WASHINGTON — The House voted by an overwhelming 405-to-16 margin on Thursday to repeal a tax law provision that would require federal, state and local governments to withhold and remit 3% of certain payments made to private contractors beginning in 2013.
The bill will now go to the Senate, which last week failed to obtain the 60 votes needed for cloture to limit debate on a similar bill.
“We are very pleased with the House’s action and look forward to working to ensure passage in the Senate,” said Susan Gaffney, director of the Government Finance Officers Association’s federal liaison center. “This law is an unfunded mandate on state and local governments and its repeal will save governments and taxpayers the added expenses they would incur if the law went into effect.”
State and local groups pushed hard for HR 674 — Repeal of the Three Percent Withholding on Government Vendors — warning the requirement would be costly and burdensome for the federal government, as well as for them. Rep. Wally Herger, R-Calif., introduced the bill in February. It took on new life in recent weeks as a bipartisan effort to create jobs.
The groups, including GFOA, sent a letter to lawmakers on Monday warning that “this troubling provision will cause state and local governments to focus scace resources on implementation at a time when those same resources are desperately needed to carry out important government programs.”
The bill to repeal the tax requirement had the support of the Obama administration.
The Office of Management and Budget issued a statement of administration policy before the vote, saying the measure “would reduce a burden on government contractors who otherwise comply with their tax obligations, particularly small businesses.”
OMB added: “The administration would be willing to work with the Congress to identify acceptable offsets for the budgetary costs associated with the repeal, which could include, but are not limited to, ones that are the president’s detailed blueprint outlined to the Congress on Sept. 19, 2011.”
Those recommendations included one to cap at 28% the value of tax-exempt interest, as well as other tax preferences and deductions.