1099 debate illustrates big government ‘problem solving’ (Updated)

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.

100 comments Add your comment

Grumpy

September 14th, 2010
11:48 am

2,000 page bills always = unintended consequences. Watching liberals backpeddle as fast as they can = comedy.

HDB

September 14th, 2010
11:51 am

Grumpy – noting how Republicans have messed up, been called out on it….and still haven’t learned the error of their ways: PRICELESS!!

Question Authority

September 14th, 2010
11:55 am

The Patriot Act was passed with the same kind of blind ignorance from both parties and we continue to suffer from it too.

Congress must be dismantled, one election at a time.

GOVERNMENT IS THE PROBLEM, NEVER THE SOLUTION.

Ivan

September 14th, 2010
11:58 am

Which Republican voted for this bill?

QA,

We’ll get there eventually. We just have remove the rose colored glasses both sides are wearing.

Kyle Wingfield

September 14th, 2010
12:06 pm

Ivan: I assume your question about Republican votes referred to the original phrasing of Step 3. That was due to an editing oversight on my part…I’ve fixed it now.

retiredds

September 14th, 2010
12:18 pm

It has been obvious from the “get go” to this blogger that there would be changes and modifications to the health care reform law over the next five years. So what’s all the fuss about? Must be an election year.

Ivan

September 14th, 2010
12:21 pm

Actually Kyle I should have clarified myself. It was more pointed towards HDB’s post about how “Republicans messed it up”, when I don’t remember a Republican voting in favor of ObamaCare.

Too bad I can’t go back and edit :D

DawgDad

September 14th, 2010
12:22 pm

November is coming . . .

Not So Casual Observer

September 14th, 2010
12:43 pm

Ivan,

Discussion with a one-trick pony such as HDB is a waste of time.

At least in the case of the Patriot Act I do not recall a Republican standing behind a microphone to suggest the bill should be passed in order to learn the contents. That one comment from Nancy Pelosi defines the liberal mindset of “you need not worry we know what is best for you”.

Even Harry Reid, scrambling to be reelected, has disavowed the contents of Obamacare.

Just Say No To Barnes

September 14th, 2010
12:45 pm

Gotta love that Democratic belief of “pass it to see what is in it” hard at work. Barnes, Thurmond, Stanford “free scholarships to my family members” Bishop – all going down in flames.

Intown

September 14th, 2010
12:51 pm

Government is a means to an end, not the enemy.

The Day After Tomorrow By DAVID BROOKS Published: September 13, 2010
http://www.nytimes.com/2010/09/14/opinion/14brooks.html?_r=1&ref=opinion

Ivan

September 14th, 2010
12:57 pm

Casual, I agree. I’ve said that about the liberal mind set for years.

Not So Casual Observer

September 14th, 2010
1:00 pm

Intown,

David Brooks’ examples of using government to reach an end all encompass the one guiding philosophy he fails to expand. That philosophy was “encouraging” the private sector to take a specific direction. I admire Brooks but he failed to follow his own words.

The current administration and Congress wish to not only encourage the effort but manage the effort and reduce private sector involvement. There is the rub and exactly the reason a growing number of citizens view the government as the enemy.

DawgDad

September 14th, 2010
1:10 pm

“Even Harry Reid, scrambling to be reelected, has disavowed the contents of Obamacare.”

He cannot repeat CANNOT disavow Obamacare. He is the Senate face of Obamacare. Without him, it probably doesn’t pass in its current form, and he actually wanted it to go much farther (full public option, more stringent infringements on our liberty).

I have every confidence Nevada voters will send Reid packing, and I won’t be satisfied until Obamacare is struck down in the courts, or completely reversed/gutted legislatively.

Harry Reid and the Dems are coming after our 401k money if they manage to cling to power, and I will not abide the seizure of my life savings by the government.

On this 1099 issue: I have personally been responsible for issuing 1099 forms and related tax forms for a major public corporation. It is a huge nightmare, and the current system does not work well. Many companies take their chances on non-compliance penalties in lieu of tracking information required to produce accurate 1099s. This doesn’t just affect companies; many retirees are required to obtain and report 1099s on their tax returns and suffer when companies do not comply. I understand why the Dems are doing this, but it is just nutty.

Kyle Wingfield

September 14th, 2010
1:11 pm

Intown: You’re right. But the problem comes when government decides the ends as well.

