Christmas Eve Vote on Obamacare Showed Washington Still Has Shame

A decade ago this morning, 60 Senate Democrats cast their final votes approving the legislation that became Obamacare. The bill took a circuitous route to enactment after Scott Brown’s surprise victory in the Massachusetts Senate contest, which occurred a few weeks after the Senate vote, in January 2010.

Brown’s election meant Republicans gained a 41st Senate seat, giving them the necessary votes to filibuster a House-Senate conference report on Obamacare. Because Democrats lacked the 60 votes to overcome a filibuster, they eventually agreed to a process amending certain budgetary and fiscal elements of the Senate bill through the reconciliation process on a 51-vote threshold.

The grubby process leading up to Obamacare’s enactment, full of parochial politics and special interest pork, cost Democrats politically. But many Americans do not realize that such machinations occur all the time in Washington—indeed, occurred just last week. When one party participates in a corrupt process, it becomes a scandal; when both parties partake, few outside the Beltway bother to notice.

Backroom Deals

The process among Democrats leading up to the final health vote resembled an open market, with each Senator making “asks” of Majority Leader Harry Reid (D-NV). Reid needed all 60 Democrats to vote for Obamacare to break a Republican filibuster, and the parochial provisions included in the legislation showed the lengths he would go to enact it:

Cornhusker Kickback:” The most notorious of the backroom deals came after Sen. Ben Nelson (D-NE) requested a 100 percent Medicaid match rate for his home state of Nebraska. The final manager’s amendment introduced by Reid included this earmark—Nebraska would have its entire costs of Medicaid expansion paid for by the federal government forever. But the blowback from constituents and the press became so great that Nelson asked to have the provision removed; the reconciliation measure enacted in March 2010 gave Nebraska the same treatment as all other states.

Gator Aid:” This provision, inserted at the behest of Sen. Bill Nelson (D-FL), and later removed in the reconciliation bill, sought to exempt Florida seniors from much of the effects of the law’s Medicare Advantage cuts.

Louisiana Purchase:” This provision, included due to a request from Sen. Mary Landrieu (D-LA), adjusted the state’s Medicaid matching formula. Landrieu publicly defended the provision—which she said reflected the state’s circumstances after Hurricane Katrina—and it remained in law for several years, but was eventually phased out in legislation enacted February 2012.

While these three provisions captivated the public’s attention, other earmarks and pork provisions abounded inside Obamacare too—a Medicaid funding provision that helped Massachusetts; exemptions from the insurer tax for two Blue Cross carriers; a $100 million earmark for a Connecticut hospital, and health benefits for miners in Libby, Montana, courtesy of then-Senate Finance Committee Chairman Max Baucus (D-MT).

Not only did senators try to keep these corrupt deals in the legislation—notwithstanding the public outrage they engendered—but Reid defended both the earmarks and the horse-trading process that led to their inclusion:

I don’t know if there’s a senator who doesn’t have something in this bill that’s important to them. And if they don’t have something in it that’s important to them, then it doesn’t speak well for them.

It was a far cry from Barack Obama’s 2008 (broken) campaign promise to have all his health care negotiations televised on C-SPAN, “so we will know who is making arguments on behalf of their constituents, and who are making arguments on behalf of the drug companies or the insurance companies.” And it looked like Democrats didn’t really believe in the merits of the underlying legislation, but instead voted to restructure nearly one-fifth of the American economy because they got some comparatively minor pork project for their district back home.

Déjà Vu All Over Again

Democrats lost control of the House in the 2010 elections, and political scientists have attributed much of the loss to the impact of the Obamacare vote. One study found that Obamacare cost Democrats 6 percentage points of support in the 2010 midterm elections, and at least 13 seats in Congress.

But did the rebuke Democrats received for their behavior prompt them to change their ways? Only to the extent that, when they want to ram through a massive piece of legislation no one has bothered to read, they include Republicans in the taxpayer-funded largesse.

