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October 20, 2011

RE: Support H.R. 674 (S.1726) Repeals 3% Public Contract IRS Withholding Mandate

Dear Mayor:

The League has contacted all of New Jersey’s Congressmen to convey our strong support for H.R. 674. This bill must be passed to repeal the burdensome three percent withholding requirement originally enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222).

Senate Minority Leader Mitch McConnell recently introduced S.1726 to repeal the 3% withholding. We expect that bill to move after the House acts.   

Unless repealed before January 1, 2013, the three percent withholding will have a dramatic, negative impact on local governments. Under this provision, the Internal Revenue Service (IRS) was given new broad sweeping authority to hold three percent of nearly every transaction between the public and private sector – giving the federal government an interest free loan. This mandate is anti-stimulus in that it removes money from local economies and sends it to the IRS.  Section 511 is also inflationary.  It adds three percent to the cost of almost all goods and services procured by almost all government agencies at the federal, state and local levels.  Repealing Section 511 will help the economy.

In addition to mandating a three percent increase in the cost of goods and services, the requirement forces government entities to reprogram or purchase new accounts payable systems and hire additional staff to function as branch offices for the IRS, instead of providing local services. Without full repeal, local governments will be forced to expend scarce resources that can be put to better use during these difficult times.      

Local governments are facing budget shortfalls and must take drastic action to meet the increasing demand for vital public services with reduced resources. Purely from a financial standpoint, the imposition of three percent withholding is simply wrong. Considering its inflationary effect and the cumulative cost to governments nationwide, it makes no sense to impose such a draconian measure that is expected to collect less than $300 million annually.  

We urge you to support H.R. 674/S.1726. Please contact Senators Lautenberg and Menendez and your Congressman to urge swift action on the repeal. If you have any questions, please contact Jon Moran at 609-695-3481, ext. 121 or

Very truly yours,


William G. Dressel, Jr.
Executive Director



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