On October 27, the House approved H.R. 674, 405-16, which would repeal the three percent withholding requirement on payments due to vendors that provide goods and services to state and local governments. Enacted in 2006, implementation of this provision has been delayed until 2013 through a series of temporary postponements. The purpose of the withholding requirement was to ensure that all vendors remitted taxes owed. However, the costs to all governments from implementing the requirement are projected greater than the total revenues collected.

Additionally, the House also approved H.R. 2576, 262 to 157, that would alter how Social Security benefits are counted as taxable income when determining eligibility for certain federal health programs including Medicaid. H.R. 2576 would reduce the federal deficit by an estimated $13 billion over ten years. The change provides a revenue option to offset the cost of 3 percent withholding repeal as a Congressional Budget Office analysis released last week found that repealing the withholding rule would reduce revenues by $11.2 billion over the next 10 years. The bills now move to the Senate for consideration where Senate Majority Leader Harry Reid (D-NV) has indicated support of repeal, but wants to ensure the offset is “done the right way.”

On October 25, the Office of Management and Budget (OMB) announced its support for repealing the three percent withholding provision noting and for HR 2576 noting that “the effect of the repeal of the withholding requirement would be to avoid a decrease in cash flow to these contractors, which would allow them to retain these funds and use them to create jobs and pay suppliers.”

Link: H.R.674, H.R.2576, CBO Report