House votes to kill 3% withholding tax on government contractors

The House overwhelmingly approved a bill Thursday that would repeal a tax on government contractors that is set to take effect in 2013. The measure nixes the 3% withholding tax that would have been placed on vendors doing business with governments at every level. Under the provision, enacted as part of a 2005 tax bill, 3% of the payment to a contractor would be held back until the end of the year. The House voted 405-16 in favor of the repeal measure, which House Republicans touted as part of their agenda to bolster small businesses. Its prospects in the Senate are murky. “The strong bipartisan vote on this measure is the latest example of both parties' working together to create a better environment for private-sector job creation,” House Speaker John Boehner said in a statement. “This bill repeals an unnecessary tax that would threaten thousands of jobs and hurt every small business who works with local, state and federal agencies.” The House Ways and Means Democratic staff pointed out that nearly every Republican supported the withholding tax as part of the larger tax measure several years ago. When Democrats took over the House, they voted to delay its implementation until 2013. The Financial Services Institute Inc. praised the repeal bill for helping financial advisers and their clients who work with governments. Scotching the 3% withholding would give businesses more money to invest and would ensure immediate full payments to advisers assisting governments with employee retirement plans and other investments, according to the FSI. Businesses providing services to the government “shouldn't be forced to lose a percentage of their pay they could be investing throughout the year or using to hire additional employees,” FSI president and chief executive Dale Brown said in a statement. “The withholding tax could create cash flow problems as well as draining capital that could be used for job creation and business expansion.” Mr. Boehner urged the Senate to follow the House's lead and approve the bill. Last week, a similar bill failed to achieve the 60 votes needed to overcome a Senate filibuster, 57-43, because of a dispute between Republicans and Democrats over how to pay for it. Senate Minority Leader Mitch McConnell, R-Ky., argued that his Democratic colleagues should support the measure because it also is part of President Barack Obama's jobs proposal. “At a time when so many businesses are struggling just to stay afloat, the government shouldn't burden them even more by taking money out of their businesses that they could use to invest and hire instead,” Mr. McConnell said on the Senate floor Oct. 20. “So here's another example of something we could do for job creators that we know will actually become law.” Senate Democrats are poised to offer their own contractor withholding-tax bill, according to a report by Bloomberg News.