Construction groups have been lobbying Congress for months to eliminate a mandate, set to take effect at the end of 2010, that federal and non-federal agencies withhold 3% of the value of contracts they award, including those for construction. Outright repeal is a long shot this year, but the industry is seeing some daylight on the issue: the House Ways and Means Committee has approved a one-year delay in the 3% withholding.

A bill that the tax-writing panel cleared on July 18 on a 23-18, party-line vote would push back the withholding mandate's effective date so that it would apply to contract payments made after Dec. 31, 2011. The one-year reprieve is part of a measure that also bars the Internal Revenue Service from contracting with private firms to collect unpaid taxes.

Ways and Means member Kendrick Meek sees committee's vote to delay withholding mandate for a year as a step toward outright repeal. His repeal bill has 183 cosponsors. But abolishing the 3% withholding will be a tough sell, especially in the Senate, where a repeal bill has just eight cosponsors.

With the endorsement of Ways and Means Chairman Charles Rangel (D-N.Y.), the bill will pass the House, predicts Heidi Blumenthal, Associated General Contractors' congressional relations director for tax and fiscal affairs. But she adds, "What the Senate will do...I don't know." The Senate Finance Committee has not acted on withholding or private tax collection.

The 3% withholding was enacted in 2006, as part of the Tax Increase Prevention and Reconciliation Act. Ways and Means' approval of the delay is a positive move for industry. But Brian Pallasch, American Society of Civil Engineers' director of government relations, says, "It wasn't enough."

What ASCE and other business groups want is to have the 3% mandate canceled. They contend that if agencies hold back 3% from a contract, it will hurt cash flow, especially for construction firms whose profit margins are thin. A business coalition has lined up behind a repeal bill introduced by Rep. Kendrick Meek (D-Fla.). That legislation had attracted 183 cosponsors as of July 23. Meek, a Ways and Means member, said that with the committee's vote for a one-year delay, "We are one step closer to achieving full repeal."

Abolishing the 3% provision will be a tough sell. When Ways and Means member Wally Herger (R-Calif.) offered an amendment to repeal the 3% mandate, the panel voted it down. Herger then proposed to delay the withholding for five years, but the panel rejected that, too. In the Senate, a repeal bill was introduced in March, but it has picked up only eight cosponsors.

Ways and Means also defeated a proposal to repeal the inheritance tax. Construction groups have long campaigned to have what they term the "death tax" eliminated permanently. The levy is not in effect now but will be reinstated in 2011 unless Congress abolishes it.