House kills withholding requirement on contractors

The House today voted to repeal the so-called “3 percent withholding” rule affecting federal contractors, sending the legislation to the Senate for a vote.

The bill, numbered HR 674, passed on a 405-16 bipartisan vote.

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If approved by both chambers, the bill would roll back a 2006 law that has been delayed several times and is scheduled to take effect in 2012. Under the rule, federal agencies would withhold 3 percent of payment to contractors delinquent on federal taxes. However, contractors were strongly opposed to the requirement and there was debate about whether the administrative costs to implement the rule made it worthwhile.

“Today’s overwhelming passage by the House of Representatives underscores what we’ve been saying all along, that this law makes no sense, costs more to implement than it saves and needs to be repealed,” Olga Grkavac, executive vice president, public sector, for TechAmerica trade association, said in a statement. “We applaud their action and now look to the Senate to take up the repeal, be it in their own bill, or by passing the House bill. “

Thousands of federal contractors owe hundreds of millions of dollars in overdue taxes, which initially fueled passage of the 2006 law in a Republican-led Congress. At the same time, repealing the 3 percent withholding requirement is being supported by President Barack Obama as well as GOP and Democratic lawmakers as a way to support businesses and job creation.

The Congressional Budget Office has estimated that repeal of the 3 percent withholding rule would cost the US Treasury $11.2 billion over 10 years.