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: Committee on Government Business: Issues
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- 3% Withholding Tax on Government Contractors - Jan 2011
In 2005, the Tax Increase Prevention and Reconciliation Act was a vehicle for a revenue raising provision to mandate that federal, state, and local governments withhold 3% from payments for goods and services provided by all government contracts. This unprecedented withholding mandate would include Medicare payments, Farm payments, and some grants. The legislation was signed into law by President Bush on May 17, 2006 was initially set to become effective on January 1, 2011. However, the American Recovery and Reinvestment Act, more commonly known as the “Stimulus,” delayed the implementation for one year making the new effective date January 1, 2012.
The Department of Defense estimates the 3% withholding requirement would cost $17 billion over the first five years to comply with the mandate which is far higher than the revenue that would be generated by the new tax. FEI supports and pushes for the full repeal of the mandate.
However, with the effective date less than a year away, FEI would support a two year delay of the 3% withholding requirement. In the fall and winter of 2010, FEI was party to two comment letters asking for the effective date of the provision to be delayed for two years. FEI plans to continue to push for the delay of the withholding requirement as Congress begins the 112th Congress.
These talking points provide further information on the 3% withholding issue.
- DoD Efficiency Initiative - Sep 2010
On September 14, 2010, Under Secretary of Defense Ashton Carter, released a directive to government contractors that announces new guidelines to govern how the Pentagon purchases everything from weapons to support services.
The memo, titled “Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending,” is part of a larger DoD initiative to find greater “efficiencies” at the Pentagon with the ultimate goal of “increasing warfighting capabilities by 2 to 3 percent without commensurate budget increases.”
- Pension Harmonization - Aug 2009
Section 106 of the Pension Protection Act of 2006 (“PPA”) directs the Cost Accounting Standards Board (“Board”) to harmonize Cost Accounting Standards 412 and 413 (together, “CAS 412 and 413”) with the minimum required contribution provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986 (the “Code”), as amended by the PPA (collectively, the “minimum funding rules”). FEI’s Committee on Benefits Finance and Committee on Government Business strongly believe that the Board must revise CAS 412 and 413 in light of the changes enacted in the PPA.
The PPA reflects Congress ratification of the growing international consensus that pension obligations and assets should be measured to the extent possible on a mark-to-market basis. CAS 412 and 413 now must be updated to reflect that reality. At the same time, and fully consistent with the PPA changes, it is important that revisions to CAS 412 and 413 be promulgated in a manner that ensures that government contractors are equitably reimbursed for their pension costs; are treated uniformly relative to each other; and are allowed to recover charges attributable to a contract as they are incurred. Those underlying principles should dictate the Board’s consideration of changes to CAS.
To learn more about Pension Harmonization, please visit the Office of Management and Budget’s Advanced Notice for Proposed Rule Making, and FEI’s corresponding comment letter.
- President Obama’s Government Contracting Memo: - Aug 2009
On March 4, 2009, President Obama issued a memo asking his government to review how government contracts are awarded and sited the need for more competition. The President claims his changes would save the government $40 billion a year.
President Obama’s March 4 memo requires OMB to issue new government-wide guidance addressing:
- The appropriate use of sole-source and other types of noncompetitive contracts and how to maximize the use of full and open and other competitive procurement processes;
- When, and under what circumstances, cost-reimbursement contracts are appropriate;
- How to assist agencies in determining the capacity and capabilities of their acquisition workforce; and
- When governmental outsourcing is and is not appropriate, consistent with Section 321 of the FY09 National Defense Authorization Act.
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