Opposition to the three percent withholding requirement has been strong almost from the start. The AICPA weighed in several times, most recently earlier this week. In a letter to House members, Patricia Thompson, chair of the AICPA Tax Executive Committee, said that the requirement would force governmental entities trying to enforce the law to “incur a costly re-programming of their accounting and procurement systems.” The law also would have a pronounced, negative impact on government contractors with low profit margins, as well as on medical professionals and organizations that received Medicare payments, her letter said.
That explains why, while support for the repeal is strong, it’s not unanimous. In a recent commentary, The Center on Budget and Policy Priorities stated, “GAO investigations have found that tax abuse by government contractors costs the federal government billions of dollars each year, which increases deficits and places an unfair burden on individuals and businesses that obey the nation’s tax laws.” Furthermore, a withholding mandate doesn’t, as some claim, constitute a tax; instead, it’s a way of ensuring that taxes owed are paid.
To be sure, implementing the three percent withholding measure imposes a real cost on some businesses and other organizations. On the other hand, allowing tax evaders to continue exacts a cost as well.
As almost any contractor that does business with the government knows, section 511 of the Tax Increase Prevention and Reconciliation Act of 2005, or TIPRA, required the federal government, along with most state and local government entities, to withhold three percent from most of their payments to these contractors, as this summary from the IRS explains. Section 511 initially was to be effective for payments made after December 31, 2010 Big Fat Finance, although this later was postponed, and wouldn’t take effect January 1, 2013.
The White House supports repeal as well, as Jay Carney, the President’s press secretary, made clear in his comments earlier this week. “…we obviously support the repeal of the 3 percent withholding rule, which, by the way, was passed in 2006, signed into law by President Bush, and was voted for by Representatives Boehner and Cantor.”
Given such widespread support of repeal, one wonders how the provision ever got as far as it did. For that, it helps to go back to a 2004 report by the General Accounting Office, “Some DOD Contractors Abuse the Federal Tax System with Little Consequence.” GAO researchers found that more than 27,000 companies contracting with the federal government owed about $3 billion in unpaid taxes as of September, 2002. No regulations prevented these contractors from receiving work from Uncle Sam.
This week, the three percent withholding rule took one more step toward extinction. On Wednesday, the House passed a bill, H.R. 674, to remove Sec. 3402(t), which followed from Section 511, from the Internal Revenue Code. H.R. 674 received almost unanimous support in the House, with 405 Congressional representatives voting in support of it, versus just 16 opposed, according to Govtrack.us. Twelve members either weren’t present or didn’t vote. The bill now heads to the Senate.
The Government Withholding Relief Coalition, an umbrella organization of more than 100 industry and governmental groups, has – not surprisingly, given its name – also lobbied for repeal of the law.
As to arguments that the withholding requirement would hurt small businesses, the commentary points out that contracts under $10,000 are exempt. Moreover, the bulk of government contracts go to large firms: the top 100 contractors with the Federal government accounted for 54 percent of federal contract dollars.
http://coachfactorystore-bag.weebly.com
0 comments:
Post a Comment