Not So Casual Observer

September 14th, 2010
1:16 pm

Dawgdad,

Reid has, during his campaign in Nevada, cited specific parts of Obamacare and indicated he did not know those requirements were included. He went on to say he would return to Washington and take steps to rectify the wrong.

What Reid “wanted” then is no longer important, his only concern now is placating the Nevada voters to convince them to vote for Good Ol’ Harry.

I do not believe for a moment Reid will keep such a promise if he is sent back to Washington.

HDB

September 14th, 2010
1:17 pm

Ivan September 14th, 2010
12:21 pm

How did Republicans mess this up?

1) Not having any policies when they were in power!
2) Not addressing the issue when they were in power
3) Creating scapegoats like Hispanics and Muslims when they aren’t in power!
THAT’S how Republicans messed up!!

Not So Casual Observer

September 14th, 2010
12:43 pm
Ivan,

“Discussion with a one-trick pony such as HDB is a waste of time.”

Got a few tricks up my sleeve, son!! More upcoming!! LOL!!

Jefferson

September 14th, 2010
1:20 pm

Leave it alone. Sounds like business is not paying about 17m they owe.

Reid is ahead/will win.

I thought the deficit was a concern, raise revenue.

Grumpy

September 14th, 2010
1:33 pm

This also shows an unintended consequence of “pay as you go” rules, which is a noble idea but often ends up resulting in dumb stuff like this. 1099 reporting has nothing to do with health care, but the Dems needed the $17 billion “savings” to make the bill balance. PAYGO should be modified or scrapped.

Tomnmy Maddox

September 14th, 2010
1:44 pm

Gov. Lester Maddox used to sit backwards on a bike handlebars and pedal away. That was comedy.

This is not.

commoncents

September 14th, 2010
2:00 pm

It is sad when our gov’t can’t decide on how to fix something this simple. Makes you wonder how they accomplish anything at all. Oh, wait…. *facepalm*

JF McNamara

September 14th, 2010
2:09 pm

Step 7: Republican media apologist come complain bitterly even though the Republicans had their chance to be a part of the process and chose to stonewall.

Instead of whining now, shouldn’t the Republicans have been whining before passage? Oh yeah, they were too busy yelling about death panels when they should’ve been doing the job they were elected to do and being a productive counterbalance. Oh yeah, governance is hard. Whining after the fact is easy especially if you have no ideas of your own.

Kyle Wingfield

September 14th, 2010
2:12 pm

JF: Republicans *were* warning about stuff like this before passage. And the “had their chance to be a part of the process” line is way past its expiration date. Obama wanted Republican votes, not any conservative ideas.

Jason T

September 14th, 2010
2:16 pm

For those of you wondering what Cynthia’s blog is about today:

Liberals Good
Conservatives Bad
Democrats Good
Republicans Bad
Black people Oppressed
White people oppressors

There, should save you the trouble.

Shawny

September 14th, 2010
2:17 pm

“Government is a means to an end”

Yeah, the end of the value of the dollar.

Jefferson

September 14th, 2010
2:19 pm

I’m not sure what was just said. Why didn’t the 1099 goo come out if the GOP didn’t like it. 1st I heard about it was today, on the surface it sounds like a revenue producer.

JackLeg

September 14th, 2010
2:35 pm

Those rascally republicans messed up, and yes they did but did it cost TRILLIONS of dollars? Just in case you liberals can’t figure it out the answer is NO. If the health care bill had anything to do with health care they would have done one thing, increased the competition, allow insurance to go over state lines. What a novel idea, why don’t we do it now, could it be because the government manufactured problem would be solved without government take over? Could it be that the dimacrats would not get their hands into mom’s purse, I mean the taxpayers money..

Jimmy62

September 14th, 2010
2:42 pm

Question Authority: Would love for you to list the unintended consequences of the Patriot Act, as well as list at least two specific examples of a citizen’s civil rights being taken away by the Bush administration (I’ll give you Jose Padilla, name others).

JMC

September 14th, 2010
2:44 pm

I pay my taxes! Businesses should pay theirs also!! Please cut the BS about costing more than 17 billion to comply. I could calculate this with a couple on key strokes using excel. Where did you get such an outlandish statement!

kitty

September 14th, 2010
2:51 pm

First of all if it is going to make taxpayers more compliant by $17 million that is a good thing. They are supposed to be reporting that income on the 1099 on their tax return anyway. If they aren’t they are breaking the law.

