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Editorial: New federal withholding tax needs swift repeal

Local governments and the businesses they deal with have a valid beef with a coming federal tax law that has already been delayed once but needs to be repealed altogether.

If it isn’t, strained taxpayers and the ailing economy will suffer the consequences.

First adopted as federal law in 2006, the measure would require governments to withhold, and remit to the Internal Revenue Service, a flat 3 percent of what they owe their vendors for goods and services. Apparently the IRS lacks confidence in its agents’ ability to hold those businesses accountable for tax liability.

So the feds want to deputize local governments to use their own depleted personnel as collection agents in advance. Originally, this provision was to take effect at the beginning of this year, but broad complaints forced a one-year delay. If nothing is done, the requirement will be in force next Jan. 1.

Struggling cities and counties already have laid off and furloughed workers and curtailed services. Now they will be expected to divert thousands of scarce dollars from their traditional missions in order to take on the paperwork, computer programming and other administrative management necessary to do the IRS’ bidding.

Spokane County Auditor Vicky Dalton says she would have to dedicate about a month of one employee’s time each year just to determine whether the county surpassed the $100,000 in gross expenditures that is the threshold set in law.

On the vendor side, businesses would lose considerable flexibility to manage their cash flow. To a business working on razor-thin margins, a 3 percent withholding figure is more formidable than it sounds. As the national Government Withholding Relief Coalition has noted, the withholding is based on gross figures, much like Washington state’s widely reviled business and occupation tax. It makes no consideration of overhead expenses or profit and loss and thus has no relationship to tax liability.

At a time when unemployment is high, businesses are struggling and government is retrenching, the pending federal measure threatens to make all those measures worse while driving up prices that communities pay for public works.

This misguided measure doesn’t need to be deferred again. Unless Congress values the IRS’ convenience over the economic health of the nation’s cities and counties, it needs to be repealed.

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