CRS Updates Report on Proposals to Repeal 3 Percent Withholding Tax

The Internal Revenue Service (IRS) defines the gross tax gap as the difference between the aggregate tax liability imposed by law for a given tax year and the amount of tax that taxpayers pay voluntarily and timely for that year. It defines the net tax gap as the amount of the gross tax gap that remains unpaid after all enforced and other late payments are made for the tax year.

On January 27, 2005, the Joint Committee on Taxation (JCT) published a report titled Options to Improve Tax Compliance and Reform Tax Expenditures. The JCT report identified many options, including several to increase withholding. The first option was titled "Impose Withholding on Certain Payments Made by Government Entities." The JCT argued that the IRS had extensively and successfully used withholding and information reporting to improve tax compliance. Furthermore, much empirical data supported the use of withholding and information reporting to reduce the tax gap. On May 17, 2006, President George W. Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), which included Section 511: "Imposition of Withholding on Certain Payments Made by Government Entities" (the JCT option). This section required 3% withholding on payments for goods and services to contractors made by all branches of the federal government and its agencies and all units of state and local governments, including counties and parishes. Local governments with less than $100 million of annual expenditures were excluded from the withholding requirement. The section also imposed information reporting requirements on payments that are subject to withholding. This section was a revenue offset and was scheduled to take effect on January 1, 2011.

Substantial opposition developed to this withholding provision. Critics argued that the public and private compliance costs were unacceptable, existing IRS enforcement tools were adequate, and privacy would be reduced. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) delayed the implementation of the withholding provision until January 1, 2012. On May 5, 2011, the IRS issued regulations that further delayed the implementation of the withholding provision until January 1, 2013.

In the 112^th Congress, four bills to repeal the Section 511 withholding provision have been introduced: S. 89, S. 164, S. 1726, and H.R. 674. In addition, S.Amdt. 405 to S. 782, Economic Development Revitalization Act of 2011, would repeal the withholding provision.

The IRS has attempted to address concerns about compliance costs by proposing a $10,000 threshold on government purchases from contractors and increasing the number of exemptions.

On September 12, 2011, President Obama proposed the American Jobs Act of 2011, which included a section that would delay implementation of the withholding provision until after December 31, 2013. On September 13, 2011, at the request of President Obama, Senate Majority Leader Harry Reid introduced S. 1549, American Jobs Act of 2011.

On October 25, 2011, the Obama Administration endorsed H.R. 674 and H.R. 2576, which would modify the definition of income for determining eligibility for exchange subsidies, Medicaid, and the Children's Health Insurance Program. H.R. 2576 would raise an estimated $13 billion over 10 years, which would offset the estimated $11.2 billion cost of H.R. 674. On October 26, 2011, the House voted to adopt a rule that combined H.R. 674 and H.R. 2576. On October 27, 2011, the House passed both H.R. 674 with a vote of 405 to 16 and H.R. 2576 with a vote of 262 to 157.

This report will be updated as issues develop, legislation is introduced, or as otherwise warranted.

                               Contents

The Internal Revenue Service (IRS) defines the gross tax gap as the difference between the aggregate tax liability imposed by law for a given tax year and the amount of tax that taxpayers pay voluntarily and timely for that year.¹ It defines the net tax gap as the amount of the gross tax gap that remains unpaid after all enforced and other late payments are made for the tax year.² For tax (calendar) year 2001 (the most recent year available), the IRS estimated a gross tax gap of $345 billion, equal to a noncompliance rate of 16.3%.³ For the same tax year, IRS enforcement activities, coupled with other late payments, recovered about $55 billion of the gross tax gap, resulting in an estimated net tax gap of $290 billion.⁴ The estimated gross tax gap of $345 billion consisted of underreporting of tax liability ($285 billion), nonfiling of tax returns ($27 billion), and underpayment of taxes ($33 billion).⁵ For 2001, the $285 billion of underreporting of tax liability had the following components: $197 billion in individual income tax, $54 billion in employment tax, $30 billion in corporate income tax, and $4 billion in estate taxes.⁶

