Friday, July 30, 2010

Democrats in Retreat over 1099 Tax Reporting Requirements

The Wall Street Journal this morning reports on the troubles that the 1099 business tax reporting requirements included in Section 9006 of the health care law are causing for Democrats in Congress.  Under the provision, vendors and small businesses are required to file Forms 1099 for any goods purchases that total over $600 in the aggregate over the course of a year – which will force all businesses, including small businesses, to file tax forms listing the amount of their annual transactions with vendors like their paper supplier, bottled water distributor, caterer, etc.  The National Taxpayer Advocate has noted this provision will affect 40 million businesses – ten times the number of firms the Administration asserts will benefit from small business tax credits – and has called the paperwork requirements “disproportionate” and “burdensome”.

House leaders pulled pending tax legislation from the floor last night in response to a motion to recommit offered by Rep. Camp that would repeal this onerous requirement; as the Politico notes, “The worry was that the amendment would have been far too tempting for Democratic rank-and-file.  The risk of letting any kind of ‘repeal’ pass was too big to chance.”  Instead House leaders hope to craft an “alternative” that purports to address “concerns about overburdening business” while leaving the reporting regime intact.  Similarly, rather than adopting the Johanns 1099 repeal amendment to the small business bill (H.R. 5297) in the Senate yesterday, Democrat leaders instead attempted to offer an alternative that would have required the IRS “to request and consider comments and suggestions from the public” regarding how to implement the 1099 requirements.

In addition to questioning how exactly the IRS can make tax enforcement more “user-friendly,” some may wonder why Democrats are scrambling to leave in place a $17 billion tax increase on struggling businesses at a time of record unemployment.  Is the majority so insistent on keeping every facet of their health care law intact that they are willing to preserve new job-killing taxes and regulations on small firms at a time of significant economic uncertainty?