Tag: irs form 1099s

‘1099’ Repeal Speaks Volumes About ObamaCare

From my latest Kaiser Health News op-ed:

When 34 Senate Democrats joined all 47 Republicans last week to repeal ObamaCare’s 1099 reporting requirement, their votes confirmed what their talking points still deny: ObamaCare will increase the deficit, no matter what the official cost projections say…

This public-choice dynamic [of concentrated benefits and diffuse costs] is why the Congressional Budget Office, the chief Medicare actuary, and even the International Monetary Fund have discredited the idea that ObamaCare will reduce the deficit. It is one of the principal reasons why, as Thomas Jefferson wrote, “The natural progress of things is for liberty to yield, and government to gain ground.” In other words, the game is rigged in favor of bigger government.

It also explains why the Obama administration is sprinting to implement ObamaCare in spite of a federal court having struck down the law as unconstitutional. The White House needs to get some concentrated interest groups hooked on ObamaCare’s subsidies – fast.

Read the whole thing here.

How to Tell When ObamaCare Supporters Are Nervous

Supporters have gone to great lengths to make ObamaCare appear popular or to make repeal seem impossible.  But this op-ed by my friend Jonathan Cohn made my jaw drop.

First, Cohn notes that the Senate recently voted down two efforts to repeal one of ObamaCare’s more unpopular provisions: the “1099 reporting tax,” which will place an enormous burden on small businesses.  ”Neither provision,” Cohn obliquely reports, “got enough votes to pass.”  He concludes:

Critics of health care reform [sic] this week thought they would get their first win in the campaign to repeal the Patient Protection and Affordable Care Act. Instead they got a lesson in just how politically challenging a wholesale repeal might be.

If opponents can’t even repeal the unpopular parts of ObamaCare, how can they repeal the whole thing?

Cohn neglects to mention a few important details.  The reason neither amendment received “enough votes” is because, due to procedural considerations, each would have needed a 2/3 majority to pass – i.e., 67 votes.  The Republican amendment actually received 61 votes.  (The Democratic amendment received only 44 votes.)  Reading Cohn’s account, though, you might think – and Cohn might think, or just want you to think – that both failed because they lacked majority support.  In fact, the Republican amendment received a filibuster-proof majority.  Even though it included $19 billion of spending cuts.  And in a chamber with only 41 Republicans.  (Another six arrive next month.)  And the mere fact that Democrats offered an amendment to repeal part of ObamaCare is notable in itself.  Cohn’s spin aside, the skirmish over the 1099 reporting tax shows that Democrats are divided and ObamaCare supporters are on the run.

Second, Cohn writes, “advocates of repeal have one extra liability that the law’s architects did not – a lack of majority support even before the wrangling begins.”  As evidence, he cites a single Gallup  poll from July 2009 that found 50 percent of the public supported “comprehensive health care reform.”  Oy, where to begin.  First, by Cohn’s own single-poll standard, he is just flat wrong.  Advocates of repeal can point to the latest Rasmussen poll, which shows that 58 percent of adults support wholesale repeal.  (Polls have clocked support for repeal as high as 61 percent.)  Second, support for “comprehensive health care reform” is not the same thing as support for ObamaCare.  If Gallup were to ask Cato employees whether they support comprehensive health care reform, my guess is that at least 50 percent would answer yes.  (Presumably, Cohn would then write an oped titled, “Even Libertarians Support ObamaCare!”)  Advocates of repeal have something else going for them, too: 17 months of consistent public opposition to ObamaCare.

No one is saying that getting repeal through the Senate is likely in the next two years.  But the fact that supporters have to shade the truth like this suggests they are nervous.

Costly IRS Mandate Slipped into Health Bill

Most people know about the individual mandate in the new health care bill, but the bill contained another mandate that could be far more costly.

A few wording changes to the tax code’s section 6041 regarding 1099 reporting were slipped into the 2000-page health legislation. The changes will force millions of businesses to issue hundreds of millions, perhaps billions, of additional IRS Form 1099s every year. It appears to be a costly, anti-business nightmare.

Under current law, businesses are required to issue 1099s in a limited set of situations, such as when paying outside consultants. The health care bill includes a vast expansion in this information reporting requirement in an attempt to raise revenue for an increasingly rapacious Congress.

In a recent summary, tax information firm RIA notes the types of transactions covered by the new 1099 rules:

The 2010 Health Care Act adds “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2)) to the pre-2010 Health Care Act categories of payments for which an information return to IRS will be required if the $600 aggregate payment threshold is met in a tax year for any one payee. Thus, Congress says that for payments made after 2011, the term “payments” includes gross proceeds paid in consideration for property or services.

Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s. When a business buys a $1,000 used car, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small shop owner pays her rent, she will have to send a 1099 to the landlord and IRS. Recipients of the vast flood of these forms will have to match them with existing accounting records. There will be huge numbers of errors and mismatches, which will probably generate many costly battles with the IRS.

Tax CPA Chris Hesse of LeMaster Daniels tells me:

Under the health legislation, the IRS could be receiving billions of more documents. Under current law, businesses send Forms 1099 for payments of rent, interest, dividends, and non-employee services when such payments are to entities other than corporations. Under the new law, businesses will be required to send a 1099 to other businesses for virtually all purchases. And for the first time, 1099s are to be sent to corporations. This is a huge new imposition on American business, costing the private economy much more than any additional tax that the IRS might collect as a result.

There appears to have been little discussion before this damaging mandate was slipped into the health bill and rammed through Congress, but a few business groups did raise concerns. Here’s what the Air Conditioner Contractors of America said:

The House bill would extend the Form 1099 filing requirement to ALL vendors (including corporate) to which they pay more than $600 annually for services or property. Consider all the payments a small business makes in the course of business, paying for things such as computers, software, office supplies, and fuel to services, including janitorial services, coffee services, and package delivery services.

In order to file all these 1099s, you’ll need to collect the necessary information from all your service providers. In order to comply with the law, you would have to get a Taxpayer Information Number or TIN from the business. If the vendor does not supply you with a TIN, you are obligated to withhold on your payments.

Private transactions are the core of a market economy, and the source of America’s growth and prosperity. Now the federal government is imposing a vast new web of red tape on perhaps billions of these growth-generating private exchanges.

For what purpose? So the spendthrift Congress can shake a few extra bucks out of private industry? The business sector is the generator of America’s high living standards, but most federal legislators just see it as a kitty to be raided or a cow to be milked dry.

I’m stunned that there wasn’t a broader debate before such a costly mandate was enacted. If it goes into effect, it will waste vast quantities of human effort in filling out forms, reworking computer systems, collecting and organizing data, and fighting the IRS. The struggling American economy can’t afford anymore suffocating tax regulations. This mandate is a giant deadweight loss. It should be repealed.