Keeping his commitment to creating jobs and protecting taxpayers against higher tax rates, U.S. Rep. Blaine Luetkemeyer (MO-9) voted to repeal a job-killing withholding tax that will require 3-percent of all payments by federal, state, and local government agencies for goods and services to be withheld for income tax purposes. The bipartisan bill, H.R. 674, passed by a vote of 405 to 16.

“The withholding tax may have been well-intentioned, but all it does is severely harm our businesses at a time when we need them to be investing in American workers and putting folks back to work,” Luetkemeyer said. “This legislation represents another part of the House’s ongoing efforts to reduce the uncertainty facing our nation’s job creators by creating a job-friendly environment.”

The 3-percent withholding tax, scheduled to take effect in January 2013, is a costly tax provision that was inserted in the Tax Increase Prevention and Reconciliation Act of 2005 to address tax avoidance but actually severely harms the cash flow of businesses and imposes enormous costs on government agencies at all levels.  According to the nonpartisan Congressional Research Service, businesses will spend $75 billion over the next five years to comply with the requirement, while generating less than $11 billion in additional federal taxes over 10 years.

Craig Simon, president of Professional Contractors & Engineers, Inc. in Columbia, said he supports Luetkemeyer’s backing a repeal of the 3-percent withholding.

“The 3-percent withholding would be devastating to our company.  As a small family contracting firm, representing the majority of the construction industry, the effects on our industry would be equally damaging,” Simon said. “In an industry with very low margins, sometimes adequate cash flow is what makes the difference between a successful project and a loser.  Withholding 3-percent would be an unsustainable burden on our company.”

Keith Bennett, chief financial officer for Emery Sapp & Sons in Columbia, said the fundamental flaw with the rule is the framers of the legislation were basing the calculations on an assumption of a 10-percent pre-tax net profit margin that would be subject to a 30-percent tax rate. The actual average profit margin for heavy civil contractors like Emery Sapp & Sons is a net 4.5 percent of the contract and for some trades is even lower.

“A heavy civil contractor’s tax liability on government funded projects would be more than doubled if the rule is implemented,” Bennett said. “That tax increase would have to be passed on, resulting in more costs to the government and in turn the people represented by the government.  It is an unjust rule in that it seeks to levee penalties on all contractors for the unlawful behavior of a few and should be repealed.”