Key Vote letter - H.R. 674 to Repeal the 3% Withholding Tax

October 26, 2011

TO THE MEMBERS OF THE U. S. HOUSE OF REPRESENTATIVES:

The U.S. Chamber of Commerce, the world’s largest business federation representing the interests of more than three million members and organizations of every size, sector, and region, strongly urges you to support H.R. 674, which would repeal the burdensome 3% withholding tax mandate enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222).

Unless repealed before it takes effect on January 1, 2013, the 3% Withholding Tax will have a dramatic, negative impact on millions of honest taxpaying businesses as well as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. This mandate is also antistimulus in the sense that it removes money from local economies and sends it to the IRS.

Additionally, the profit margin for many businesses is often less than 3%, meaning that the withholding tax will create significant cash flow problems for day-to-day operations as well as draining capital that could be used for job creation and business expansion. The 3% Withholding Tax will also drive opportunities away from small businesses as governments look to consolidate their purchasing with larger companies to make it less onerous to comply with the mandate. During these difficult economic times, Congress should be pursuing policies that encourage, not hamper, business growth and job creation in the private sector.

We strongly support the view that those receiving payments from the government should meet their federal, state and local tax obligations. However, imposing an onerous 3% Withholding Tax on transactions between government and honest taxpaying businesses is not the answer.

The Chamber strongly supports the bicameral, bipartisan effort to repeal the 3% Withholding Tax.

The Chamber may consider votes on, or in relation to, H.R.674 in our annual How They Voted scorecard.

Sincerely,

R. Bruce Josten