By Larry Jones
November 21, 2011

In a significant victory for all levels of governments and the business community, the House on November 16 approved by a unanimous vote of 422 – 0, legislation that repeals a burdensome mandate that would have required federal, state and local governments to withhold 3 percent of payments to contractors for goods and services. The House also agreed to a provision added by the Senate that provides tax breaks to employers who hire unemployed veterans, a proposal that is part of President Barack Obama’s jobs plan. The repeal provisions and the tax breaks are also priorities of the Conference of Mayors and are listed in its Common-Sense Jobs Agenda. The latest action clears the way for the measure to be sent to the President who is expected to sign it into law.

Commenting on the repeal, Conference of Mayors CEO and Executive Director Tom Cochran said, “Mayors across our nation are delighted Congress voted to repeal this onerous tax rule, which undoubtedly would have caused more harm than good. Local governments would have been forced to become an extension of the IRS and contractors would have been forced to increase their costs to local governments for goods and services in order to offset the three percent withholding tax.” Under the rule, federal, state and local governments (with annual expenditures of $100 million or more) would have been required to withhold three percent of payments of $10,000 or more to contractors.

During Senate consideration, Senator Olympia Snowe (ME) told Senators the Department of Defense estimated that it would cost the federal government over $17 billion in the first five years to comply with a law that was expected to raise about $6.977 billion over ten years. She explained, “This is a case of spending a dollar to collect a dime, which is counter-productive when it comes to addressing the nation’s deficits.”

In urging passage of the legislation, the Conference of Mayors worked with a broad coalition of groups representing all levels of government, hospitals, construction companies, veterans, colleges and universities, manufacturers and many more. In a November 10 joint coalition letter to the Senate urging support for repeal of the rule, the Conference of Mayors and other groups explained that the three percent withholding tax was “anti stimulus” in that it would remove money from local economies and send it to the IRS; and it would drain capital from businesses that could otherwise be used for job creation and business expansion.

Employers will be offered a new tax credit under the bill as an incentive to hire unemployed and disabled veterans. Those who hire veterans who have been unemployed for one month will receive a $2,400 tax credit; those who hire veterans unemployed for at least six months will receive a $5,600 tax credit; and those who hire disabled veterans who are unemployed for six months or more will receive as much as $9,000. Commenting on the measure President Obama said, “No veteran who fought for our country should have to fight for a job when they come home. That’s why I proposed these tax credits back in August, and I look forward to signing them into law. This is a good first step, but it is only a step.”