On January 27, 2005, the Joint Committee on Taxation (JCT) published a report titled Options to Improve Tax Compliance and Reform Tax Expenditures.⁷ The JCT report identified many options, including several to increase withholding. The first option was titled "Impose Withholding on Certain Payments Made by Government Entities." This option would require 3% withholding on payments for goods and services to contractors made by all branches of the federal governments and its agencies and all units of state and local governments, including counties and parishes. Local governments with less than $100 million of annual expenditures would be excluded from the withholding requirement. The withholding proposal would also impose information reporting requirements on payments that are subject to withholding. The JCT argued that the IRS had extensively and successfully used withholding and information reporting to improve tax compliance. Furthermore, much empirical data supported the use of withholding and information reporting to reduce the tax gap.⁸

On May 17, 2006, President George W. Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA; P.L. 109-222), which included Section 511: "Imposition of Withholding on Certain Payments Made by Government Entities" (the JCT option). Furthermore, the explanation of Section 511 by the Joint Committee on Taxation ("JTC Section 511 Explanation"),⁹ was essentially a summary of the JCT revenue proposal published in the JCT report about options. This section was a revenue offset and was scheduled to take effect on January 1, 2011. This new withholding provision would raise revenue by improving tax compliance and thus reducing the tax gap. The JCT estimated that the provision would yield $6.977 billion over FY2011-FY2015.¹⁰

On October 11, 2011, the JCT estimated that enacting H.R. 674, a bill to Amend the Internal Revenue Code of 1986 to Repeal the Imposition of 3 Percent Withholding on Certain Payments Made to Vendors by Government Entities, would lose $7.786 billion over FY2012-FY2016 and $11.194 billion over FY2012-FY2021.¹¹ The first revenue loss would be $6.065 billion in FY2013.¹² In FY2014, the revenue loss would be as estimated $546 million.¹³ On October 17, 2011, the Congressional Budget Office (CBO) published its cost estimate for repealing H.R. 674 and used the estimates from the JCT.¹⁴

On October 25, 2011, CBO issued a new report that estimated that the repeal of the withholding provision would reduce discretionary costs by $7 billion over the 2012-2021 period.¹⁵This decline in discretionary costs would consist of two parts: (1) a reduction in direct costs to federal agencies that would be required to implement the withholding requirement, and (2) lower costs for goods and services purchased from contractors who would otherwise raise their prices to recover part of their higher costs from complying with the withholding requirement.¹⁶ CBO also estimated the administrative and financing costs that would be incurred by vendors if the 3% withholding provision is implemented.¹⁷

In the Joint Tax Committee's report titled Options to Improve Tax Compliance and Reform Tax Expenditures, the JCT explained "the significant revenue effect" in the first year as "largely attributable to accelerating tax receipts as a result of the withholding requirement."¹⁸ In other words, approximately $5.5 billion of the estimated revenue loss in FY2013 from repeal would be due to a timing change; taxes would be withheld before they were actually due. The 3% withholding requirement would shift collections from future years (particularly FY2014) to FY2013. For FY2014 and subsequent fiscal years, contractors would have credited the amount withheld against their tax liabilities. Thus, in future years the amount withheld in a given year due to the 3% withholding would be largely offset by a decline in future tax collections. Thus, the most significant revenue effect from tax shifting is a one-time increase in revenues in the first year that the 3% withholding is implemented. The estimated revenue amounts beginning in FY2014 are due to changes in compliance.

This report discusses arguments for and against the withholding provision, legislation in the 110^th and 111^th Congresses, implementation delay by IRS, proposed repeal legislation in the 112^th Congress, and conclusions

Arguments for the Withholding Requirement

Both the JCT Options Report and the JCT Section 511 Explanation maintain that mandatory withholding and information reporting substantially improve tax compliance and reduce the tax gap. These JCT publications present arguments for this position. Models of tax compliance assume that the tax gap will be reduced when potential tax evaders perceive that their probability of being caught is increasing. Many individuals compare the expected benefits of tax evasion against the expected costs in theory.¹⁹

Widespread IRS Withholding and Information Reporting Reduce the Tax Gap

Both JCT publications emphasize the extensive use of withholding and information reporting by the IRS under current law in order to reduce the tax gap. Employers are required to withhold employment and income taxes from wages and salaries. Certain non-wage payments are subject to mandatory or voluntary withholding. For examples, payers of pensions are required to withhold from payments made to payees, unless the payee elects no withholding, and a variety of payments (such as interest and dividends) are subject to backup withholding if the payee has not provided a valid taxpayer identification number.²⁰ Thus, withholding and information reporting are widely and successfully used by the IRS to reduce the tax gap. A detailed presentation is included in Appendix A.

