GOP senators again target repeal of contract withholding tax

Two bills have been introduced in the Senate that seek to repeal the 3 percent withholding tax on nearly all contract payments.

Both propose wiping the tax code clean of the withholding “as if such amendment had never been enacted."

The tax, which was enacted in May 2006 by the Tax Increase Prevention and Reconciliation Act, requires the government to withhold 3 percent of nearly all of companies' contract payments. It goes into effect in 2012.

But the bills' sponsors want to end the tax before then.

Sen. Scott Brown (R-Mass.), a new member of the Small Business Committee, along with the committee’s ranking member, Sen. Olympia Snowe (R-Maine), introduced Withholding Tax Relief Act (S. 164) on Jan. 25. Their bill would rescind $39 billion in appropriated discretionary funds. And the Office of Management and Budget would have report to the Treasury Department and Congress about the accounts and amounts for rescission.

Sen. David Vitter (R-Ohio) and several other Republican senators introduced a Withholding Tax Relief Act (S. 89) on Jan. 25 that would simply eliminate the tax.

This isn’t the first time such a bill has been introduced. Members of the House and Senate have tried in the past two sessions without success to repeal the tax. Fifteen senators, including Vitter, introduced the same legislation in 2009. But the Senate Finance Committee never took up the bill.

Both Brown’s and Vitter’s bills were also sent to the Finance Committee.

In November, the Government Withholding Relief Coalition, a conglomeration of numerous business groups, said the tax is unnecessary because the government has other ways to check up on contractors. Agencies have more detailed databases on contractors’ histories, required company certifications, and a presidential memo from 2010 on tightening enforcement on tax-delinquent companies.

The coalition asked the lame-duck Congress for a two-year delay of the tax, but didn’t get one.