Repeal of 3% Withholding Provision is Unanimous! Why?

HR 674 was passed by the House this week and sent to President Obama for signature. The AICPA is happy with this law. In a press release, Edward Karl, vice president of taxation for the American Institute of Certified Public Accountants said, “The AICPA commends Congress for recognizing that it makes sense to repeal the requirement that generally requires federal, state and local governments to withhold 3 percent on payments made to government contractors, as well as on certain other payments such as Medicare.”

Sorry, I am utterly confused. With a tax gap of about $345 billion dollars, and with substantial evidence that many government contractors are not paying their taxes[1], why are our legislators nearly unanimously voting to repeal the withholding requirement? (422 – 0 in the House, 95 votes in the Senate)

All we’re talking about is withholding a mere 3% of the payments they receive. Many of those government contractor bids are padded by far more than 3%. If they provided the same products and services to the private sector, they’d generally have to charge far less. Yet, there was such a political furor over this requirement that the Legislature moved swiftly to repeal this withholding requirement.

(Note: They did slip in a provision expanding the IRS’ levy powers to from the right to levy against goods and services, to the right to levy against property, goods and services. It’s  significantly harder and more expensive to levy assets, than it is to withhold taxes in the first place.)

This, at a time when the country is in such bad financial straits that state and national parks are closing, school districts are talking about shaving a week off the school year, unemployment is still in double digits…well, you know. You feel the pinch.

Wow! There must have been a lot of campaign money tied up in this one. Yet, they cannot pass a Jobs act, they are still wrangling over the health care bill, and so, far, no one has called or written to TaxMama about getting their mortgage saved by the new Obama provisions of the Home Affordable Refinance Program (HARP). (In fact, shhhh, don’t tell anyone, but the nice folks at AIG who got our bailout money when they were hurting, remember them? They don’t want to comply with the new HARP protections.)

Meanwhile, we have people around the country holding sit-ins, at the various Occupy sites.  After all, they have the time. They don’t have jobs, do they? Though, I have yet to figure out what they’re asking for. Aaaah. That’s why! They haven’t decided what to demand – or IF they should demand. Huh? Seriously, read this, about the folks at Occupy Wall Street. They are leaderless, unhappy, and frustrated – but no one knows where to begin with their demands, they are in such despair. We can well understand how they feel.

And this is when Congress, who can’t seem to agree on ANYTHING USEFUL, this is when they unanimously agree not to collect taxes from a privileged group of folks – government contractors?

Sorry, I am not impressed.


Note: There are some other provisions in the bill for veterans (thank goodness!)  – Vow to Hire Heroes – and something related to health care credits,that I am still trying to figure out. As soon as I do, I’ll let you know. I think it’s something positive, but it’s TOTAL gobbledygook to me at this time.


[1] The Government Accountability Office has found widespread tax evasion by federal contractors.

These GAO studies used IRS records, agency data, and results from their own investigations.15 It

can be argued that tax evasion by federal contractors would be reduced by the contractor

withholding provision. See page 6 of this report.