Empirical Support

IRS Data

IRS empirical research has consistently shown that withholding and information reporting substantially improve tax compliance and thus reduce the tax gap. The most recent IRS calculation of the tax gap was for tax year 2001, which was based on randomly selected 46,000 returns.²¹ High-income returns were deliberately oversampled in order to draw conclusions about this important sub-category of taxpayers concerning the use of withholding to decrease the tax gap.²² The results indicate that the individual income tax underreporting gap increased as information reporting declined and the withholding requirement ended. A detailed presentation is included in Appendix A.

GAO Studies

The Government Accountability Office has found widespread tax evasion by federal contractors. These GAO studies used IRS records, agency data, and results from their own investigations.²³ It can be argued that tax evasion by federal contractors would be reduced by the contractor withholding provision.

Arguments for Repeal of Withholding Requirement

After the passage of the 3% contractor withholding provision in TIPRA, significant opposition arose against its implementation. On March 22, 2007, the House Small Business Committee held a hearing on the "Potential Effects on Small Businesses of 3 Percent Withholding Provisions on Government Contracts." On May 26, 2011, the Subcommittee on Contracting and Workforce of the House Small Business Committee held a hearing titled "Defer No More: The Need to Repeal the 3% Withholding Provision."

At these hearings and in other public statements by trade associations and public entities, several arguments have been expressed against the 3% contractor withholding provision.

Compliance Costs

Opponents argue that the 3% contractor withholding provision would impose unacceptable costs on businesses and government entities. Overwithholding will occur if a business has a low profit margin or no income tax liability. Thus, some businesses would provide the federal government with an interest-free loan. Some critics argue that the 3% withholding requirement will adversely affect some businesses and government entities more than others. These critics maintain that small businesses and small government entities will have to pay relatively more to comply with the withholding requirement. But the relative compliance costs of business and government entities of different sizes is unknown.

On May 26, 2011, at a House Small Business Committee hearing, the representative for the American Institute of Certified Public Accountants (AICPA) testified that

Existing IRS Tools

Some repeal proponents argue that the existing tools of the IRS are sufficient to enforce tax laws for government contractors. Thus, the IRS does not need the additional tool of the proposed 3% withholding. For example, the representative for AICPA testified that the

Privacy

Some critics are concerned about the possible reduction in privacy if the IRS collects and cross-checks more data. They argue that as the authority of the tax collector increases, the possibility of the misuse of tax information rises.²⁸ But many federal laws and regulations are in place to safeguard taxpayer data.²⁹ Criminal and monetary penalties may be levied on parties for unauthorized disclosures or uses of taxpayer data.³⁰

Revenue Yield Due to Timing Change

As indicated at the end of the introduction, much of the revenue yield from the 3% withholding is due to a timing change. In the first year, taxes withheld are collected before they are actually due. This revenue yield due to the timing change does not affect tax compliance.

Legislation in the 110^th and 111^th Congresses

Repeal Legislation in the 110^th and 111^th Congresses

In the 110^th and 111^th Congresses, several bills to repeal the contractor withholding requirement were introduced. Three bills to repeal were introduced in the 110^th Congress: H.R. 1023, To Repeal the Imposition of Withholding on Certain Payments Made to Vendors by Government Entities; S. 777, Withholding Tax Relief Act of 2007; and S. 2394, Good Government Contractor Act of 2007. Further, two repeal bills were introduced in the 111^th Congress: H.R. 275, To Repeal the Imposition of 3 Percent Withholding on Certain Payments Made to Vendors by Government Entities; and S. 292, Withholding Tax Relief Act of 2009.

