October 25th, 2011
06:07 PM ET
Unless Congress takes action, all bills paid by the federal government for goods, services or property after January 1, 2012 will be subject to a 3% tax withholding. The original provision was a revenue-raiser inserted into the Tax Increase Prevention and Reconciliation Act signed by President George W. Bush back in 2006. The idea was that the 3% withholding would count toward the vendor’s tax liability, meaning that at the end of the year whatever money was withheld by the government from a vendor would count as part of the total amount owed by a company back to the government in taxes.
It was seen as one way to ensure that contractors hired by the government are paying what they owe in taxes.
But because the withholding doesn't take into account the actual size of a company’s tax liability, only the revenue it is due to receive from the government, opponents like the Government Withholding Relief Coalition view the provision as "forcing companies to provide the federal government with an interest-free loan."
Well, now both the Obama Administration and Republican leadership in the Senate are on the same page when it comes to repealing this withholding. Today the Office of Management and Budget released a Statement of Administration Policy supporting the passage 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.”
“The repeal of the withholding requirement in H.R. 674 would reduce a burden on government contractors who otherwise comply with their tax obligations, particularly small businesses,” the OMB statement read, before going on to point out that the administration had originally proposed the repeal as part of its American Jobs Act.
OBM also acknowledged the original intent of the provision by stating, “The Administration also believes it is important to ensure that Federal contractors are compliant with tax laws and supports more targeted efforts that prevent persons with outstanding tax debts from receiving Federal contracts.”
Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell was quick to agree with the thrust of the administration’s statement, but warned about re-packaging repeal of the provision with other Democratic job-creation measures that the senator would not support.
"Sen. McConnell is encouraged to see that the President will now support this provision of his own bill,” Stewart said, alluding to the repeal provisions original placement in the president’s jobs bill. “While we tried to pass it last week with a different bipartisan offset, Democrats blocked it. Now, with the President’s support, the Senate should take it up next week, without adding poison pills, and send it to the President for his signature."