My Letter to Congress: H.R.674 To amend the Internal Revenue Code of 1986 to repeal the impositio...

I am writing as your constituent in the 1st Congressional district of Texas. I oppose H.R.674 - To amend the Internal Revenue Code of 1986 to repeal the imposition of 3 percent withholding on certain payments made to vendors by government entities., and am tracking it using OpenCongress.org, the free public resource website for government transparency and accountability.

Sincerely,
Melody Couvillion

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Dear Friend:
Thank you for your recent letter regarding Section 511 of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005. I welcome your thoughts and comments.

Section 511 of TIPRA requires federal agencies, as well as state and local governments, to withhold 3 percent from most payments for property, products or services that they purchase. Section 511 was included in TIPRA as a revenue offset, with Congress?s Joint Committee on Taxation estimating that the provision would raise nearly $7 billion from its effective date in 2011 through 2016.

I opposed Section 511 because of the immense burden it will place on governments, small businesses, and our economy. In fact, since initially projecting $7 billion in increased revenue, the Joint Committee on Taxation has estimated that the 3 percent withholding provision is actually an unfunded mandate -- i.e., the costs of implementing this requirement will be greater than the revenue it generates.

In addition to the administrative costs of compliance, affected businesses will see a considerable loss in cash flow. For many businesses, the 3 percent withholding will exceed their anticipated profit margins. Ultimately, the effects of the 3 percent withholding requirement will ripple through the economy, with businesses passing on costs or forcing governments to pay more for contracts.

I am a cosponsor of S. 164, the Withholding Tax Relief Act of 2011. Introduced by Senator Scott Brown (R-MA), this legislation will permanently repeal Section 511 of TIPRA. Upon introduction, S. 164 was referred to the Senate Committee on Finance, on which I do not serve.

Fortunately, while Congress considers a permanent measure to repeal the 3 percent withholding requirement, its implementation has been delayed twice. In 2009, Congress delayed the effective date from 2011 to 2012; since then, the Internal Revenue Service has indicated that it will delay the effective date of Section 511 until at least 2013. We must use this additional time to ensure that we do not force state and local governments and small businesses to absorb the costs of the 3 percent withholding requirement.

I appreciate hearing from you. I hope that you will not hesitate to contact me on any issue that is important to you.

Sincerely,
Kay Bailey Hutchison
United States Senator

284 Russell Senate Office Building
Washington, DC 20510
202-224-5922 (tel)
202-224-0776 (fax)
http://hutchison.senate.gov

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