On December 5, the IRS published in the Federal Register a notice of proposed rulemaking to implement the 3 percent withholding law enacted in 2005.  Effective January 1, 2011, federal, state and local governments with annual expenditures of $100 million or more are required to withhold 3 percent from payments for goods and services, including payments made under government contracts with construction companies.  The law was intended to reduce the so-called “tax gap” and tax evasion.

IRS’ proposed rule clarifies that payments for the construction of a building or other public works projects are subject to 3 percent withholding.  Other key points of the proposed rule include:

• Only applies to payments over $10,000
• No flow down to subcontractors
• Political subdivisions: 2 prior fiscal years determine $100 million threshold
• Only impacts contracts entered into after 1/1/2011
• Credit can be taken against estimated income tax withholdings
• No credit against employment taxes (e.g., Medicare, Social Security)
• Government entities are liable even if money is not withheld

AGC has made full repeal of the 3 percent withholding law a top priority for the 111th Congress.  During the 110th Congress (2007-08), a bill to repeal the law enjoyed the bipartisan support of over 260 co-sponsors in the House and 15 co-sponsors in the Senate.  Proponents of the bill are ready to reintroduce the legislation early in 2009, and AGC will urge all members of Congress to support it.

AGC has also made full repeal of the law a top priority for any economic stimulus package Congress may consider in early 2009.  Although the withholding does not go into effect until 2011, companies, as well as federal, state, and local governments are expending funds to prepare for implementation now.  These are needless preparation expenses in rough economic times.

On December 23 President Bush signed into law H.R. 7327, the Worker, Retiree, and Employer Recovery Act of 2008, a bill to provide immediate, short-term relief for single- and multi-employer pension plans whose assets have lost value as a result of the recent market contraction.

The bill provides an optional one-year freeze on changes in zone status (i.e., “green,” “yellow,” “red”) and the addition of three years to the funding improvement and rehabilitation periods for plans in the “yellow” or “red” zone in 2008 and 2009.  Further, the bill addresses many technical corrections to the 2006 Pension Protection Act sought by multi-employer plan stakeholders. 

AGC worked with a broad coalition of single- and multi-pension plan stakeholders to enact emergency relief prior to the end of the year.  AGC will continue to work with its partners to enact further relief in 2009 if economic conditions warrant.

This week, the House of Representatives is planning on bringing two pieces of legislation to the House floor that would change how pay disparity in the workplace is handled as well as allow for a new influx of frivolous lawsuits against employers.  The first bill, the Ledbetter Fair Pay Act, would restart the filing period for a discriminatory act each time a paycheck is issued and would expand the class of people able to bring claims against employers. The second bill, the Paycheck Fairness Act, would provide for unlimited punitive and compensatory damages while limiting employer defenses, as well as make it easier for class action lawsuits to be filed.  As was the case last year, both bills are expected to easily pass the House. The Senate held hearings on these issues in the 110th Congress but did not hold any votes.  AGC will track these bills as the debate moves to the Senate.

Normally, the first week of a new Congress is dedicated to procedural actions such as determining the makeup of committee membership.  The choice to bring two labor bills immediately to the floor as well as bypassing any Committee action on the legislation is a strong indication of the approach the House of Representatives is going to take on labor issues the next two years.

While the Presidential election became official after House and Senate ratification of the Electoral College votes on Thursday, the Senate is still far from final.  Sen. Norm Coleman (R-Minn.) confirmed Tuesday that he will challenge the result of the Minnesota Senate recount against Democrat Al Franken, who is 225 votes ahead of the incumbent. Franken's campaign team, as well as Democratic leaders, have called for Coleman to step aside, though they did not attempt to provisionally seat Franken during Tuesday’s swearing in ceremony.

Additionally, Roland Burris (D-Ill.) was not seated on Tuesday after meeting with Senate Majority Leader Reid. Burris was appointed last week by embattled Gov. Rod Blagojevich (D-Ill.), however Illinois Secretary of State Jesse White has refused to sign the certificate of Burris' appointment. Though some Democratic Senators have spoken out against his seating, the leadership seems more ready to seat Burris as Illinois' next senator if he overcomes legal hurdles in his home state as expected.

Several open seats have already been identified thanks to appointments as well as early announcements.  Sen. Mel Martinez (R-Fla.) will vacate his seat in 2010 and Sen. Kit Bond (R-Mo.), a longtime advocate for infrastructure and the construction industry, announced he would not seek reelection in 2010.  In New York, the Governor has sent financial disclosure worksheets to 10 possible candidates to replace Senator Hillary Clinton (D-N.Y.).  Additional openings exist in Colorado and Delaware.  Given the legal battles and the open seats, the full 111th Senate may not be determined for several weeks.