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As reported in yesterday’s edition of NACM’s eNews, the 3% withholding tax was originally enacted as part of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005.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

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