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QCA testifies on need to repeal 3% withholding tax

June 1 2011

Last month a representative of the Quality Construction Alliance – a coalition of specialty trade associations that includes TAUC – testified before a House subcommittee on the urgent need to repeal the onerous 3% withholding tax before it goes into effect next year.

The rule would require government entities — federal, state and local — to deduct and withhold from all payments made to any individual or business providing any goods or services an amount equal to 3% of the total payment. The original goal of the provision was to crack down on tax evasion by firms performing public contracts, but QCA argues that the withholding requirement would crush small contractors, many of whom operate on very thin margins to begin with.

Jim Gaffney, principal owner of a small business mechanical construction firm, Goshen Mechanical Contractors, testified on behalf of the QCA before the House Small Business Subcommittee on Contracting and Workforce. Gaffney is a member of the Mechanical Contractors Association of America, which participates in the QCA along with TAUC.

“Our request is simple,” Gaffney said. “We would ask the subcommittee members to take the lead in vigorously pursuing the rapid repeal of the 3% withholding unfunded mandate as laid out in H.R. 674, and to take the lead in finding a legislative vehicle in this Session of Congress to finally dispatch this ill-conceived bit of public contract administration that had been added hastily in conference committee simply to score a widely overstated amount of revenue gain as a pay-for back in the 2005 Tax Reconciliation Act.”

Gaffney added, “Eventually sound public policy must recognize that a well-intentioned mistake was made?and that responsible policy making should own up to that reality and avoid compounding the problem by failing to take timely and effective remedial action.”

QCA is urging Congress to pass HR 674, which would pave the way for a quick repeal of the 3% withholding provision. The measure, introduced in February by Rep. Wally Herger (R-CA), currently has 140 cosponsors and has been referred to the House Ways and Means Committee.

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