House could repeal 3 percent withholding rule next week

House Republicans could take up bipartisan legislation next week to repeal a widely scorned law requiring all levels of government to withhold 3 percent of most payments to contractors, Medicare recipients, farmers and vendors.

The House Ways and Means Committee marked up the bill, H.R. 674, last week, and it's high up on the list of GOP priorities for legislation to help create the conditions for job growth. As of the middle of this week, House aides said GOP leaders seemed to be shooting for floor action next week.

The withholding rule became law in 2005, and was meant to help close the gap between taxes owned and taxes collected. But it was never implemented, and was delayed further under the 2009 stimulus bill until the end of 2011.

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Republicans are not the only ones opposing current law — even President Obama has called the possible withholding rules "burdensome withholding requirements that keep capital out of the hands of job creators." The IRS earlier this year delayed implementing it again until the end of 2012.

Supporters of the House bill say further delay is not enough and that it needs to be repealed completely, in large part because the requirement would cost government more to implement than the amount of taxes it would recover.

The Government Withholding Relief Coalition, a group of more than 140 trade associations and state and local governments, argues that the total cost of implementing the language would be about $75 billion over five years. The measure is expected to raise just $8.4 billion in tax revenues during that same time period.

Back in March, the coalition argued that it makes no sense to push for implementation of the law given the tough budgetary issues facing most states, and the cash-flow problems it would create for companies.

"With the withholding mandate scheduled to take effect on January 1, 2012, businesses and governments are expending limited resources now in order to make the major system and process changes needed to implement this provision," the group said. "This is a particular challenge for cash-strapped state and local governments."

The bipartisan bill is sponsored by Reps. Wally Herger (R-Calif.) and Earl Blumenauer (D-Ore.), and has 267 co-sponsors.