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By Mr. SPECTER (for himself, Mr. Vitter, Mr. Inhofe, Mr. Isakson, Mr. Voinovich, Mr. Roberts, and Mr. Chambliss):
S. 292. A bill to repeal the imposition of withholding on certain payments made to vendors by government entities; to the Committee on Finance.
Mr. SPECTER. Mr. President, I have sought recognition to introduce the Withholding Tax Relief Act of 2009, which would repeal Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005. Section 511 will require a 3 percent withholding on all Government contracts beginning on January 1, 2011.
This legislation was sponsored in the 110th Congress by Senator Larry Craig, S. 777, and with his retirement, I have decided to continue to press for its passage to protect small businesses, contractors, and State and local governments who will be unfairly burdened by this onerous provision.
In 2006 Congress enacted tax relief on capital gains, dividends, and the Alternative Minimum Tax, AMT, as part of the Tax Increase Prevention and Reconciliation Act of 2005. These provisions provide important incentives for small businesses by encouraging investment that can lead to job creation and economic growth. At the same time, the Section 511 withholding tax provision was inserted at the last minute by conferees as a revenue raiser. As a result, the legislation which was intended to provide tax relief ended up containing a $7 billion tax penalty on Government contractors.
If no action is taken to repeal this provision, Section 511 will institute a 3 percent tax withholding on all local, State, and Federal Government payments, effective on January 1, 2011. This will apply to Governments with expenditures of $100 million or more, and will affect payments on Government contracts as well as other payments, such as Medicare, grants, and farm payments. Impacted firms will ultimately get a refund when they file their tax return if the amount withheld is in excess of what is actually owed.
The proponents of Section 511 argue that it will be an effective tool to close the tax gap--the difference between what American taxpayers owe and what they actually pay. However, an examination of the mechanics of the provision support a different conclusion. At the time of passage, Section 511 was estimated to increase revenue by $7 billion from 2011 to 2015. However, $6 billion of that amount is attained solely because of the initial collection on contracts in 2011, not because of an actual revenue increase from increased
tax compliance. Estimates show that Section 511 will only generate $215 million in 2012 and increases slightly in each of the 3 years thereafter.
While I support efforts to close the tax gap, those efforts must be weighed on a case-by-case basis against the unintended harm that is done to those impacted. For example, the 3 percent figure is an arbitrary amount and does not take into account the company's taxable income or tax liability. As a result, an honest taxpaying contractor in a loss year could be without access to the withheld capital for a significant period of time, only to see it returned when it files its taxes. Many of these firms do not have extra capital on hand to get by and, because some file yearly returns as opposed to quarterly returns, will not receive a refund on the amount withheld for 12 to 18 months. In many cases, businesses operate with a profit margin that is smaller than 3 percent of the contract; and in some cases, there is no profit at all. In these cases, Section 511 will effectively withhold entire paychecks--interest free--thereby impeding the cash flow of small businesses, eliminating funds that can be used for reinvestment in the business, and forcing companies to pass on the added costs to customers or finance the additional amount.
Section 511 will also impose significant administrative costs on the Federal, State, and local governments who are required to create, or expand, collections staffing to comply. The Congressional Budget Office, CBO, said the provision constitutes an unfunded mandate on the State and local governments. According to CBO, the projected costs of Section 511 will exceed the $50 million unfunded mandate annual threshold. On a Federal level, there is evidence that the high cost of preparation is unnecessary. For example, the Department of Defense estimated that the costs to comply with the 3 percent withholding requirement could be in excess of $17 billion over the first 5 years, which is more than any estimated revenue gains.
There is strong support from a number of stakeholders for repeal of the Withholding Tax requirement, including the Associated Builders and Contractors, U.S. Chamber of Commerce, National Association of Manufacturers, National Federation of Independent Business, and American Farm Bureau Federation.
I am pleased that this legislation garnered the support of 260 cosponsors in the House of Representatives, H.R. 1023, in the 110th Congress, with a broad mix of support from both parties. For example, cosponsors from the Pennsylvania delegation included Representatives Altmire, Brady, Carney, Doyle, English, Gerlach, Holden, Murphy, Pitts, Platts, Sestak, and Shuster. In the Senate, I will seek to build on the efforts of Senator Craig and the 15 other cosponsors, including myself.
At the time of passage of the Tax Increase Prevention and Reconciliation Act of 2005, Congress had not adequately debated the merits of the withholding requirement in a committee hearing or with debate in either body. An issue of this magnitude deserves proper debate, and had that occurred, it is difficult to believe that Congress would have included Section 511. For these reasons, I urge my colleagues to support repeal of this unfair tax penalty.
Mr. President, I ask unanimous consent that a list of supporters to this bill be provided in the RECORD.
There being no objection, the material was ordered to be placed in the RECORD
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By Mr. SPECTER:
S. 293. A bill to provide for a 5-year carryback of certain net operating losses and to suspend the 90 percent alternative minimum tax limit on certain net operating losses; to the Committee on Finance.
Mr. SPECTER. Mr. President, I have sought recognition to introduce legislation to expand a widely-used business tax benefit whereby business owners balance-out net losses over prior years when the firm has a net operating gain. Spreading out this tax liability helps a business to decrease the adverse impact of a difficult year. At the current time, there is a critical need for pro-growth policy initiatives to ensure an economic recovery.
