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CEO Message — Protecting Your Business—Protecting Our Tax Code
Will the 3% withholding tax harm your company?
By AGC CEO Steve Sandherr
AGC is waging a battle to protect construction contractors who comply with tax laws by educating members about the dangers of the 3% withholding law. It would lead to the overwithholding of taxes for contractors who perform work for federal, state or some local entities.
We have also taken our fight to Congress and were successful in blocking a last-ditch effort by some members of the 109th Congress who attempted to speed up implementation of this onerous tax provision. The new law carries a heavy cost to the construction industry of $6 billion in over-withheld taxes, and some thought speeding up the implementation would, by increasing the overwithholding, provide the federal government with even more revenue.
According to the Construction Financial Management Association’s 2005 annual financial survey, the average net earnings margin is 1.8%, 1.2% less than the 3% withholding tax. With an average profit margin lower than the withholding tax rate, it doesn’t take an accountant to realize that this harmful tax would put many AGC members in jeopardy. The implementation of this tax change without warning, notice or the ability to prepare could have devastated small-business contractors, raised their bond prices and made them ineligible to bid on projects or even bankrupted them mid-project.
We mobilized you, our members, to tell Congress about the ramifications of the 3% withholding, which resulted in hundreds of letters and phone calls to members of Congress. Your grassroots efforts, combined with our advocacy, worked to block this last-ditch effort to speed up the implementation of 3% withholding.
We still have a battle ahead of us as we urge Congress to fully repeal this law, which is effective in 2011. Lawmakers are treating these funds like their personal piggy bank, and every time they reach for it to fund their special projects, it is our job to protect that money and our members from an unnecessary tax that could threaten to put them out of business.
We continue our work on other important tax priorities as well, including the repeal of the Death Tax, the marginal rate reductions of 3% for both individuals and corporations and the marriage penalty. We still need your help to educate Congress about these burdensome tax policies and urge you to write your members through our Legislative Action Center at www.agc.org/lac.
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