Consider last week’s $1.4 trillion spending package: Two bills totaling more than 2,300 pages, which lawmakers introduced on Monday and voted on in the House 24 hours later. Democrats wanted to repeal one set of Obamacare taxes—and in exchange, they agreed to repeal another set of taxes that Republicans (and their K Street lobbying friends) wanted gone. The Obamacare taxes went away, but the Obamacare spending remained, thus increasing the deficit by nearly $400 billion.

And both sides agreed to increase spending in defense and non-defense categories alike. Therein lies the true definition of bipartisanship in Washington: An agreement in which both sides get what they want—courtesy of taxpayers in the next generation, who get stuck with the bill.

It remains a sad commentary on the state of affairs in the nation’s capital that the Obamacare debacle remains an anomaly—the one time when the glare of the spotlight so seared Members seeking pork projects that they dared consider forsaking their ill-gotten gains. To paraphrase the axiom about casinos, in Washington, The Swamp (almost) always wins.

What Exactly Is in the Obamacare “Stability” Deal?

Memo to Rand Paul: It’s time to fire up the copier again.

On Tuesday, the simmering controversy over Obamacare “stability” legislation came to the boil, as conservatives increasingly voiced objections at bailing out Obamacare and giving tens of billions of taxpayer dollars to fund abortion coverage in the process. But the controversy centers around a “deal” of which the precise contents remain a closely guarded secret.

But at least Democrats (eventually) made the text of the Cornhusker Kickback, Louisiana Purchase, Gator Aid, and other provisions public. For the Obamacare “stability” bill, Senate Republican leaders have yet to indicate exactly what legislation they wish to pass.

Substance and Process Unclear

As I noted last week, while Sen. Lamar Alexander (R-TN) recently claimed in an op-ed that the “stability” legislation would appropriate $10 billion in reinsurance funds for insurers, the public version of legislation to which he referred—a bill introduced by Sens. Susan Collins (R-ME) and Bill Nelson (D-FL)—appropriated “only” $4.5 billion in funds to health insurers. Collins and Alexander are apparently engaging in a bidding war with themselves about how many billions worth of taxpayer dollars they wish to spend on corporate welfare payments to insurance companies.

On the policy substance, Senate leadership has refused to disclose exactly what provisions comprise the “deal” Collins supposedly cut with Senate leadership. Did they promise $4.5 billion in reinsurance funding, $10 billion, or more than $10 billion? What other promises did they make in exchange for Collins’ support for repealing the individual mandate in the tax bill?

Did Republican leaders pledge merely to support an open process and a vote on the “stability” measure—as Senate Republican Conference Chairman John Thune (R-SD) implied on Tuesday—or its enactment into law? How exactly could they promise the latter, when any such bill would require 60 votes to break a potential Senate filibuster—a number that Senate Republican leaders do not have, even if they could persuade their entire conference to support bailing out Obamacare?

Then and Now

As noted above, we’ve seen this play before, when Democrats rammed through Obamacare through a series of backroom deals cobbled together behind closed doors, notwithstanding then-candidate Obama’s pledge to televise all health-care negotiations on C-SPAN. Here’s what McConnell had to say about that lack of transparency in a December 2009 floor speech:

Americans are right to be stunned because this bill is a mess. And so was the process that was used to get it over the finish line.

Americans are outraged by the last-minute, closed-door, sweetheart deals that were made to gain the slimmest margin for passage of a bill that is all about their health care. Once the Sun came up, Americans could see all the deals that were tucked inside this grab bag, and they do not like what they are finding. After all, common sense dictates that anytime Congress rushes, Congress stumbles. It is whether Senator so-and-so got a sweet enough deal to sign off on it. Well, Senator so-and-so might have gotten his deal, but the American people have not signed off.

Public opinion is clear. What have we become as a body if we are not even listening to the people we serve? What have we become if we are more concerned about a political victory or some hollow call to history than we are about actually solving the problems the American people sent us here to address?

