Connolly Hails House Repeal of 3% Tax Withholding on Businesses

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Rep. Gerald Connolly

Congressman Gerry Connolly applauded today’s House passage of legislation he cosponsored to repeal a burdensome 3 percent tax withholding regulation that would inhibit job growth in the private sector and create an expensive accounting nightmare for federal, state, and local governments.

“Repealing this regulation once and for all will provide businesses with greater predictability, remove undue government intrusion into their operations, and free up resources to expand and create jobs,” Connolly said.  If allowed to stand, the regulation would cost $75 billion over the next five years.

Current law, passed in 2005 under the Bush Administration, placed a 3 percent tax withholding requirement on government contractors, vendors, Medicare providers, and farmers.  Since then, a number of bipartisan efforts in Congress have delayed implementation of the withholding regulation.

“The well-meaning intent of the law was to go after a small numbers of bad actors who were cheating the federal government, yet the broad-brush approach to the problem created more problems than it solved,” Connolly said.

Northern Virginia businesses would be particularly hard hit by the withholding requirement because it is home to the largest concentration of government contractors and vendors, Connolly said.  “Repeal of this withholding regulation will offer predictability to businesses that provide services to governments at every level.  It will free up capital that private sector employers can use to create jobs, increase wages, or fund business investments that will benefit our economy.”

Connolly said he often hears concerns from small businesses in Northern Virginia that the 3 percent withholding regulation would restrict their cash flows, increase project bond costs, and, in some cases, imperil their ability to operate.  “It is also an administrative nightmare for state and local governments,” he said.  “An estimated 20 percent of counties throughout the nation have more than $100 million in annual expenditures that would be subject to this withholding.”

In the federal government, Connolly said, the Department of Defense alone would be required to withhold $17 billion each year from private businesses.

The legislation, H.R. 674, passed the House 405-16.  It was supported by a broad coalition of more than 140 trade association, businesses, and state and local governments.

“It was good to see both sides of the aisle come together in the House today to repeal this unnecessary and burdensome regulation on businesses and state and local governments,” Connolly said.  “It benefits businesses, governments, and the taxpayers.”

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Truman Lewis
A former reporter and bureau chief, Truman Lewis has covered presidential campaigns, state politics and stories ranging from organized crime to environmental and consumer protection.