Reading more about the tax provisions in the stimulus has done nothing to settle my stomach. The latest surge of nausea came this morning when I saw this this boneheaded provision in the House's stimulus bill noted by BNA ($).

The bill would also create a one-year deferral of withholding taxes on government contractor in an effort to put more money in the hands of small businesses performing services for the government. States and local governments are currently required to withhold 3 percent of their payments to contractors as part of an effort to ensure that income taxes are paid by the contractors.

The amount of money that will temporarily stay in the economy by this provision will be small, and eventually, that 3 percent will be paid to the Treasury. So, contractors will effectively have an interest-free loan the size of 3 percent of government contract revenue for a year (at most). The greatest and perhaps only stimulative effect of this provision, therefore, will result from contractors not paying taxes at all (or at least paying significantly less their legal obligation).

Image by Flickr user striatic used under a Creative Commons license.