Cloture Vote on 3% Repeal Fails in Senate

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The Senate rejected a motion to end debate yesterday on a bill that would repeal the 3% withholding tax, set to go into effect on government contracts in 2013.

Earlier this week, Senate Minority Leader Mitch McConnell (R-KY) quietly introduced S. 1726, the Withholding Tax Relief Act of 2011, which is nearly identical to H.R. 674, a repeal measure in the House of Representatives that was recently voted out of the Ways and Means Committee with overwhelming support. McConnell moved for cloture on S. 1726, meaning consideration of the bill would end and the legislation could proceed further, but the motion failed in a 57-43 vote. Cloture ultimately requires three-fifths of the full Senate, or at least 60 votes.

While the House is expected to vote, and likely approve, H.R. 674 next week, the failure of the Senate’s cloture vote indicates that the entire repeal effort risks falling victim to a severe party-line divide and partisan gamesmanship.

The failed cloture vote in the Senate came along with another failed vote on a portion of the American Jobs Act, a bill championed by President Barack Obama. Senate Republicans, joined by three conservative Democrats, blocked a bill, S. 1723, the Teacher and First Responder Stabilization Act, taken from a portion of the full American Jobs Act that would’ve given states money to hire or retain teachers, police, firefighters and other emergency responders.

By carving this section of the bill out and forcing Republicans to vote on it, and reject it, Senate Democrats now have a talking point with which to hammer conservatives, arguing that they are unwilling to support tax increases for millionaires, even if those tax increases would help keep teachers and emergency responders employed.

Similarly, McConnell’s decision to isolate the 3% withholding repeal in S. 1726 gives Republicans a chance to portray Democrats, all but 10 of whom voted against the measure, as anti-business and to suggest that the entire party is committed more to taxes than economic growth.

The 3% withholding repeal, which not too long ago may have seemed like a bipartisan slam-dunk, now hangs in the balance.

Originally enacted as part of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005, the 3% withholding tax will apply to payments from local, state and federal government entities to their contractors starting in 2013. While provision’s goal was originally to address the nation's tax gap, which represents the annual $345 billion in taxes legally owed but left uncollected, and ultimately address contractor tax compliance, the provision punishes all government contractors, rather than just those that flout their tax requirements. The provision would wreak havoc on the cash flow of companies that do business with government entities, especially smaller businesses, upon whom the burden would fall hardest.

NACM has opposed the 3% withholding tax since its introduction and hopes that both parties can reach an agreement resulting in the end of this harmful provision. For more information on NACM’s effort to repeal the 3% withholding tax, click here.

Jacob Barron, CICP, NACM staff writer

Ways and Means Committee Approves 3% Withholding Repeal by Voice Vote

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The House Ways and Means Committee approved a bill yesterday, H.R. 674, that would repeal the 3% withholding tax. The legislation is expected to reach the House floor for a full vote before the end of the month.

Should the bill be signed into law, it would eliminate a provision that requires all local, state and federal entities to withhold 3% from their payments to contractors starting in 2013. H.R. 674 was approved by voice vote, a procedure typically used for measures that are non-controversial and enjoy widespread bipartisan support.

“Today we have taken an important step in doing what Americans have called upon Congress to do: work together in a bipartisan way to encourage job creation,” said Rep. Wally Herger (R-CA), the bill’s original sponsor. “The 3% withholding tax stands in the way of jobs because it threatens to constrict the cash flow of thousands of small businesses that provide goods and services to federal, state and local government agencies. Permanently repealing this tax is an important step toward giving these businesses the assurance that it’s safe to invest, grow, and hire more workers.”

“We’re looking for actions Congress can take to create jobs right now. This is a win-win. I urge all members to support this legislation,” he added.

As reported in yesterday’s edition of NACM’s eNews, the 3% withholding tax was originally enacted as part of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005. While its goal was to address the nation’s tax gap, representing the annual $345 billion in taxes legally owed but left uncollected, the provision would ultimately do more harm than good, wreaking havoc on the cash flow of companies that do business with government entities.

Prior to the markup, NACM sent a letter in support of H.R. 674 to Ways and Means Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI). NACM has opposed the 3% withholding requirements since its enactment and welcomes the repeal bill’s progress.

For more information on NACM’s fight to repeal the 3% withholding tax, click here.

Jacob Barron, CICP, NACM staff writer

Pressure Builds for 3% Withholding Repeal

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One provision in President Barack Obama’s recently released American Jobs Act would further delay the 3% withholding tax on government contracts by another year. GOP lawmakers, and a coalition of business advocates, are pushing him to go a step further, to a full repeal.

The 3% withholding tax is currently set to go into effect on all government contracts worth more than $10,000 in 2013, after a series of delays since its enactment in 2006. A full repeal has remained elusive however, as eliminating the withholding requirement from the books would keep an estimated $11 billion from the nation’s ailing Treasury. Nonetheless, Republican officials are using the newly proposed delay to mount a new push for a full repeal.

"The President must know how damaging the 3% withholding rules are, as his Jobs Act calls for an additional year delay in its implementation. But if it is so harmful to small business—which it is—why not repeal it outright?,” asked Rep. Mick Mulvaney (R-SC), chairman of the House Small Business Committee’s Subcommittee on Contracting and Workforce. “Majority Leader Eric Cantor has signaled that the repeal of this job-crushing withholding requirement will be on the House agenda this fall. I hope that the President & Senate Majority Leader Harry Reid (D-NV) will also support this repeal.”