Some may argue that passing “stability” legislation bears little comparison to home-state earmarks like the Cornhusker Kickback that plagued the Obamacare bill the Senate passed on Christmas Eve 2009. But when Alexander remains adamant about passing “stability” legislation about which senators of both parties now seem ambivalent at best, one must ask whether his insistence stems from the fact that it would provide a significant financial windfall to his biggest campaign contributor—making it a “sweet enough deal” for him too.

The fact that no Senate leaders will dare explain publicly what they have promised privately should tell the public everything they need to know about the merits of this secretive backroom deal. As McConnell might say, it’s “kind of [a] smelly proposition.”

This post was originally published at The Federalist.

There He Goes Again: Lamar Alexander Misrepresents His Obamacare Bailout

As Ronald Reagan might say, “There you go again.” Last week, Sen. Lamar Alexander (R-TN) published an op-ed in the Washington Examiner making claims about the Obamacare “stabilization” bill he developed with Sen. Patty Murray (D-WA).

The article tells a nice story about how conservatives should support the bill, but alas, one can consider it just that: A story. The article includes several material omissions and outright false statements about the legislation and its impact. Below are the facts and full context that Alexander wouldn’t dare admit about his bill.

Fact: In reality, the Congressional Budget Office in its score of the Alexander-Murray bill said the exact opposite:

Simply comparing outcomes with and without funding for CSRs [cost-sharing reduction payments], CBO and [the Joint Committee on Taxation] expect that federal costs in 2018 would be higher with funding for CSRs because premiums for 2018 have already been finalized and rebates related to CSRs would be less than the CSR payments themselves. [Emphasis mine.]

Insurers have already finalized their premiums for 2018 (in most states, open enrollment ends this Friday, December 15), and when doing so assumed cost-sharing reductions would not be paid. If Congress now turns around and appropriates those payments for 2018, insurers would have the possibility to “double-dip.” That means getting paid twice by the federal government to provide lower cost-sharing to low-income individuals.

While CBO believes insurers will return some of the “extra” subsidies they receive to the federal government—$3.1 billion worth, according to their estimate—they also believe that insurers will keep some portion of the excess, as much as $4-6 billion worth. That dynamic explains why CBO believes federal spending will increase, not decrease, as Alexander claims, if Congress appropriates cost-sharing reduction payments for 2018.

Fact: The $194 billion figure has no bearing to the Alexander-Murray legislation. Elsewhere in the op-ed, Alexander admits his bill would include “two years of temporary cost-sharing reduction payments.” If these payments would be “temporary,” then why cite a purported savings figure for an entire decade? Is Alexander trying to elide the fact that he wants to continue both Obamacare and these taxpayer payments to insurance companies in perpetuity?

Claim: “This bill includes new waiver authority for states to come up with their ideas to reduce premiums.”

Fact: The bill includes precious little new waiver authority for states. On substance, it retains virtually all of the “guardrails” in Obamacare that make implementing conservative ideas—like consumer-driven health-care options that use health savings accounts—impossible in a state waiver. While the bill does provide for a faster process for the federal government to consider waiver applications, without changing the substance of what provisions states can waive, the bill would just result in conservative states getting their waivers rejected more quickly.

Fact: This provision appears nowhere in the Alexander-Murray measure. Instead, it comprises a separate bill, introduced by senators Susan Collins (R-ME) and Bill Nelson (D-FL). And that bill, as originally introduced, would appropriate not $10 billion in reinsurance funds, but “only” $4.5 billion.

Some conservatives may find it bad enough that, in addition to appropriating roughly $20-25 billion straight to insurance companies in the Alexander-Murray bill, Alexander now wants a second source of taxpayer funds to subsidize insurers. Moreover, by more than doubling the amount of reinsurance funds compared to the original Collins-Nelson bill, Alexander seems to be engaging in a bidding war with himself to determine the greatest amount of taxpayers’ money he can shovel insurers’ way.

