Graves, Mulvaney Applaud Scheduling of 3% Withholding Repeal For October

Press Release

House Small Business Committee Chairman Sam Graves (R-MO) and Small Business Subcommittee on Contracting and Workforce Chairman Mick Mulvaney (R-SC) issued the following statements on Majority Leader Cantor's announcement that a bill to repeal the 3% withholding rule would be voted on this month:

"I applaud Majority Leader Cantor continuing his commitment to removing barriers to job creation by announcing that a 3% withholding repeal bill would be voted on this month," said Chairman Graves. "Even though this burdensome withholding requirement isn't scheduled to go into effect for another 15 months, it has an impact on small businesses operations and hiring decisions now because many contracts have a 5 year requirement schedule. Implementation of this tax would significantly affect small business cash flow, especially in sectors such as construction, where pre-tax profit margins rarely meet or exceed 3%, and businesses will lose vital funds needed to finance day-to-day activities and new jobs. To provide more certainty for small companies who do business with the government, this withholding requirement must be repealed right away."

"The President must know how damaging the 3% withholding rule is, as his Jobs Act calls for an additional year delay in its implementation. But if it is so harmful to small businesses --- which it is --- why not repeal it outright?" said Chairman Mulvaney. "Majority Leader Eric Cantor has signaled that the repeal of this job-crushing withholding requirement will be on the House agenda this month. I hope that the President and Senate Majority Leader Harry Reid will also support this repeal. The 3% withholding tax would hurt small business cash flow and job growth. Delaying its repeal only continues uncertainty for small business contractors. Permanent repeal will provide more certainty and help create jobs now."

The Small Business Subcommittee on Contracting and Workforce held a hearing on the 3% withholding requirement on May 26, 2011. Chairman Mulvaney also led two press conferences calling for repeal of the tax, on September 14th and on May 26th.

BACKGROUND: Section 511 in the Tax Increase Prevention and Reconciliation Act of 2005 requires federal, state & local governments to withhold 3% from all payments for goods & services, including from small businesses. The American Recovery & Reinvestment Act deferred the effective date of this withholding until Dec. 31, 2011, and in May of this year, the Internal Revenue Service (IRS) delayed it again until Dec. 31, 2012. The President's Jobs Act would defer it yet again for another year. A bipartisan bill to repeal the 3% withholding requirement is H.R. 674 (248 co-sponsors); which has been introduced by Rep. Wally Herger (R-CA).

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