Engineering Inc. - July/August 2008 - (Page 10)

W Where did the Provision Come From? pointed to a 2005 report by the Joint Committee on Taxation that suggested withholding may be one way to close the gap between what federal contractors owe in federal taxes and what they pay. an earlier Government accountability Office report on the department of defense (dod) had found that about 27,000 federal contractors owed $3 billion in unpaid tax liabilities. at the last minute, sens. Grassley and Baucus inserted the 3 percent mandate into the bill during conference negotiations with the House. aCEC and other opponents of the mandate argue that had the 3 percent provision been debated openly or been given the benefit of congressional hearings, many of the problems coming to light now would have been properly vetted. The total profit margin on some engineering contracts equates to 3 percent or less. In these cases, withholding 3 percent would put a serious strain on firm cash flow and financial viability. The 3 percent mandate represents an even greater potential problem for smaller firms, especially if prime contractors are allowed to pass the costs associated with the withholding requirement along to their subcontractors. state and local governments are also voicing opposition to the law. These critics argue that the provision amounts to an unfunded mandate that will exceed the federally set cost threshold; that costs of compliance outstrip expected revenues; that contractors will increase the cost of their proposals to compensate for the withholding; and that state and local governments will be at a disadvantage in contracting because fewer firms will compete on public-sector projects as a result of the withholding provision. some federal agencies have also expressed concern. The dod reported in april 2008 that complying with section 511 would cost more than $17 billion in the first five years, far in excess of the estimated revenues generated by the withholding requirement. hile it’s uncertain whether the principal purpose of the 3 percent withholding mandate was for tax enforcement or simply to raise revenues to offset other tax changes, the new law has sparked intense opposition from a wide range of business organizations and governmental entities and has led to calls for repeal in Congress. What added fuel to the fire was the manner in which the new law was put into place. When the House and senate took up their respective versions of what later became the Tax Increase Prevention and reconciliation act of 2005, neither body had debated or voted on the 3 percent provision. It was only when the final version of the bill emerged from closed conference negotiations that aCEC and others realized it had been inserted into the bill. By the time the measure came to the House and senate for a final vote, it was too late to strike the 3 percent provision from the bill. The focus of industry concern is section 511 of the act, which requires federal, state and many local governments to withhold 3 percent from almost all payments and contracts, starting in 2011. From the perspective of engineering firms, the new requirement will apply to virtually every contract with a federal agency, state departments of transportation or other state agencies, and larger municipal governments that purchase at least $100 million in goods and services each year. The mandate is not limited to the engineering industry— virtually every industry and profession that provides goods or services to the public sector will be affected. senate Finance Committee leaders— led by then-Chairman Charles Grassley (r-Iowa) and senior democrat max Baucus (d-mont.)—had expressed concerns that government contractors were failing to satisfy their tax obligations. They you couldn’t ask for a better leader or conductor of this effort than Chairman Charlie Rangel, and I am excited to be a part of that effort. RAYMOND: A lot of our members are concerned about the dilapidated state of America’s infrastructure. Do you have any thoughts on what should be done? MEEK: I’m working on rail infrastructure legislation now. Also on the front burner is how the gas tax hasn’t brought in the kind of dollars that they thought it would have and how that is becoming an issue with the highway bill. Infrastructure is so very important to our nation’s quality of life and economic health. That’s one of the reasons why there’s a drumbeat now for startThat’s one of ing to invest more on the the reasons why domestic front. That drumthere’s a drumbeat beat is getting louder and now for starting louder because Americans to invest more are seeing what’s happening on the domestic and how our infrastructure front. Americans is crumbling. We’re also not are seeing what’s putting people to work like happening before, and our economy is and how our based now more on lendinfrastructure is ing than generating dolcrumbling. lars. That is also why you hear more and more about “green jobs,” which will put more people to work, including engineers and other professions. Everyone will have a chance to take part in the greening of America— and engineers will be right smack in the middle of all that. Engineers will make sure we become a greener society with light rail in the cities, and make sure that energy efficiency actually happens. And I am pretty sure there are going to be incentives for communities to start moving in that direction, and that will create a lot of interest and opportunity, not only in the professional ranks, but also for those in school right now trying to make an exciting career decision. More and more will want to be engineers to take part in this great time—a renaissance time—and a very exciting future for this country. n “ ” 10 ENGINEERING INC. JULY / AUGUST 2008

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Engineering Inc. - July/August 2008 Table of Contents From ACEC to You News & Notes Market Watch Legislative Action Congressman Kendrick Meek Going Global 2008 Professional Liability Insurance Survey Bridging the Gap 2008 Convention Wrap Up 2008-2009 Executive Committee 2008 Fall Conference Primer Business Insights Members in the News One on One

Engineering Inc. - July/August 2008

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