Claim: “Almost all House Republicans have already voted for its provisions earlier this year.”

At this point readers may question why Alexander made such a series of incomplete, misleading, and outright false claims in his op-ed. One other tidbit might explain the article’s dissociation with the truth.

Fact: Since 2013, the largest contributor to Alexander’s re-election campaign and leadership PAC has been…Blue Cross Blue Shield.

This post was originally published at The Federalist.

Are Cost-Sharing Reductions Subject to the Sequester?

Sen. Susan Collins (R-ME) thinks she has a deal with Senate Majority Leader Mitch McConnell (R-KY) to attach two provisions to a short-term spending bill later this month: The Alexander-Murray legislation to appropriate funds for cost-sharing reduction (CSR) payments to insurers, and a separate bill she and Sen. Bill Nelson (D-FL) have developed regarding reinsurance proposals.

Collins also thinks these two provisions will have a “net downward effect on premiums,” even after repealing Obamacare’s individual mandate as part of the tax bill the Senate is currently considering. However, it appears that Alexander-Murray and Collins-Nelson’s net effect on premiums could end up being a nice round number: Zero.

Cost-Sharing Reductions and the Sequester

The statute that created the budget sequester applies a list of programs and accounts not subject to sequestration spending reductions. For instance, the law exempts refundable tax credits, like those provided to low-income individuals who buy coverage on Obamacare’s exchanges, from sequestration reductions.

However, neither cost-sharing reduction payments nor reinsurance would qualify as refundable tax credits. They are paid directly to insurers, not individuals, and are not part of the Internal Revenue Code. Also, neither cost-sharing reductions nor reinsurance are on a list of other accounts and programs exempted from the sequester.

The Obama administration previously admitted that cost-sharing reduction payments were subject to the sequester, in a sequestration report to Congress in April 2013, and in testimony before the House Energy and Commerce Committee in August of that year. In a separate 2014 report, the Obama administration also admitted that Obamacare’s transitional reinsurance program (which expired in 2016, and which senators Collins and Nelson effectively want to re-create) was subject to the sequester.

However, last year Judge Rosemary Collyer ruled these actions unconstitutional, because the treasury lacks a valid appropriation to pay out CSR funds. The Trump administration last month stopped the CSR payments to insurers, citing the lack of an appropriation. While the Alexander-Murray bill would appropriate funds for the CSR payments, it would do so through the Centers for Medicare and Medicaid Services, not the treasury—meaning that the sequester would apply.

Statutory PAYGO and the Sequester

Earlier this month, the Congressional Budget Office (CBO) released a letter to Rep. Steny Hoyer (D-MD) indicating that legislation increasing the budget deficit (on a static basis, i.e., not accounting for economic growth) by $1.5 trillion would result in a sequester order of approximately $136 billion for 2018. The existing statutory formula would deliver a 4 percent, or approximately $25 billion, reduction in Medicare spending, followed by about $111 billion in reductions elsewhere.

However, because the sequestration statute exempts many major spending programs like Social Security and Medicaid, CBO believes that only about $85-90 billion in existing federal resources would be subject to the sequester. This means an additional $20-25 billion in mandatory spending, if appropriated, would immediately get sequestered to make up the difference.

On the one hand, conservatives who oppose paying CSRs to insurers may support an outcome where insurers do not actually receive these payments. On the other hand, however, some may view this outcome as the worst of all possible worlds: Having surrendered the principle that the federal government must prop up insurers—and Obamacare—without receiving any actual premium reductions, because the payments to insurers never get made.

This scenario, when coupled with repeal of the individual mandate, could result in a legislative outcome that raises premiums next year—a contradiction of the promises Republicans made to voters.

This post was originally published at The Federalist.

More Missed Deadlines; They Said WHAT on Constitutionality?

