Law Targets Government Contractors with Tax Debt

A law enacted in 2006 would have required governments at the federal, state, and local levels to withhold 3% of money owed to contractors with even the slightest federal tax debt.  The law is kind of in limbo at this point: it is slated to go into effect in January 2013 but lawmakers, including President Obama, are pushing to get it repealed. And it looks like it is going to be repealed despite data highlighting the widespread non-compliance of government contractors.

Arguments for the law:

  • Businesses should not be awarded lucrative government contracts if they are not going to pay their taxes.
  • It is needed to pay for Bush-era tax reductions.

Arguments against the law:

  • It assumes every government contractor is a tax cheat.
  • It will cripple some small business who simply can’t float the 3%
  • Contractors may pass the costs on to the government.
  • It would be difficult and expensive to administer.
  • Job protection is more important right now.

I have not seen the text of this legislation, but if it would require that government contractors fully pay their tax bill before getting fully paid by the government, then it seems that would also apply to contractors on installment agreements. Some installment agreements last 5 years or longer, so they would have a long time to wait for their remaining 3 percent!

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