House Republicans prepare to unveil new 3 percent solution
- By Matthew Weigelt
- Aug 30, 2011
House Republicans say they have plans in the coming months to repeal a tax that would withhold a portion of payments to companies.
“We will move quickly this fall to repeal this burdensome requirement and relieve construction contractors, medical providers, manufacturers, farmers, and many others providing goods and services under government contracts of the uncertainty the impending law is creating,” House Majority Leader Eric Cantor (R-Va.) wrote in a memo to the Republican caucus on Aug. 29.
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Cantor said the tax would be detrimental on both sides of the tax. It would cause “accounting burdens on governments and potentially harmful cash flow disruptions for contractors and subcontractors across all sectors,” he said.
Postponed earlier this year, the 3-percent withholding tax is not scheduled to take effect until 2013. It has been pushed back continually since it was enacted in 2006.
The Internal Revenue Service is paying more attention to the tax's effects too. After hearing from the contracting community and agencies about the administrative burdens to comply and its effects on companies, IRS officials scheduled a hearing for Sept. 12 to gather more input on the issue .
At least one industry trade group has signaled its agreement on the Republicans’ initiative.
Phil Bond, president and CEO of TechAmerica, said the tax represents bad policy. It undermines efforts to modernize government, he said.
“This impending law is harmful to government suppliers and costs more to implement than it collects in revenues," Bond said in a statement. "In particular, it hinders small government contractors who can’t afford to front the federal government 3 percent of earnings while on the job,” he added.
Some industry experts also say the tax is unnecessary since the Obama administration has used IT to get a handle on improper payments. In 2010, administration officials introduced PaymentAccuracy.gov to track work to reduce improper payments and get ideas from the public on how to further reduce them.
House and Senate Republicans and Democrats also have introduced bills through the years to nullify the tax, but none has become law.
Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.