Specifically, this legislation increases the general net operating loss, NOL, carryback period from 2 years to 5 years in the case of an NOL for any taxable year ending during 2007, 2008, or 2009. As an example, a company could offset NOLs in 2008 against positive income it earned in 2003-2007; resulting in a refund paid in 2009. NOLs represent the losses reported by a company within a taxable year and, under current law, generally may be carried back 2 years and forward 20 years for tax purposes.
Under current law, NOLs are not allowed to reduce Alternative Minimum Tax, AMT, liability by more than 90 percent. My legislation would eliminate this limit. This second provision is necessary for this bill to achieve its goal of allowing firms dollar-for-dollar access to their NOLs. This is because firms with temporarily low income are more likely both to create NOLs and to find themselves subject to the AMT.
From an economic standpoint, the key impact of the bill will be to lower the user cost of capital for firms and to encourage business fixed investment for those firms that were profitable in the past 5 years but are not profitable at the current time. Such firms will receive an immediate refund for their current costs.
The U.S. Chamber of Commerce, National Association of Manufacturers, and National Federation of Independent Business, NFIB, have all been supportive of this proposal in previous years.
Similar legislation was considered in the 110th Congress, but was not enacted. During consideration of the Recovery Rebates and Economic Stimulus for the American People Act of 2008, an amendment drafted by the Senate Finance Committee leadership included this important provision, as well as other items. On February 6, 2008, the Senate rejected this broader package on a procedural vote, leaving it just 1 vote short of the 60 that were required. Ultimately, that bill included tax rebates for individuals and capital investment incentives for businesses. Following that debate, I introduced the NOL carryback provision as a stand-alone bill, S. 2650, with 7 cosponsors.
Over the long-term, this is a low cost proposal for the taxpayer that can stimulate economic growth. According to a February 2004 report entitled ``Stimulating Job Creation and Investment: Economic Impact of NOL Carryback Legislation,'' by Kevin A. Hassett, Ph.D, and Brian C. Becker, Ph.D, ``If enacted, this expansion of the carryback period would result in current-year refunds for many companies that otherwise would have to wait until future years to apply NOLs. Having done so, however, would reduce the quantity of losses that are carried forward, and hence increase, relative to baseline, tax revenue in the future. As such, the tax revenue implications are negative initially, but positive in the future.'' The Joint Committee on Taxation estimated that passage of a similar provision as part of the Senate Finance Committee Stimulus package, which I referenced earlier in my statement, would have cost $15 billion in 2008 and $5.1 billion over 10 years.
I urge my colleagues to support this important legislation that will help numerous industries that are currently struggling to survive in a harsh economic downturn.
S. 294. A bill to amend the Internal Revenue Code of 1986 to extend and modify the special allowance for property acquired during 2009 and to temporarily increase the limitation for expensing certain business assets; to the Committee on Finance.
Mr. SPECTER. Mr. President, I have sought recognition to introduce legislation to extend two important provisions that were enacted as part of the Economic Stimulus Act of 2008: 50 percent Bonus Depreciation; and Increased $250,000 limit for the Small Business Expensing Allowance.
I introduced S. 2539 and cosponsored S. 269 similar legislation in the 110th Congress.
I support tax policies to spur new business investments through the use of partial and full expensing. When a company buys an asset that will last longer than one year, the company cannot, under most circumstances, deduct the entire cost and enjoy an immediate tax benefit. Instead, the company must depreciate the cost over the useful life of the asset, taking a tax deduction for a part of the cost each year. By allowing firms to deduct the cost of a new asset in year one, expensing spurs new investments quickly and drives immediate job creation.
As part of the Economic Stimulus Act of 2008--passed by Congress and signed by the President on February, 13, 2008--I successfully included my legislation, S. 2539, to allow for an immediate 50 percent ``bonus depreciation'' on new equipment purchases. This provision only applied to purchases made in 2008 and my legislation would extend the benefit for an additional year.
The Economic Stimulus Act of 2008 also provided a 1-year boost in the Section 179 Small Business Expensing Allowance. This provision, which also applies to equipment, was increased to a $250,000 limit for 2008. Absent further action, the benefit reverts to $125,000 in 2009 and will expire at the end of 2010 and revert to $25,000. On January 25, 2008, I cosponsored legislation, S. 269, to increase the Small Business Expensing Allowance and to make it permanent. This legislation I am introducing today would extend the $250,000 limit for an additional year.
Both of these provisions merely accelerate a benefit that will be given to firms over a longer span. To that end, the cost will be higher in year one, but tax revenue will be higher in the years thereafter. According to the Joint Committee on Taxation, the cost of the ``bonus depreciation'' provision as part of the Economic Stimulus Act of 2008 was $43.9 billion in 2008, but just $7.4 billion over 10 years. The Small Business Expensing Allowance provision was scored at $900 million in 2008, and only $100 million over 10 years.
These provisions were included in a broader package drafted by Senators BAUCUS, GRASSLEY, KENNEDY, and ENZI at the end of the 110th Congress. I look forward to working with these Members to seek extension of these expiring provisions in the 111th Congress.
Enactment of these provisions was an important step in the direction of allowing full expensing of new equipment. I urge my colleagues to support these pro-growth policies that create incentives for business expansion and long-term economic growth.
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