Lawmakers see promise in push to repeal withholding rule

May 26, 2011
The Hill
Bernie Becker

A bipartisan group of lawmakers believes it has the momentum to repeal a provision that would force governments to withhold taxes from payments to contractors.

Rep. Wally Herger (R-Calif.), a senior member of the House Ways and Means Committee, signaled Thursday that he had discussed his repeal measure with the panel’s chairman, Rep. Dave Camp (R-Mich.). The rule in question would call for the withholding of 3 percent from payments to contractors.

At a Thursday news conference, Herger said he believed he was seeing a similar groundswell on this issue to the push that eventually repealed the 1099 provision in the healthcare overhaul.

“The bottom line is jobs, jobs, jobs,” Herger said.

As it stands, implementation of the law has consistently been delayed. The 2009 stimulus package pushed it back, while the IRS announced recently it was postponing the start-up date even further, to the start of 2013.

Herger’s measure repealing the rule altogether has attracted more than 125 co-sponsors, while bills in the Senate are also looking to roll back the provision.

Backers of the measure say the provision places an undue burden on smaller businesses and would be costly to implement.

Rep. Mick Mulvaney (R-S.C.) hosted supporters of repeal, including Herger, at a House Small Business subcommittee hearing on Thursday. Democratic supporters of repeal include Reps. Earl Blumenauer (D-Ore.), also on Ways and Means, and Gerry Connolly (D), whose Northern Virginia district is home to many contractors.

A 2009 congressional estimate said that not implementing the 3 percent withholding would essentially keep close to $11 billion out of the Treasury. The Government Accountability Office also released a report this week that found stimulus contractors owed the government hundreds of millions of dollars in taxes.

But Blumenauer called the withholding rule a “blunt instrument” to collect revenue.

“To put this burden on people who aren’t the major problem in terms of not paying their taxes, and scooping in everybody, I think actually creates more of a backlash,” Blumenauer told The Hill. “It makes people less likely to cooperate. It makes them cranky.”

At the news conference, Herger said he had no timeline for moving the measure forward, but Blumenauer said he was confident something could get done this year.

The Oregon Democrat said lawmakers were still looking for a vehicle to which it could attach the measure. “Conceivably, this could even be paired with some simple, common-sense things that could streamline the collection process,” he said.


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