Implementation Delay Included in ARRA

On February 17, 2009, the American Recovery and Reinvestment Tax Act of 2009 (ARRA; H.R. 1) was signed as P.L. 111-5. ARRA delayed by one year the implementation of the 3% withholding tax on government contractors (Section 1511 of ARRA and Section 3402(t) of the Internal Revenue Code) so that it would apply to payments made after December 31, 2011.³¹ The Joint Committee on Taxation stated that the reason for the change was that

Implementation Delay by IRS

On May 5, 2011, the IRS issued final regulations (T.D. 9524) that delayed the implementation of the 3% withholding tax on government contractors until January 1, 2013.³⁴ These regulations included a $10,000 threshold on payments from government entities to contractors and numerous exemptions.³⁵ In response to comments on initially proposed regulations, the IRS stated that

On September 12, 2011, the IRS held a public hearing on proposed regulations (REG-151687-10) on section 3402(t)'s of the Code, which "provide guidance on whether section 3401(t) withholding would apply to certain payments by government entities made on or after January 1, 2014, under existing contracts that are not materially modified."³⁷ Representatives of five testifying government contractors urged that the 3% withholding requirement be repealed.³⁸ Mr. Tom Wilder, Senior Counsel for America's Health Insurance Plans, expressed the view that there should be a single implementation date. Mr. Wilder stated that "it doesn't make a lot of sense to base when the implementation date on whether or not it's a so-called existing contract or a new contract or a materially modified existing contract...."³⁹

Proposed Repeal Legislation in 112^th Congress

In the 112^th Congress, four bills, without revenue offsets, have been introduced that include a provision to repeal the contractor withholding provision. On January 25, 2011, Senator David Vitter introduced S. 89, Withholding Tax Relief Act of 2011, which currently has 12 cosponsors. Also on January 25, 2011, Senator Scott P. Brown introduced S. 164, Withholding Tax Relief Act of 2011, which currently has 30 cosponsors. On February 11, 2011, Representative Wally Herger introduced H.R. 674, To Amend the Internal Revenue Code of 1986 to Repeal the Imposition of 3 Percent Withholding on Certain Payments Made to Vendors by Government Entities, which currently has 269 cosponsors. On October 17, 2011, Senator Mitch McConnell introduced S. 1726, Withholding Tax Relief Act of 2011, which currently has 20 cosponsors. In addition, on June 9, 2011, Senator Scott P. Brown proposed S.Amdt. 405 to S. 782, Economic Development Revitalization Act of 2011. This amendment would repeal the withholding provision.

On August 23, 2011, House Majority Leader Eric Cantor issued a press release, which stated that in September 2011, the House "will repeal the '3 percent withholding rule,' which serves as an unnecessary tax increase on those who do business with the government."⁴⁰

On September 12, 2011, President Obama proposed the American Jobs Act of 2011. Section 113 of this act

On October 20, 2011, the Obama Administration said that it supported the intent of S. 1726 to repeal the 3% withholding requirement but strongly objected to the bill's rescission of appropriated discretionary funds to pay for the repeal.⁴² Subsequently, on October 20, 2011, S. 1726 fell three votes (57-43) shy of the 60 needed to invoke cloture.⁴³

On October 13, 2011, H.R. 674 was marked up by the House Committee on Ways and Means and ordered to be reported by a voice vote.⁴⁴ On October 25, 2011, the Obama administration endorsed H.R. 674 and H.R. 2576, which would modify the definition of income for determining eligibility for exchange subsidies, Medicaid, and the Children's Health Insurance Program.⁴⁵ H.R. 2576 would raise an estimated $13 billion over 10 years, which would more than offset the estimated $11.2 billion cost of H.R. 674. On October 26, 2011, the House voted to adopt a rule (H.Res. 448) that combined H.R. 674 and H.R. 2576.⁴⁶ On October 27, 2011, the House passed both H.R. 674 with a vote of 405 to 16 and H.R. 2576 with a vote of 262 to 157.⁴⁷

Conclusions

The 3% withholding requirement on payments to contractors by government entities was passed as a revenue offset, and its implementation has been delayed until January 1, 2013. This requirement is intended to improve tax compliance. Widespread support exists for the repeal of this 3% withholding requirement primarily because of concerns about its compliance costs. Some members of both parties, public officials, business people, and representative of trade associations have advocated its repeal.

