Business coalition pushes repeal of withholding rule

The U.S. Chamber of Commerce and more than 130 other groups are trying to marshal support for the repeal of a government withholding provision.

The Government Withholding Relief Coalition is asking senators to back a measure from Sens. Scott Brown (R-Mass.) and Olympia Snowe (R-Maine) that would repeal the requirement that federal, state and some local governments withhold 3 percent from most payments to contractors. 

The coalition and other repeal supporters, including many in the business community, have long said the rule would be a heavy burden on companies and also difficult to implement.

“The withholding is a flat percentage of revenues from government payments, bears no relationship to companies’ taxable incomes, and will restrict cash flow needed for day-to-day operations and investments,” the groups write in their letter. “In addition, the administrative and capital investment costs that compliance with three percent withholding will impose on businesses and governments will be substantial, and the mandate will be exceedingly complicated to implement.”

But a 2009 congressional estimate said that doing away with the 3 percent withholding requirement would keep the government from collecting almost $11 billion.

The provision, enacted in 2006, has yet to go into effect and has seen its implementation delayed twice in recent years — once by the stimulus package and, more recently, by the IRS. The requirement is now set to go live at the beginning of 2013. 

Rep. Wally Herger (R-Calif.), a senior member of the House Ways and Means Committee, has a repeal bill that has attracted a bipartisan group of roughly 150 co-sponsors, and Herger has said he has discussed the measure with Rep. Dave Camp (R-Mich.), the chairman of the tax-writing panel. 

A pair of repeal bills in the Senate has so far garnered mostly GOP support.

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