Bloomberg News

Senate Passes Repeal of 3% Withholding Opposed by Businesses

November 15, 2011

Nov. 10 (Bloomberg) -- The U.S. Senate passed a bill that would repeal a requirement that federal, state and local governments begin withholding 3 percent of payments to their contractors in 2013.

Today’s 95-0 vote returns the legislation to the U.S. House of Representatives, which passed a similar measure last month. The Senate amended the House bill to include tax credits for companies that hire unemployed veterans and mandate a study on how to prevent tax evasion by government contractors.

President Barack Obama has said that he would sign the repeal into law, marking one of the few areas of policy agreement between the White House and congressional Republicans. The repeal would represent a victory for the U.S. Chamber of Commerce and other business groups that have said the withholding requirement is too onerous and costly to implement.

“It’s part of the president’s jobs bill,” said Senator Scott Brown, a Massachusetts Republican, before the vote. “Who said we can’t get together to do something?”

Repealing the withholding measure would result in $11 billion in forgone revenue to the Treasury over 10 years, according to the congressional Joint Committee on Taxation. The Senate agreed to offset that cost using the method that was passed by the House.

Health-Care Offset

That method would change the 2010 health-care law to include the nontaxable portion of Social Security benefits in the definition of income used to calculate eligibility for government health-care programs. It would move some people from Medicaid into subsidized coverage in new health-insurance exchanges and would push others out of subsidized coverage.

Democrats in both chambers have been reluctant to agree to that approach. Senate Democrats added the veterans measure to the bill as a sweetener that would attract votes.

The veterans amendment, sponsored by Senator Jon Tester, a Montana Democrat, would provide companies with tax credits ranging from $5,600 to $9,600 for hiring unemployed veterans. It would be offset by limiting pensions to veterans with no dependents or those in Medicaid-covered nursing homes and by allowing the U.S. Department of Veterans Affairs to collect fees on mortgages.

The 3 percent withholding measure is among the congressional efforts to crack down on tax evasion that is faltering amid business lobbying against the laws. In April, Obama signed into law a measure scrapping a provision of the health-care overhaul that sought to curb underreporting of income by compelling businesses to report a greater number of transactions to the IRS.

Also, the Internal Revenue Service has agreed to delay implementing a law mandating overseas banks to withhold from some U.S. customers. A separate law requiring companies that process and settle credit-card transactions to report payment amounts to the U.S. has also been delayed.

The 3 percent withholding repeal legislation is HR 674.

--Editors: Jodi Schneider, Leslie Hoffecker

To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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