There was also considerable public opposition to the implementation of a requirement that payments of $600 or more by corporations be reported to the IRS, which was similar in intent to the 3% contractor withholding requirement. On April 14, 2011, this 1099 reporting requirement was repealed with the passage of the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (P.L. 112-9; H.R. 4).⁴⁸

The IRS has attempted to address concerns about compliance costs by proposing a $10,000 threshold on government purchases from contractors and increasing the number of exemptions. Furthermore, there is the possible issue of finding a replacement source of revenue. In the 112^th Congress, three bills, without a revenue offset, have been introduced to repeal the 3% withholding provision, and a congressional hearing was held. On September 12, 2011, President Obama proposed the American Jobs Act of 2011, which included a section that would delay implementation of the withholding provision until after December 31, 2013. On September 13, 2011, at the request of President Obama, Senate Majority Leader Harry Reid introduced S. 1549, American Jobs Act of 2011.

In the 112^th Congress, four bills have been introduced to repeal the 3% withholding requirement: S. 89, S. 164, H.R. 674, and S. 1726. On October 20, 2011, S. 1726 fell three votes shy of the 60 needed to invoke cloture. On October 27, 2011, the House passed H.R. 674.

On October 25, 2011, CBO issued cost a cost estimate for H.R. 674, which included estimates of the reduction in federal discretionary costs and vendors' costs from the repeal of the withholding requirement. These CBO estimates may permit a better comparison of the costs and benefits of repealing the 3% withholding requirement.

 

* * * * *

 

 

Appendix A. Tax Gap Data for 2001

 

 

Figure A-1. Tax Year 2001

 

 

(billions of dollars)

 

 

 

 

Figure A-2. Individual Income Tax Underreporting Gap, 2001

 

 

 

Note: Based on updated estimates derived from the National Research Program underreporting compliance study.

           Table A-1. Individual Income Tax Underreporting Gap, 2001

In describing present law, the JCT indicated that "the Internal Revenue Code of 1986 (the Code) requires employers to withhold income tax on wages paid to employees."⁵¹ In addition, some "nonwage payments are subject to mandatory or voluntary withholding."⁵² The JCT also stated that "Present law imposes numerous information reporting requirements that enable the Internal Revenue Service (IRS) to verify the correctness of taxpayers' returns."⁵³

In discussing its proposal, the JCT argued that withholding "provides taxpayers with a gradual and systematic method to pay their taxes,"⁵⁴ thus these taxpayers "are less likely to face a large liability at the end of the tax year and have less motivation for underreporting their income."⁵⁵ The JCT also maintained that its proposal would reduce the number of collection points for regular tax payments and thus improve tax compliance, although there would be a burden on payors.⁵⁶ The JCT stated that the flat 3% rate is "simple, easy to verify, and applicable to all payees,"⁵⁷ but "is likely to cause either overwithholding or underwithholding for some payees."⁵⁸ The JCT estimated that this proposal would "raise approximately $6.4 billion over fiscal years 2006 through 2014."⁵⁹

2004 GAO Report on Department of Defense Contractors

The JCT Options Report states that "a recent Government Accountability Office (GAO) study of Department of Defense (DOD) and IRS records showed that over 27,000 Federal contractors owed about $3 billion in unpaid taxes as of September 30, 2002."⁶⁰ This GAO report also states that "we estimate that DOD, which functions as its own disbursing agent, could have offset payments and collected at least $100 million in unpaid taxes in fiscal year 2002 if it had fully assisted IRS in effectively levying contractor payments."⁶¹ In citing this report, the JCT was indicating unsatisfactory tax compliance of DOD contractors, but GAO did recommend the partial withholding of payments to contracts.

