Recently there was an article about the House passing legislation to defer a 3 percent withholding requirement for payments made by any federal, state or local governments for goods and services was about to be delayed.
Huh?
Now I like to think that I know a thing or two about taxes, but I had never heard of any such tax. Upon further investigation, the law is as simple as it is stupid. In order to raise revenue, Congress implemented the law that would impose a 3% withholding on the gross amount of any payments from a government entity to a taxpayer.
One example on the internet pretty much showed the incredible unfairness of the rule,
"For example, a small business contractor may hold one government contract which is estimated to be completed in one year for $1 million. Section 511 would require the government entity to withhold 3 percent, or $30,000, of the $1 million payment. For argument's sake, let's assume the contractor earns a 3 percent profit — which approximates the national average in construction contracts — on the project. That means the contractor would expect a profit of $30,000, or 100 percent of the amount withheld. Let's further assume that the contractor is taxed at the top corporate income tax rate — currently 35 percent. Because businesses are taxed only on their profits, the tax liability on this $1 million project would be $10,500. So in effect, the contractor would float the Federal government an interest-free loan for $19,500 on this particular project." http://www.abc.org/wmspage.cfm?parm1=6941
This is a law that needs to be wiped out.
