House Votes to Repeal Contractor Withholding Rule Repeal of the contractor withholding rule is not a done deal yet. The House voted Oct. 27 to repeal the rule, which would require federal, state and local agencies to withhold 3% of their payments to contractors beginning in 2013 as a down payment on income taxes. But the House and Senate have not agreed on how to offset the loss of revenue caused by repeal. That has been the hangup since efforts to kill withholding began nearly five years ago. The House bill would pay for repeal by changing health care laws to save an estimated $14 billion. However, the pending Senate version would make up for the lost revenue by ordering $30 billion in unspecified cuts to federal programs. The Obama administration threatened to veto the Senate bill. In a policy statement, the White House said, “The bill’s unspecified rescission of $30 billion in appropriated funds would cause serious disruption in a range of services supported by the Federal Government.” The administration endorsed the House approach. The House easily passed its bill on a 405-16 vote. Small Business Committee Chairman Sam Graves said, “This withholding tax is a perfect example of a burden that will impose significant financial hardships on our job creators.” The withholding rule was enacted in 2005 after reports showing that hundreds of contractors owed overdue taxes. Besides opposition from contractors, the bill drew complaints from state and local officials, who objected to the burden of collecting the tax for the federal government. Repeal has attracted widespread support from both Republicans and Democrats in Congress, but every time it was brought up, it stalled over the issue of how to offset the revenue loss.