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Congress Passes 3% Withholding Repeal; Goes to President Obama

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On Wednesday, November 16th, the House of Representatives, by a vote of 422 to 0, approved the Senate amended version of H.R. 674 which repeals the 3% withholding rule, sending the measure to the president’s desk for signature.  President Obama has indicated he will sign the bill. ASCE has been working closely with coalition partners to advance this legislation.

 

With the president’s signature, the five year effort to repeal the provision will come to a successful close.  Originally enacted as a last minute addition to the “Tax Increase Prevention and Reconciliation Act of 2005,” it mandated a 3% withholding on payments to companies for any contract with a government entity on any level.  Specifically, the measure required withholdings at a rate of 3% on all government payments for products and services made by the federal government, as well as state and local governments, with contracting expenditures of $100 million or more. 

 

It was intended to ensure government contractors paid their appropriate taxes, however it was quickly apparent that the provision would hurt many honest businesses in an attempt to find tax delinquents by essentially forcing contractors, including engineering and construction firms, to provide the government with interest-free loans.  The 3% withholding would have hurt many firms’ cash flow.  The requirement was based on a company’s revenue and had no relationship to its taxable income.  In addition, the costs to Federal, state, and local governments to comply would have been substantial and the process complicated to implement. 

 

Finally, it was also clear that the measure, which was estimated to “increase” revenue by $7 billion over 5 years, would do so solely due to accelerated tax receipts and not actually represent an increase in revenues.

 

Soon after the enactment of the original act, ASCE joined with other business, professional, and government organizations in advocating for repeal.  The Government Withholding Relief Coalition was formed with the U.S. Chamber of Commerce as the lead.  With more than 150 groups on board, the Coalition blanketed Capitol Hill with the facts and worked with members of both parties on repealing the legislation.  Final margins of 95-0 in the Senate and 422-0 in the House reflected the strength of the Coalition’s position.  ASCE made 3% withholding a priority issue during our 2011 Fly-In when over 200 ASCE members urged their members of Congress in face to face meetings to support repeal. In addition, hundreds of ASCE members used ASCE’s “Click to Connect” to urge their members of Congress to support repeal. 

 

For a full history of the withholding law and the efforts to repeal it, visit the Coalition website at: http://www.withholdingrelief.com/
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