In case you hadn’t seen it, Politico reported this morning that the Administration has missed another two deadlines on health care in the past month:

HHS MISSES TWO MONTH-OLD DEADLINES – Two provisions related to health care quality have gone unaddressed, despite the deadlines passing just over a month ago. The two issues: an Interagency Working Group on Health Care Quality report that was supposed to be issued Dec. 31 and a Healthcare Quality website that the law had going live on Jan. 1.

–HHS responded by highlighting the many deadlines the agency has hit on related issues. “The Affordable Care Act is already working to improve the quality and delivery of health care through innovative new approaches to coordinate care, share information and knowledge, and manage chronic conditions to help prevent more serious health issue,” spokeswoman Jessica Santillo told us. “HHS has met and beaten deadlines required by the Affordable Care Act and plans to have additional announcements on innovative efforts to improve quality in the weeks ahead.”

These new delays, on top of the other deadlines the Administration has already missed, do not speak well to the ability of HHS to roll out the law’s full implementation in January 2014.

In other news, in an ABC News interview yesterday, Sen. Bill Nelson publicly claimed the health care law has a severability clause – even though the measure contains no such prohibition.  Here’s his quote on whether or not the Supreme Court will strike the law down:

I think that’s a possibility, but it’s not a probability.  We were very careful when we crafted this law.  It is going to pass constitutional muster. There might be parts of it that might be struck down.  But there is at the end of it what is called a severability clause, that says if parts are stuck down, that doesn’t strike down the whole law.

However, Sen. Nelson is incorrect – the law includes NO such provision, which is why Judge Vinson was forced to strike down the entire measure earlier this week.  The exchange raised echoes of Speaker Pelosi, who famously said we had to pass the bill to find out what’s in it.  Perhaps however Sen. Nelson, who serves on the Finance Committee, was merely following the lead of that committee’s Chairman, Max Baucus, who in August told his constituents “I don’t think you want me to waste my time to read every single word in that health care bill….It takes a real…real…expert to know what the heck it is.  We hire experts.”

On a related note, a debate in the North Carolina legislature about a state bill designed to prevent the federal government from requiring individuals to buy health insurance prompted a response from the House Minority Leader, Democrat Joe Hackney.  Hackney’s argument: “Don’t tell me you’re not going to have any medical costs.  This is not hardware, this is not furniture, this is not a house.  This is medical care and you are going to purchase it whether you want to or not.”  Not exactly persuasive reasoning for why an individual mandate is not coercive…

Legislative Update: Extenders and 1099

As you may have seen, Sen. Baucus introduced his latest version of tax extenders legislation yesterday.  A summary of health related provisions follows below; however, all these provisions have been included in prior versions of the extenders package.  The Medicare SGR “doc fix” and extension of Medicaid “stimulus” funding were removed, both provisions having been signed into law earlier this year.  The remainders consist of several Medicare-related provisions, as well as a variety of tweaks of and changes to the health care law.  It also includes a $400 million provision (Section 510) adjusting Medicare fee schedule localities in California, which some may view as a legislative earmark.

While Sen. Baucus sought unanimous consent to pass the legislation yesterday, Republicans objected, due to both a lack of time to review the bill and lack of opportunity to offer amendments.  Following that exchange, Sen. Baucus told CongressDaily he expected consideration to take place during a lame duck session.  As a friendly reminder, the Medicare “doc fix” (which is not included in the current extenders package) expires at the end of November; physicians in Medicare face a 23 percent pay cut on December 1, followed by an additional 6.5 percent reduction on January 1.

Separately, Politico reports this morning that the Democrat leadership in the other body is preparing for another vote on a stand-alone 1099 measure, potentially next week.  Apparently the bill will fully repeal the 1099 reporting requirement included in Section 9006 of the health care law – something which Bill Nelson’s amendment, voted on in the Senate this week, did not do.  However, unlike Republican efforts in both the House and Senate to repeal the 1099 reporting requirement, the latest Democrat initiative would paid for by raising other taxes on business.  The article quotes one Democrat staffer as saying this latest 1099 repeal effort is designed “to put Republicans into a corner” by including a new tax on carried interest as a pay-for.