Yes, the compliance is onerous. For the small business owner Form 1099 tracking is a pain. I get that, but it sounds like the $5,000 floor with the more than 25 employees will help ease that burden. Those business owners are likely already doing 1099 tracking. Either way they still should be reporting the income on their returns to begin with. Anything less is BREAKING THE LAW.

kitty

September 14th, 2010
2:53 pm

Kyle, only better compliance will get some taxpayers to pay their legal share. That is the whole point of Form 1099 to begin with. IF they aren’t including that income on their returns they are BREAKING THE LAW.

Brad

September 14th, 2010
2:57 pm

How does this increase taxes? The only tax increases that I can see would be for businesses that are
currently under-reporting income (see Kitty’s comment above).

Horrible Horace

September 14th, 2010
3:09 pm

These Turds must go.

DawgDad

September 14th, 2010
3:19 pm

kitty: The problem is the government is burdening the compliant people with the costs of the system. There are two big objectives here: (1) capture back unreported tax revenue [almost certainly a net drain on the economy, considering the costs], and (2) create a new industry to employ thousands of bureaucrats thusly owing the existence of their non-productive jobs to the Dems (similar to effect of SOX).

markie mark

September 14th, 2010
3:27 pm

Jefferson – because we werent allowed to read the #!@$~@#$ bill before the Dems passed it…what part of Pelosi’s statement “we have to pass it to see whats in it” did you miss?? Remember the open govt promises? Bills would be posted for, oh 5 days or so, before passage?

John

September 14th, 2010
3:29 pm

Instead of complaining, when will Repubs offer solutions. Oh wait, at least one candidate did…do away with Obamacare and let everyone pay their medical bills in chickens. But dang, she lost…and I was looking forward to invest in a chicken farm to pay medical bills. The solution offered by her challenger and won the primary…if Republicans don’t get their way, they are going to use their 2nd amendment remedies.

Of course, we also have the Sarah Palin, tea party backed candidate in Delaware who not only advocates in sexual abstinence with a partner but also abstinence without a partner.

That’s what the Republicans are offering this election cycle.

former business owner

September 14th, 2010
3:30 pm

the 1099 rule will destroy small business.

the avalanche of paperwork will overwhelm bookkeepers and the IRS.

Companies will be inclined to use fewer vendors so they can reduce their paperwork burden – no more shopping around! You will need to go to the big box stores to make it easier to track where you spend your money. Buying from a new vendor will require you to fill out and reconcile MORE tax paperwork.

In my former business, I estimate this 1099 requirement would have created about two weeks of additional work for the bookkeeper and even more hours billed by the CPA to verify the forms. My former wholesale business would not being paying tax for cost of goods for manufacturing. Retail purchases have tax collected at the point of sale with no other taxes to be collected on that item. Personal services are now trending to a cash-only market.

Where will the government will actually collect more tax income?

This creates a direct increase in business operations cost with no net benefit to the government.

I guess I should be glad that I am already bankrupt. The government can’t steal it if you don’t have it!

markie mark

September 14th, 2010
3:30 pm

JMC…let me tell you a little secret, as a former business owner. BUSINESS DONT PAY TAXES. There, now you know. What the government hits me with, I raise my prices and pass on to you and your family. If thats ok with you, then so be it. I dont want my family payer higher prices for goods and services.

markie mark

September 14th, 2010
3:33 pm

Kitty….it was not the business owners responsibility BEFORE to send in 1099’s on another company they did business with. It was the company that sold to the business whose responsibility it was….If you sell my business $1000 worth of goods or services, its YOUR responsibilty to report…now it just became MINE.

econ guy

September 14th, 2010
3:42 pm

wow – the liberals just don’t get it.

Your boss buys you a new computer at Best Buy for $650. Sales tax is paid when he went to the cash register. Your company accountant now has to send a 1099 form to Best Buy and a copy to the IRS. The IRS will have to reconcile that 1099 form with purchases made at Bust Buy. No additional tax will be paid with this paperwork.

What if the boss decides to buy a professional quality printer at another store? Another 1099 form…. Take your ink cartridge to get it refilled? Do it several times in one year and you will be filling out one more 1099 form….

Does the boss go to Kroger to buy sandwiches for the company meeting each week? Another 1099 form!!

