Stimulus bill delays 3% withholding tax.(TRADELINE)

The American Recovery and Reinvestment Act, recently signed into law by President Barack Obama, included a provision that delays the imposition of the 3% withholding tax initially passed in 2005. Instead of going into effect on all government contracts that occur after December 31, 2010, it will be delayed for one year, applying to all contracts awarded after December 31, 2011.

Bills aimed at eliminating the tax have been written and supported in both the House and the Senate in the prior Congress, but budgetary "pay-go" rules, which require any eliminated revenue measure be offset by the inclusion of another source of revenue, made passage difficult. "If you are going to provide tax relief in the code, you have to figure out a way to pay for it" said NACM lobbyist Jim Wise of Pace, LLP. "Over the last two years, the only way they could figure out how to not enact the tax is by an accounting trick:'

By delaying the measure, rather than outright repealing it, Congress can spare businesses the tax without having to come up with an offsetting source of revenue. Even though support for the tax is almost non-existent on Capitol Hill, the permanent removal of the tax has remained elusive. "Nobody likes it but we can't figure out a budget neutral way around this" said Wise.

One of the earlier bills aimed at repealing the tax was coauthored by Congressman Wally Herger (R-CA) who noted earlier that the delay helps, but a full repeal is still the right course of action. "Three percent withholding repeal is an important and bipartisan effort. Should the withholding mandate go into effect, it ...