SITREP - October 28th 2011

Statement

Go ahead and pour yourself another cup of coffee. I've got a tax reform bill to tell you about this week. In full disclosure, it's impossible to wade more than ankle deep into the tax code without everything getting convoluted and complicated, so bear with me as I try to explain what the House has just finished passing.

A few years back, Congress passed a law that included a small tax provision. That provision was going to require an additional three percent withholding for any company -- large or small -- doing business with the federal government.

The idea was that by increasing the amount of withholding, the IRS could lower the tax gap (aka, the difference between what the IRS is legally owed and the amount they actually end up collecting).

What Congress didn't really think through at the time (imagine that) is that most companies actually do pay the taxes they're supposed to pay. And by asking all of the other legitimate small businesses to withhold more than they owed meant that until those small businesses got that money refunded back at the end of the year, they'd essentially be giving the federal government an interest-free loan.

If you're a small business trying to do all of the logistical acrobatics you can in order to make payroll smoothly every month, taking extra cash that you don't owe the federal government and giving it to them anyway isn't exactly helpful.

Seems pretty obvious.

In any case, President Obama suggested delaying implementation of this three percent withholding rule. We agreed. The only difference was that we felt it should be delayed permanently.

That's why yesterday, the House passed a bill to permanently repeal this rule and it passed it by a vote of 405-16. It now goes to the Senate where, if you read this report every week, you know that fifteen other jobs bills we've passed -- and some pretty bipartisan ones at that -- have died on the shelf.

The President doesn't want to see the rule go into effect, the House doesn't want to see the rule go into effect, and small businesses certainly don't want this rule to go into effect, so let's just hope that Senate Majority Leader Harry Reid doesn't want to see the rule to go into effect either.

I'm sure he won't hold it up and that means we can chalk this week up as another win for small businesses. That's always a good thing.

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