2007 GAO Reported Testimony on Federal Contractors

After the passage of the contractor withholding provision, on April 19, 2007, GAO's Managing Director, Forensic Audits and Special Investigations, testified at a hearing of a Subcommittee of the House Committee on Oversight and Government Reform.⁶² GAO conducted an "in-depth investigation of 122 federal contractors and in all cases found abusive and potentially criminal activity related to the federal tax system."⁶³ This GAO investigation was preceded by three GAO studies that "found thousands of federal contractors that owed billions of dollars of federal taxes."⁶⁴

2011 GAO Report on Recovery Act Recipients

In April 2011, GAO reported that

² Ibid., pp. 9-10.

³ The noncompliance rate is the percentage of the aggregate tax liability that taxpayers do not pay voluntarily and in a timely manner for a given year.

⁴ Internal Revenue Service, Reducing the Federal Tax Gap: A Report on Improving Voluntary Compliance, p. 10.

⁵ Ibid.

⁶ Ibid.

⁷ Joint Tax Committee, Options to Improve Tax Compliance and Reform Tax Expenditures, Report no JCS-02-05, January 27, 2005, 430 p.

⁸ For a more detailed description of the JCT 2005 option, see Appendix B.

⁹ Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 109^th Congress, committee print no. JCS-1-07, January 7, 2007, pp. 309-311.

¹⁰ Joint Committee on Taxation, Estimated Revenue Effects of the Conference Agreement for the "Tax Increase Prevention and Reconciliation Act of 2005," Report number JCX-18-06, May 9, 2006, p. 2.

¹¹ Joint Committee on Taxation, Estimated Revenue Effects of H.R. 674, Fiscal Years 2012-2021, Report number JCX-52-11, October 11, 2011, p. 1.

¹² Ibid.

¹³ Ibid.

¹⁴ Congressional Budget Office, Cost Estimate for H.R. 674, October 17, 2011, p. 1.

¹⁵ Congressional Budget Office, Cost Estimate of H.R. 674, A bill to amend the Internal Revenue Code of 1986 to repeal the imposition of 3 percent withholding on certain payments made to vendors by government entities, October 25, 2011, p. 4.

¹⁶ Ibid.

¹⁷ Ibid.

¹⁸ Joint Committee on Taxation, Options to Improve Tax Compliance and Reform Tax Expenditures, p. 9.

¹⁹ For a comprehensive review of the literature on tax compliance, see James Adreoni, Brian Erard, and Jonathan Feinstein, "Tax Compliance," Journal of Economic Literature, vol. 36, no. 2, June 1998, pp. 818-860. For an overview of the economics of tax evasion, see Joel Slemrod, "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, vol. 21, no. 1, winter 2007, pp. 25-48.

²⁰ Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 109^th Congress, pp. 309-310.

²¹ Internal Revenue Service, "Understanding the Tax Gap," FS-2005-14, March 2005, p. 1.

²² Ibid.

²³ The results of three of these GAO studies are shown in Appendix C.

²⁴ Patricia A. Thompson, Statement on Behalf of the American Institute of Certified Public Accountants, House Committee on Small Business, Hearing on "Defer No More: The Need to Repeal the 3 Percent Withholding Provision," May 26, 2011, pp. 2-3.

²⁵ U.S. Chamber of Commerce, Statement for the Record, submitted to House Committee on Small Business, Hearing on "Defer No More: The Need to Repeal the 3% Withholding Provision," May 26, 2011, p. 3.

²⁶ Patricia A. Thompson, p. 2.

²⁷ Internal Revenue Service, Federal Payment Levy Program, p. 1. Available at http://www.IRS.gov.

²⁸ Linda J.B. McKee and Thomas E. McKee, "Proposed Tax Gap Legislation Erodes Individual Privacy and Protections," The CPA Journal, April 1, 2010, pp. 6, 8-9.

²⁹ Internal Revenue Service, Safeguarding Taxpayer Data, Publication 4557, October 2008, p. 9.

³⁰ Ibid.

³¹ Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 111^th Congress, JCS-2-11, March 2001, p. 94.

³² Ibid., p. 95.

³³ Internal Revenue Service, Implementation of Contractor Withholding Delayed One Year, p. 1, available at http://www.IRS.gov.

