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Government Withholding Relief Coalition
May 19, 2010
President Barack Obama
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500
Dear Mr. President:
The Government Withholding Relief Coalition and its member organizations strongly urge you to advocate for repeal of the 3% tax withholding law this year. This law, which was enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) as section 3402(t) of the Internal Revenue Code, mandates that federal, state, and local governments withhold 3% of nearly all of their contract payments,Medicare payments, farm payments, and certain grants. Compliance with this law will impose significant, unnecessary financial burdens on both the public and private sectors. The Coalition stands ready to work with you, your Administration, and Congress to improve tax compliance for companies and other entities receiving federal dollars while also repealing the onerous 3% withholding tax.
Your Administration recently proposed two new tax compliance initiatives and Congress is actively considering another (Section 403 of H.R. 5013). These follow numerous other legislative and regulatory measures from the last four years focused on enhancing transparency in government contracting and, in particular, increasing tax compliance by companies and individuals that receive government payments. All these initiatives taken together obviate any rationale or need for retaining the withholding mandate and will be far more cost-effective for the government. The enclosure with this letter includes a list and summary of these new initiatives that enhance transparency and increase tax compliance.
These measures and proposals directly address the legitimate concerns about tax-delinquent government contractors and other entities receiving federal payments. They are a much better approach than the costly, broad brush mandate of the 3% withholding law. While the withholding requirement is not scheduled to go into effect until January 1, 2012, it is already proving costly, and such costs will increase exponentially as the implementation deadline moves closer. Businesses – the vast majority of which do not have tax delinquencies – and governmental entities are expending resources now in preparation for implementation due to major system and process changes needed for withholding, reporting, and reconciling the millions of affected payments annually. These have to be made well in advance of 2012. As an example of the implementation costs, in a 2008 report the Department of Defense estimated that it would cost the Department more than $17 billion in the first five years to comply with the 3% withholding requirement, which is far more than any expected revenue gains due to an increase in tax compliance.
Both the public and private sector need repeal as soon as possible to minimize the waste of precious funds and resources. The public comments and the records from the public hearing for the Internal Revenue Service rulemaking proceeding to implement the 3% requirement is replete with statements by the full ange of affected private and public sector entities attesting to the law’s staggering costs and administrative burdens. At a time of severe economic constraints, implementation of this requirement comes at the expense of government services, jobs, and investment in economic recovery.
We strongly believe that private entities providing goods and services to the government should comply with federal, state, and local tax requirements. Companies that do not comply have an unfair competitive advantage over law-abiding contractors that pay their taxes. However, withholding on every government payment is not a viable or cost efficient answer. The enclosed initiatives demonstrate more reasonable approaches to ensure tax compliance, without placing undue costs and burdens on private sector companies or on federal, state, and local government agencies.
For these reasons, the Coalition believes the concepts behind the provisions in the enclosure represent a more measured, responsible approach to accomplishing the aims of the 3% withholding law without the
normously costly and resource-intensive efforts necessary to comply with it. We look forward to being an active partner in supporting cost-effective means to increase tax compliance while repealing the 3% tax withholding law.
Sincerely,
Government Withholding Relief Coalition
Aeronautical Repair Station Association
Aerospace Industries Association
Air Conditioning Contractors of America
Air Transport Association
America's Health Insurance Plans
American Bankers Association
American Clinical Laboratory Association
American Concrete Pressure Pipe
Association
American Congress on Surveying and
Mapping
American Council of Education
American Council of Engineering
Companies
American Heath Care Association
American Institute of Architects
American Logistics Association
American Moving and Storage Association
American Nursery and Landscape
Association
American Road & Transportation Builders
Association
American Shipbuilding Association
American Society of Civil Engineers
American Subcontractors Association
American Supply Association
American Traffic Safety Services
Association
American Trucking Associations
Armed Forces Marketing Council
Associated Builders and Contractors
Associated Equipment Distributors
Association of National Account Executives
Association of School Business Officials
International
Coalition for Government Procurement
Colorado Motor Carriers Association
Computing Technology Industry
Association
Construction Contractors Association
Construction Employers' Association of
California
Construction Industry Round Table
Construction Management Association of
America
Design Professionals Coalition
Edison Electric Institute
Electronic Security Association
Engineering & Utility Contractors
Association
Federation of American Hospitals
Financial Executives International's
Committee on Government Business
Financial Executives International's
Committee on Taxation
Finishing Contractors Association
Gold Coast Hispanic Chamber of Commerce
Independent Electrical Contractors, Inc
International City/County Management
Association
International Council of Employers of
Bricklayers and Allied Craftworkers
International Foodservice Distributors
Association
International Municipal Lawyers
Association
Management Association for Private
Photogrammetric Surveyors
Mason Contractors Association of America
Mechanical Contractors Association of
America
Medical Group Management Association
Messenger Courier Association of the
Americas
Miami Dade County
Modular Building Institute
National Association for Self-Employed
National Association of Counties
National Association of Credit Management
National Association of Government
Contractors
National Association of Manufacturers
National Association of Minority
Contractors
National Association of State Auditors,
Comptrollers and Treasurers
National Association of State Procurement
Officials
National Association of Wholesaler-
Distributors
National Beer Wholesalers Association
National Corn Growers Association
National Defense Industrial Association
National Electrical Contractors Association
National Electrical Manufacturers
Association
National Emergency Equipment Dealers
Association
National Federation of Independent
Business
National Institute of Governmental
Purchasing
National Italian-American Business
Association
National League of Cities
National Precast Concrete Association
National Office Products Alliance
National Roofing Contractors Association
National Small Business Association
National Society of Professional Engineers
National Society of Professional Surveyors
National Utility Contractors Association
National Wooden Pallet and Container
Association
North-American Association of Uniform
Manufacturers & Distributors
North Coast Builders Exchange
Office Furniture Dealers Alliance
Oregon Trucking Association
Plumbing-Heating-Cooling Contractors -
National Association
Printing Industries of America
Professional Services Council
Regional Legislative Alliance of Ventura
and Santa Barbara Counties
Santa Rosa Chamber of Commerce
Security Industry Association
Sheet Metal and Air Conditioning
Contractors National Association, Inc.
Small Business & Entrepreneurship Council
Small Business Legislative Council
TechAmerica
Textile Rental Services Association of
America
The Associated General Contractors of
America
The Association of Union Constructors
The Distilled Spirits Council of the U.S.
The Financial Services Roundtable
U.S. Chamber of Commerce
Veterans Entrepreneurship Task Force
Women Impacting Public Policy
Cc: Ms. Valerie Jarrett
Ms. Cecilia Munoz
Mr. Michael Blake