 

340B Program:  Adds inpatient drugs to the 340B outpatient discount program, and maintains childrens hospitals’ ability to participate in the 340B discount program with respect to orphan drugs.

Health Law Clarifications:  Repeals the health law’s delay of the revised skilled nursing facility prospective payment system, as well as the law’s extension of reasonable cost payments for certain laboratory services.  Repeals section 6502 of the law, which requires states to exclude certain providers from Medicaid and SCHIP.  Includes other clarifying amendments with respect to drafting errors in the health care law.

Other Provisions:  Extends for an additional year (through September 30, 2011) the Section 508 hospital reclassification program, at a cost of $300 million over five and ten years.  Provides $175 million in mandatory appropriations to CMS to implement the act’s provisions.  Includes clarifying provisions regarding eligibility for Medicaid health IT funding provided in the “stimulus.”  Provides $400 million to California to adjust Medicare fee schedule localities, and includes clarifying language preventing Medicare providers from un-bundling reimbursement requests.  Includes language regarding affiliated hospitals and language in the health care law surrounding distribution of medical residency positions.

Legislative Update on Extenders and 1099

As you may have seen, Sen. Baucus introduced his latest version of tax extenders legislation yesterday.  A summary of health related provisions follows below; however, all these provisions have been included in prior versions of the extenders package.  The Medicare SGR “doc fix” and extension of Medicaid “stimulus” funding were removed, both provisions having been signed into law earlier this year.  The remainders consist of several Medicare-related provisions, as well as a variety of tweaks of and changes to the health care law.  It also includes a $400 million provision (Section 510) adjusting Medicare fee schedule localities in California, which some may view as a legislative earmark.

While Sen. Baucus sought unanimous consent to pass the legislation yesterday, Republicans objected, due to both a lack of time to review the bill and lack of opportunity to offer amendments.  Following that exchange, Sen. Baucus told CongressDaily he expected consideration to take place during a lame duck session.  As a friendly reminder, the Medicare “doc fix” (which is not included in the current extenders package) expires at the end of November; physicians in Medicare face a 23 percent pay cut on December 1, followed by an additional 6.5 percent reduction on January 1.

Separately, Politico reports this morning that the Democrat leadership in the other body is preparing for another vote on a stand-alone 1099 measure, potentially next week.  Apparently the bill will fully repeal the 1099 reporting requirement included in Section 9006 of the health care law – something which Bill Nelson’s amendment, voted on in the Senate this week, did not do.  However, unlike Republican efforts in both the House and Senate to repeal the 1099 reporting requirement, the latest Democrat initiative would paid for by raising other taxes on business.  The article quotes one Democrat staffer as saying this latest 1099 repeal effort is designed “to put Republicans into a corner” by including a new tax on carried interest as a pay-for.

 

340B Program:  Adds inpatient drugs to the 340B outpatient discount program, and maintains childrens hospitals’ ability to participate in the 340B discount program with respect to orphan drugs.

Health Law Clarifications:  Repeals the health law’s delay of the revised skilled nursing facility prospective payment system, as well as the law’s extension of reasonable cost payments for certain laboratory services.  Repeals section 6502 of the law, which requires states to exclude certain providers from Medicaid and SCHIP.  Includes other clarifying amendments with respect to drafting errors in the health care law.

Other Provisions:  Extends for an additional year (through September 30, 2011) the Section 508 hospital reclassification program, at a cost of $300 million over five and ten years.  Provides $175 million in mandatory appropriations to CMS to implement the act’s provisions.  Includes clarifying provisions regarding eligibility for Medicaid health IT funding provided in the “stimulus.”  Provides $400 million to California to adjust Medicare fee schedule localities, and includes clarifying language preventing Medicare providers from un-bundling reimbursement requests.  Includes language regarding affiliated hospitals and language in the health care law surrounding distribution of medical residency positions.

Update on 1099 Amendments; Berwick U-Turn on Rationing?