“The 3% withholding tax would hurt small business cash flow and job growth. Delaying its repeal only continues uncertainty for small business contractors. Permanent repeal will provide more certainty and help create jobs now,” he added.

Joining Mulvaney at a press conference this week was Rep. Wally Herger (R-CA), sponsor of H.R. 674, a bipartisan bill that would repeal the 3% withholding tax and has garnered 241 cosponsors. “The 3% withholding tax will harm small businesses as well as state and local governments. We need to get it off the books once and for all to avoid placing small businesses, jobs across America and our economic recovery efforts at greater risk,” said Herger. “I look forward to working with House Leadership to ensure that we get this bill passed to help our economy.”

NACM has supported a full repeal of the 3% withholding tax since its enactment, and is a proud member of the Government Withholding Relief Coalition (GWRC), which continues to lobby for relief from this burdensome tax. Stay tuned to NACM’s blog and NACM’s eNews for further updates on the repeal effort.

Jacob Barron, CICP, NACM staff writer

IRS Delays 3% Withholding Requirement to 2013

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Hearing Scheduled in House Small Business Committee
The Internal Revenue Service (IRS) issued final rules last week that delay the 3% withholding requirement on government contracts until 2013. Under this arrangement, the withholding and reporting requirements will apply to payments made after December 31, 2012.

Additionally, the House Small Business Committee will hold a hearing on May 26 in order to more thoroughly address the 3% requirement. A repeal bill in the House, H.R. 674, originally introduced by Rep. Wally Herger (R-CA), has also garnered more than 100 cosponsors.

The delay drew cheers from prominent lawmakers, who were encouraged by the IRS' decision, but are still hopeful for a full repeal. "This decision couldn't come at a better time. Small businesses are pinching pennies and cannot afford to receive reduced payments for government contracts," said Sen. Mary Landrieu (D-LA), chair of the Senate Committee on Small Business and Entrepreneurship. "Many small businesses are already suffering, trying to make payroll and expand their businesses, and this rule would close the book on too many small businesses. While the delay is a move in the right direction, I am also committed to working with the Finance Committee to repeal this requirement that harms small businesses."

Senate Repeals Controversial 1099 Provision, House Holds Hearings

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House Ways and Means Committee Chairman Predicts Repeal Action Before March

After several failed attempts in the last Congress, the Senate finally voted to repeal the controversial 1099 requirement, originally passed as part of the health care reform bill.

In a bipartisan, 81-17 vote, the Senate agreed to erase the provision that would've required small businesses to file an Internal Revenue Service form 1099 for every vendor from whom they annually buy $600 worth of goods or services. The measure was originally enacted as a revenue generator, but quickly drew the ire of small business owners and advocacy associations nationwide, eventually becoming universally reviled.

Heavy Talk in State of the Union on Small Businesses, Trade

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President Barack Obama delivered the annual State of the Union address with a bit less of a partisan, pep-rally atmosphere than has been present at the speech in recent years, and it certainly carried far from celebratory tone over achievements of the last year. Much of the speech read like jet another open love letter from the president to the business community, especially smaller operations, that White House is serious about improving conditions for U.S. industry.

“Red Flags” Clarification Act Signed Into Law

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The "Red Flags" Clarification Act of 2010 was signed into law this past weekend.

While the law has been couched as a relief for the nation's small businesses from the burden of the Federal Trade Commission's (FTC's) regulations, many doubts linger surrounding the constituency of trade creditors, who, despite the new law, may still be required to have a "Red Flags" program in place as the statute originally dictated.

FTC Applauds “Red Flags” Clarification Act

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Federal Trade Commission (FTC) Chairman Jon Leibowitz recently applauded Congress' passage of the "Red Flags" Clarification Act of 2010, admitting that, in their original form, the rules went too far.

"We're pleased Congress clarified its law, which was clearly overbroad," said Leibowitz a recent press release. "Now we can go forward with less litigating and more protecting consumers from identity theft. I want to express my appreciation to Congressmen John Adler (D-NJ) and Mike Simpson (R-ID), and Senators John Thune (R-SD) and Mark Begich (D-AL), for their excellent work in resolving the uncertainty created by Congress."

BREAKING: House Passes “Red Flags” Legislation, Bill Headed for Passage

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The U.S. House of Representatives approved legislation amending the application of the "Red Flags" Rule Tuesday night. The bill, the Red Flags Clarification Act of 2010, was passed by voice vote and now heads to President Barack Obama's desk for signature into law.

According to Rep. Paul Broun (R-GA), one of the bill's champions in the House, the bill would exempt many small business owners and other unrelated businesses from the burdensome regulations, promulgated under the Fair and Accurate Credit Transaction Act of 2003 and due to be enforced by the Federal Trade Commission (FTC) at the end of this month.

Senate Quietly Passes Red Flags Clarification Act

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The Senate very quietly passed a bill exempting many firms from the Federal Trade Commission's (FTC's) "Red Flags" rules this week.

In the Red Flag Program Clarification Act of 2010, the Senate voted by unanimous consent to amend the Fair Credit Reporting Act's (FCRA's) definition of "creditor," offering further clarification on one of the "Red Flags" rules' vaguest provisions and ultimately limiting the scope of the regulations. Specifically, the bill further defines a creditor as any entity who, in the ordinary course of business, obtains or uses consumer reports in connection with a credit transaction; furnishes information to consumer reporting agencies in connection with a credit transaction; and advances funds "based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of that person."

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