CBO finds cancelling vendor withholding would increase deficit

Tuesday - 10/18/2011, 5:21pm EDT

By Ruben Gomez
Reporter
Federal News Radio

A bill prohibiting agencies from withholding portions of payments to vendors would increase the federal deficit by more than $11 billion, according to a new estimate.

The legislation, H.R. 674, would remove a tax code requirement that federal, state and local agencies begin withholding 3 percent of payments to contractors in excess of $100 million.

"Repealing this requirement would reduce revenues by an estimated $11.2 billion over the 2012-2021 period," according to a new estimate from the Congressional Budget Office.

The withholding requirement is supposed to go into effect in 2013. Lawmakers approved it in a 2005 tax bill, as a credit against vendors' income tax. But industry groups and members of Congress say the provision would stifle job creation.

"The law, basically, requires businesses providing products and services to the government to float the federal government a loan for the year," said Olga Grkavac, executive vice president for TechAmerica public sector in a statement. "This law also creates significant strains on government resources because of the cost of implementation and would force businesses to use precious resources to comply with unnecessary and burdensome requirements."

"Repealing the 3 percent withholding rule is a major step toward reducing uncertainty for businesses and allowing job creators to hire," said Rep. Dave Camp (R-Mich.), chairman of the Ways and Means Committee.

The committee approved the repeal bill Oct. 13.

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