³⁴ Internal Revenue Service, IRS Final Regulations (T.D. 9524), "Extension of Withholding to Payments by Government Entities," Internal Revenue Bulletin: 2011-23, June 6, 2011, 20 p.

³⁵ Ibid., p. 2.

³⁶ Ibid.

³⁷ Internal Revenue Service, REG-151687-10, Notice of Proposed Rulemaking Withholding on Payments by Government Entities to Persons Providing Property or Services, June 6, 2011, p. 1.

³⁸ Michael Beller, "Contracting Organizations Urge Repeal of 3 Percent Withholding Tax," Tax Notes Today, September 13, 2011, pp. 1-2.

³⁹ Testimony of Mr. Tom Wilder before the IRS Public Hearing on "Withholding on Payments by Government Entities to Persons Providing Property or Services," [REG-151687-10], Washington, D.C., September 12, 2011.

⁴⁰ House Majority Leader Eric Cantor, "Congressman Cantor Statement on Middle-Class Jobs and the Obama Administration's Underwhelming Regulatory Review," Press Release, August 23, 2011, p. 1.

⁴¹ The White House, Office of the Press Secretary, "Section-by-Section Analysis and Explanation of the American Jobs Act of 2011," September 12, 2011, p. 2.

⁴² White House, Statement of Administration Policy, S. 1726 -- Withholding Tax Relief Act of 2011, October 20, 2011, p. 1.

⁴³ Brett Ferguson, "Senate Rejects Bills to Impose Millionaire Surtax, Repeal Withholding Tax," Daily Tax Report, October 21, 2011, p. 1.

⁴⁴ For a description of H.R. 674, see Joint Committee on Taxation, Description of H.R. 674 to Amend the Internal Revenue Code of 1986 to Repeal the Imposition of Three-percent Withholding on Certain Payments Made to Vendors by Government Entities, Report number JCS-51-11, October 11, 2011, 4 p.

⁴⁵ Executive Office of the President, "Statement of Administrative Policy on H.R. 674 -- Repeal of the Three Percent Withholding on Government Vendors," October 25, 2011, p. 1.

⁴⁶ Liz White, "House Adopts Rule sending Government Contractor Withholding Repeal to Vote," Daily Report for Executives, October 27, 2011, p. G5.

⁴⁷ Michael Beller, "House Passes Repeal of 3 Percent Withholding," Tax Notes Today, October 28, 2011, p. 1.

⁴⁸ For an examination of this 1099 reporting requirement, see CRS Report R41400, Economic Analysis of the Enhanced Form 1099 Information Reporting Requirements, by Mark P. Keightley; and CRS Report R41782, 1099 Information Reporting Requirements and Penalties: Recent Legislative Activity, by Carol A. Pettit and Edward C. Liu.

⁴⁹ Joint Committee on Taxation, Options to Improve Tax Compliance and Reform Tax Expenditures, pp. 6-7.

⁵⁰ Ibid., p. 7.

⁵¹ Ibid., p. 4.

⁵² Ibid.

⁵³ Ibid., p. 5.

⁵⁴ Ibid., p. 7.

⁵⁵ Ibid.

⁵⁶ Ibid., p. 8.

⁵⁷ Ibid.

⁵⁸ Ibid.

⁵⁹ Ibid., p. 9.

⁶⁰ JCT Options Report, p. 6.

⁶¹ U.S. Government Accountability Office, Financial Management: Some DOD Contractors Abuse the Federal Tax System with Little Consequence, GAO-04-95, February 2004, p. 3.

⁶² United States Government Accountability Office, Thousands of Federal Contractors Abuse the Federal Tax System, Statement of Gregory D. Kutz, Managing Director Forensic Audits and Special Investigations, before the Subcommittee on Government Management, Organization, and Procurement; Committee on Oversight and Government Reform, GAO-07-742T, April 19, 2007, 15 pp.

⁶³ Ibid., p. 2.

⁶⁴ Ibid., p. 4.

⁶⁵ United States Government Accountability Office, Recovery Act: Thousands of Recovery Act Contract and Grant Recipients Owe Hundreds of Millions in Federal Taxes, GAO-11-485, April 2011, highlights page.