Bipartisan Group of Congressmen, Business Leaders Call For Repeal of The 3% Withholding Tax

Press Release

Members of the Small Business and Ways & Means Committees and lead co-sponsors of HR 674 today called for the full repeal of the 3% withholding tax during a bipartisan press conference at the Capitol.

The press conference took place after Small Business Contracting and Workforce Subcommittee Chairman Mick Mulvaney (R-SC) held a hearing to examine the effect of the withholding tax provision on small businesses.

The withholding provision would require that payments by federal, state or local government entities for contracted goods & services be subject to 3 percent income tax withholding. The American Recovery and Reinvestment Act deferred the provision from taking effect until Dec. 31, 2011, and most recently, the Internal Revenue Service delayed the effectiveness of the provision until December 31, 2012. Three bills before Congress seek to repeal the withholding requirement: H.R. 674 (116 co-sponsors), introduced by Rep. Wally Herger (R-CA); S. 89 introduced by Senator David Vitter (R-LA); and S. 164, introduced by Senator Scott Brown (R- MA).

Small Business Subcommittee on Contracting and Workforce Chairman Mick Mulvaney (R-SC) said, "The 3% withholding was supposed to reduce the amount of taxes that were owed but went unpaid. Similarly, the 1099 reporting requirements repealed through bipartisan efforts in the House and Senate also sought to close the "tax gap." Both enhanced 1099 reporting and 3% withholding requirements sought to close the tax gap through increased burdens on businesses of all types, but small businesses will be hurt the most. Instead of rewarding those small businesses that choose to compete for and win contracts, the government essentially pre-accuses them of cheating on their taxes and withholds 3% of all payments. This is flat out wrong and this burdensome requirement should be repealed."

Rep. Earl Blumenauer (D-OR), lead sponsor of HR 674 and Ways & Means Committee Member said, "This rule is disconnected from any tax liability that contractors may or may not have. Not only does it impose costs indiscriminately on businesses large and small, it also imposes costs on governments and agencies across the country. The Defense Department alone has found that merely complying with the new mandate will cost more than $17 billion over the first five years -- over $10 billion more than the Joint Committee on Taxation estimated the provision generating. I'm pleased to help lead the effort to repeal this requirement."

Rep. Wally Herger (R-CA), lead sponsor of HR 674 and Ways & Means Committee Member said, "I come from a small business background myself, so I have firsthand knowledge of how our country's entrepreneurs and job creators are burdened by a complex tax code and cumbersome regulations. If this tax provision is permitted to go into effect, it will only add to that burden. Three percent withholding is aimed at catching a handful of tax cheats but it punishes everyone while doing very little to address the problem. It's the equivalent of using a sledgehammer to kill a fly. In the end, the fly gets away and all you're left with is the damage caused by the sledgehammer. It's obvious that at the end of the day, three percent withholding will cost the federal government money -- and even more damaging, it will cost American small business jobs. We need to repeal 3% withholding as soon as possible and give our small businesses the certainty they need to get back to creating jobs."

Rep. Kurt Schrader (D-OR), Ranking Member of the Small Business Subcommittee on Economic Growth, Tax & Capital Access said, "Repealing that provision is a no-brainer that's been a long time coming. As a veterinarian who's built two small businesses from scratch, I know how tight the margins for small businesses survival are. Repealing this provision can make the difference between creating and not creating a job - and job creation should be our top priority here in Congress."

Rep. Jeff Landry (R-LA), Small Business Subcommittee on Economic Growth Member, said, "I was sent to Washington in November to lower taxes, reduce regulations, and empower small businesses. As a former small business owner, I know we must reduce regulatory burdens like this in order to create jobs and put America back on a path to prosperity. I will continue to work hard to get a full repeal of the unfair, job-destroying 3% tax withholding provision."

Giovanni Coratolo, Chamber of Commerce VP of Small Business Policy, said, "Unless repealed, the 3% withholding tax will have a dramatic, negative impact on millions of honest taxpaying businesses, farmers, doctors and hospitals, as well as state and local governments. Under this provision, the Internal Revenue Service (IRS) was given new broad sweeping authority to hold hostage 3% of nearly every transaction between the public and private sector--giving the federal government an interest free loan on the backs of many honest taxpayers. The U.S. Chamber, in conjunction with 125 other trade associations, will launch a 1099-style grassroots effort to repeal the onerous 3% withholding tax."

Curtis M. Loftis Jr., Treasurer of the State of South Carolina said, "I am here in Washington today to urge Congress to repeal the federal 3% withholding provision, which imposes a burdensome and costly mandate that will affect government contracts at all levels of government. Additionally, it will negatively affect businesses throughout the country. While the 3% withholding requirement was designed to increase tax compliance, it will unfairly penalize state and local governments and small businesses that run honest taxpaying companies."