U.S. House of Representatives Votes to Repeal 3 Percent Withholding Rule


The U.S. House of Representatives voted on Thursday, October 27, 2011 to repeal the requirement that governments at all levels withhold 3 percent of payments to government contractors. The bill, numbered HR 674, passed on a 405-15 bipartisan vote.

The 3 percent withholding rule was originally passed by Congress and signed into law by President George W. Bush in 2006. As a part of the Tax Increase Prevention and Reconciliation Act, the rule was created to prevent government contractors from becoming tax delinquents. If implemented as scheduled, the 3 percent withholding rule would take effect on January 1, 2013. The requirement would affect each and every payment over $10,000 to a contractor, and would cover governments with total yearly contract expenditures over $100 million.

Contractors are much in favor of the repeal, as the rule would require them to cut staff, purchase less equipment, and raise bid levels for publicly funded projects. Both the Republican and Democratic parties believe the implementation of the rule would actually cost the government more than the tax revenue it would generate. The repeal is also being supported by President Obama as a way to support businesses and job creation.

According to the Congressional Budget Office, the repeal of the 3 percent withholding rule would cost the U.S. Treasury an estimated $11.2 billion over 10 years.