Politico has two articles this morning on the 1099 amendment votes expected today: One outlining the state of play of the Johanns and Nelson amendments, and a second on an Administration letter sent to the Hill yesterday supporting Nelson and opposing Johanns.  The letter from Secretaries Sebelius and Geithner opposes the Johanns amendment’s reduction in funding for the Prevention and Public Health Fund, which some have characterized as a source of wasteful federal spending on pork projects like jungle gyms.  Perhaps most notably, a Wall Street Journal article quotes a Treasury official as stating the Administration wants to “keep the [1099] proposal…as a means to ensure tax compliance,” while slightly mitigating its impact on small businesses.  (The news that the Administration does not want to repeal the 1099 reporting requirement outright may come as a surprise to the 239 House Democrats who voted for a complete repeal of the new requirement back in July.)  Meanwhile, small businesses themselves continue to highlight the problems that this onerous new reporting requirement will cause, while advocating for the complete repeal of the 1099 provision: The NFIB sent a key vote letter supporting Johanns and opposing the Nelson side-by-side, while US Chamber of Commerce Executive VP Bruce Josten has a Roll Call op-ed on the issue.

Meanwhile, CMS Administrator Don Berwick made news of his own yesterday; the Associated Press reported that in an address at AHIP’s convention in Washington, Berwick “[spoke] out against rationing,” claiming that reducing costs should not involve “withholding from us, or our neighbors, any care that helps.”  Unfortunately, the story also notes that Berwick once again “left without taking questions from reporters,” so no one could question him about how his lengthy prior history of support for rationing “with our eyes open” comports with the comments in his speech.  (The speech is not posted online, so it’s unclear based on the reported excerpts whether “care that helps” will be defined on cost-effectiveness grounds, as Dr. Berwick has previously supported.)  Sens. Grassley and Hatch however sought to remedy Dr. Berwick’s continued failure to answer questions, by writing him yesterday to request that he either 1) ask Finance Committee Chairman Baucus to hold a hearing where he can testify or 2) commit “to appear before a panel of interested senators” in the event Sen. Baucus still refuses to call a hearing.

Nelson (FL) Side-by-Side Amendment (#4595) on Small Business Reporting

Senator Bill Nelson of Florida has offered a side-by-side amendment (#4595) as an alternative to the Johanns amendment (#4596) to the small business bill (H.R. 5297) regarding new corporate reporting requirements included in the health care law.  A cloture vote on the amendment is expected to occur on Tuesday morning, following an 11 AM cloture vote on the Johanns amendment.
Summary and Background:
  • The amendment modifies—but would not repeal—Section 9006 of the health care law.
  • The Section 9006 information reporting provision requires vendors and small businesses 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 amendment would exempt credit card transactions from the new 1099 information reporting requirements.  However, the Internal Revenue Service (IRS) is already working to implement these changes administratively.
  • The amendment raises the reporting threshold from $600 in aggregate transactions with an entity per year to $5,000.
  • The amendment also specifies that the new reporting provisions “shall not apply in the case of any person employing not more than 25 employees at any time during the taxable year.”
  • The amendment directs the IRS and the Treasury to “request and consider comments and suggestions from the public concerning implementation and administration” of the Section 9006 information reporting requirements.
  • To offset projected revenue loss from the above provisions, the amendment denies Section 199 deductions to “major integrated oil companies,” beginning in 2011.
Arguments Against:
  • Exempting only firms with under 25 employees from the new paperwork reporting regime would encourage small businesses not to grow large enough to trigger more bureaucratic requirements.
  • At a time when unemployment remains near record highs, the federal government should be enacting policies that encourage businesses to hire—and the Nelson amendment would discourage small businesses from hiring new workers, by subjecting them to new paperwork requirements when they do.
  • Repeal of the burdensome “paperwork tax” imposed by Section 9006 of the health care law should not be paid for by yet another tax increase—one that could affect small businesses just as hard, by raising fuel prices during a recession.
  • According to a recent report issued by the National Small Business Association, small businesses estimate that the new 1099 reporting requirements will increase the number of 1099s filed from 10 to 86.  This nearly 800% increase in paperwork requirements as a result of one provision in the health care law begs for the provision’s repeal, not its modification.
  • The National Small Business Association survey also found that only 30 percent of small business’ purchases subject to 1099 reporting were made by credit card.  Thus the credit card exemption—which the IRS is already implementing administratively—is insufficient to solve the problem.
  • While increasing the 1099 filing threshold from $600 to $5,000 may reduce the number of 1099s filed, it will not appreciably reduce the paperwork burdens on businesses, who will still have to track all their annual purchases with vendors to determine whether or when they will hit the $5,000 threshold triggering the new reporting requirements.
  • In a report earlier this year, the National Taxpayer Advocate noted that “the IRS will face challenges making productive use of this new volume of information reports” required by the health care law, because “the amounts on the information reports and the tax returns” will not match for a variety of technical reasons.  The Nelson amendment would preserve a reporting regime that will place onerous new burdens on small businesses, yet won’t give the IRS useful information to combat tax evasion.
  • Eliminating Sec. 199 altogether for only the oil and gas industry will have the harmful effect of hurting American energy workers and their contributions to our economic recovery. By taxing American energy, it will make domestic production even more expensive than it already is, and it will increase foreign oil and refined products imports.

