House Measure Would Repeal Rule to Withhold Contract Payments

October 27, 2011

Legislation to repeal a pending rule that would withhold 3 percent of government payments to contractors passed the House Thursday.

House Resolution 674, which passed 405-16, would remove language in the Internal Revenue Code that in 2013 requires agencies to withhold 3 percent of payments on contracts worth more than $10,000. The code also restricts payments to grant recipients at for-profit companies, and to farm and Medicare recipients. The intent is to reduce payments to people and companies with tax debts.

Repealing the 3 percent withholding is a part of House Republicans' job creation plan that has the support of business associations, including the Chamber of Commerce, National Association of Manufacturers, and National Federation of Independent Businesses. They say the IRS provision hurts job creation because it restricts cash flow to contractors.

The Associated General Contractors of America released a survey of 1,300 construction firms last week showing that 63 percent of firms reported that their average profit margin for public projects is less than 3 percent. Forty-nine percent of firms said the withholding measure could force them to decrease their hiring plans, and 67 percent said the measure would force them to raise their bid levels. 

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