
construction, and most small businesses will be particularly hard hit, 
because a 3-percent withholding is actually larger than, in many 
instances, the entire profit on a contract. Think that one through. If 
the tax withheld is larger than the profit, why would you want to 
engage in business with the Government? This will seriously impede cash 
flow, which for small businesses can mean deciding between meeting a 
payroll, expanding a company or buying needed equipment. We leave small 
businesses with only two options: They either pass the cost along to 
their consumer and the price of business goes up, or they borrow money 
from the bank and make up the shortfall. Of course, when you borrow 
money from a bank, it is going to cost you a little money to do it, and 
so down goes the margin of profit, down goes the viability, and down 
goes the strength and the ability of a small business to compete.
  It is ironic we are forcing these small businesses to take out a loan 
to pay for our mistakes while the Federal Government is essentially 
getting an interest-free loan from the taxpayer. That is not right.
  I am on the floor of the Senate today honoring a commitment I made 1 
year ago to speak out and to help shape coalitions to make America 
aware of what had been slipped into a conference in the dark of night 
that was going to impact them directly. Well, it is working. Slowly but 
surely America is awakening to this phantom gain our tax writers 
thought they could get for our tax spenders.
  I sponsored legislation to repeal the 3-percent withholding. I have 
not yet

[[Page 33287]]

won that fight, but to all who are listening, the tax writers are 
starting to blink. That is why the 1-year extension was stuck into this 
AMT provision, because all of a sudden the pressure is beginning to 
build and those politicians who raise your taxes are slightly feeling 
the pressure. We have to keep it on because a 1-year extension simply 
is not good enough. A full repeal is what we must ask for, unless we 
want to pass all of this through to our cities, to our counties, to our 
States, to the business and industry that does business with our 
governments, and ultimately to you, the taxpayer, who always pays the 
bill in the end no matter who writes the check.
  So it is important. I hope we can work out the differences we have 
across the aisle on the AMT. I hope when we do that, the 1-year 
extension will be in there because we will have had one step down a 
road toward victory in getting the 3-percent withholding tax repealed.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Nelson of Nebraska). The clerk will call 
the roll.
  The legislative clerk proceeded to call the roll.
  Mrs. MURRAY. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Ms. Klobuchar). Without objection, it is so 
ordered.

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