Johanns Amendment (#4596) on 1099 Reporting

Senator Johanns has offered an amendment (#4596) to the small business bill (H.R. 5297) regarding new corporate reporting requirements included in the health care law.  A cloture vote on the amendment is scheduled for Tuesday at 11 AM.  Background information on the Johanns 1099 amendment and the Nelson side-by-side can be found in two articles on the issue, one by the New York Times and another in this week’s National Journal.
Summary and Background:
  • The amendment repeals Section 9006 of the health care law.  This Section 9006 information reporting provision requires vendors and small businesses 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 amendment is paid for through 1) an expansion of the affordability exception to the individual mandate; 2) postponement of the mandatory appropriations to the Prevention and Public Health Fund created under Section 4002 of the health care law until Fiscal Year 2018; and 3) a corporate tax timing shift.
  • The amendment lowers the affordability exemption in the health care law’s individual mandate from 8 percent of income to 5 percent.  The affordability exemption creates a threshold so that people who do not have access to affordable health insurance (that costs less than the threshold) do not have to pay the individual mandate penalty.  In the underlying bill this threshold is 8 percent of income; lowering the threshold to 5 percent of income saves money because fewer people will take health care subsidies.  This provision was accepted by members on both sides during the Senate Finance Committee mark-up.
  • The amendment would strike $11 billion in mandatory appropriations from the Prevention and Public Health Fund created in Section 4002 of the health care law by striking all appropriations to the Fund prior to Fiscal Year 2018.  During the HELP Committee markup of the health care bill last summer, some Senators raised concerns that the Fund could spend federal taxpayer dollars supporting jungle gyms, grocery stores, and other similar projects.
Arguments in Favor:
  • According to a report issued by the National Taxpayer Advocate, the new 1099 reporting requirements will affect 40 million businesses—ten times the number of firms the Administration asserts will benefit from small business tax credits.
  • The Taxpayer Advocate has also called the reporting requirement “disproportionate” and “burdensome” for small business.  For instance, the Taxpayer Advocate noted that small businesses “may lose customers” to larger chains more easily able to comply with the new requirements, and that “it is highly likely that the IRS will improperly assess penalties” for not filing forms.
  • The Taxpayer Advocate has also noted that “the IRS will face challenges making productive use of this new volume of information reports” required by the health care law, because “the amounts on the information reports and the tax returns” will not match for a variety of technical reasons.
  • The amendment fully repeals the 1099 reporting requirements, and does so by reducing federal spending, rather than by raising taxes at a time of near-record high unemployment.