Today’s vote on the 1099 reporting requirement included in ObamaCare will be significant on the merits. As it stands, the new requirement to file a 1099 tax form for business-to-business transactions that exceed $600 in a year will cost businesses an estimated $17 billion in taxes and, according to the National Federation of Independent Business, even more than that in compliance costs.
But it also happens to be a great window into the way government “solves” a problem it created in the first place.
Step 1: Congress passes, and the president signs, a hastily assembled bill that’s thousands of pages long and full of provisions that many lawmakers admit they have not read and don’t understand.
Step 2: Businesses that must comply with the legislation do read the bill, and discover that they’re being hit with an unreasonable new mandate.
Step 3: Lawmakers on both sides of the aisle bemoan this new mandate. [Edited at 12:04 p.m.]
Step 4a: Republicans propose eliminating the new mandate and the $17 billion in new taxes it creates. They propose offsetting this “cost” — which is a misnomer anyway, given that the government wasn’t receiving this revenue before, and hasn’t yet begun to receive it — by also eliminating new spending in the bill.
Net cost to government: zero. Net savings for taxpayers: $17 billion. Net savings for businesses: More than $17 billion. Direction of government: smaller.
Step 4b: Democrats propose making the new mandate more complex, and possibly more economically costly, in the name of reducing its burden. They propose raising the reporting threshold for some transactions to $5,000 instead of $600, and requiring only firms with more than 25 employees to comply with it. They propose offsetting the “cost” by raising taxes on oil and gas companies.
Net cost to government: unknown — I have yet to find a cost estimate for this plan, and in any case the oil-and-gas taxes may or may not raise enough money to cover it. Net savings for taxpayers: it would actually be a net cost, because taxes will still rise by some degree due to the 1099 requirement while taxes also rise on oil and gas companies. Net savings for businesses: unknown, but it will be significantly less than a full repeal because companies will still have to calculate the value of at least some of their transactions; there is also the unmentioned cost to the economy of discouraging marginal employment by arbitrarily and disproportionately raising the cost of a firm adding a 26th worker. Direction of government: even larger.
Step 5: Senate Democrats, pressured by a president who worries that the removal of a first plank of his signature bill will lead to the entire thing’s unraveling, most likely will choose the plan outlined in Step 4b.
Step 6: Democrats try to make up for this and other mandates it’s put on small businesses by offering $42 billion in new loan programs and tax breaks, rather than unwinding costly mandates old and new.
End result: You’re still out of luck.
UPDATE: Both the GOP and Democratic amendments were defeated. Businesses now have to settle for worthless pledges from the Treasury to address their concerns. The pledges are worthless because the feds tend not to be lenient in enforcing tax laws — unless you count the tax delinquencies of federal employees.