John

September 14th, 2010
3:45 pm

former business owner…’In my former business, I estimate this 1099 requirement would have created about two weeks of additional work for the bookkeeper and even more hours billed by the CPA to verify the forms. ”

When did you own your former business…the stone ages? Don’t businesses today rely on computers and software. Software companies will integrate this new requirement into their accounting packages which will keep track of the information and automatically generate the forms.

JF McNamara

September 14th, 2010
3:45 pm

Kyle,

There are a lot of conservative ideas since a lot of the healthcare bill is a direct rip off of the Romney plan. At the time, there was so much noise and hateful rhetoric generated by Republicans that any truth coming out of their mouth was drowned out. They completely failed all of us with their elementary school tactics. If they had done their job and governed responsibly, the public could have stopped the bill. I was so busy fact checking all the chicken little sky is falling lies, that I completely tuned them out towards the end.

If you don’t want to acknowledge that the Republicans are also culpable, that’s up to you. The fact of the matter is that they are just as culpable as every Democratic Congressperson. It’s your blog, and you can come on here an cheerlead for the Republicans every day, but you’re no better than Glenn Beck or Hannity (but that’s who I’m sure you aspire to be).

Also, don’t intermingle the words conservative and Republican. You are a Republican. You are always on their side and never criticize them even when they pull the same dumb stunts as Democrats. Anywhere you use the word conservative, please find and replace it with Republican.

John

September 14th, 2010
3:56 pm

JF McNamara, you forgot to mention, most of the ideas in the health care plan originated with Republicans. It was the plan they put forth during the Clinton health care debate. The same Republicans who singed and brought forth that plan has criticized it since it’s now been passed…saying it’s unconstitutional. Of course, when questioned and pressed about it, they claim to have learned more about the constitution since the time they originally proposed it…and they have come to believe now that it’s unconstitutional.

Kyle Wingfield

September 14th, 2010
4:12 pm

JF: A lot of conservatives criticized the Romney plan at the time. Romney himself, while not disavowing what he did in Massachusetts, says the same thing wouldn’t be appropriate at the federal level.

As for the president’s interest in Republicans’ ideas: If he was being sincere, then why didn’t any of the very limited number of their ideas that he even acknowledged publicly — tort reform comes to mind — make it into the bill in any serious way? The fact is that his and the congressional leadership’s approach to health reform from the very beginning was colored by their party’s 60 votes in the Senate and huge majority in the House. Then, once they lost the 60th Senate vote, they proceeded to legislate as if they still had the supermajority. They didn’t think they had to compromise, and so they didn’t offer to do so in any meaningful way.

Obama had every right to say “I won” and that the GOP had to shut up. But for him (and his supporters) to then turn around and complain about a lack of bipartisanship and cooperation is pure chutzpah.

@@

September 14th, 2010
4:14 pm

But, Kyle, it was history in the making, don’tcha know?

Government and wet dreams…gotta luv it.

markie mark

September 14th, 2010
4:15 pm

John – the 1099’s dont load themselves into that software….thats what a bookkeeper does. And then you have to file the hard copies for IRS inspection….multiply that by EVERY vendor you do business with in the course of a year…I think two weeks is a vast understatement of the hours that would be involved in loading and filing potentially thousands of 1099’s every year. And I never did 1099’s when I owned my business, because I never used any kind of “temp labor” that I didnt take taxes out of…stone age, indeed.

John

September 14th, 2010
4:17 pm

“Your boss buys you a new computer at Best Buy for $650. Sales tax is paid when he went to the cash register. Your company accountant now has to send a 1099 form to Best Buy and a copy to the IRS. The IRS will have to reconcile that 1099 form with purchases made at Bust Buy. No additional tax will be paid with this paperwork.”

Seems to me you don’t get it econ guy. Same concept as w2’s, 1099’s, ect. for individuals. No additional taxes will be paid with this paperwork as well…unless, of course, the amount of taxes owed was not fully paid. The IRS already has to reconcile these forms already. With the reconciliation of these forms, how much does the IRS collect that was underpaid throughout the year.

Maybe we should do away with w2’s and all other forms as well. It would save companies money and the IRS would just accept what everyone reports as being accurate.

HDB

September 14th, 2010
4:23 pm

Kyle Wingfield September 14th, 2010
4:12 pm

The problem with tort reform is that it’s a ploy to deny the rights of someone to have their day in court. Frivolous law suits are evident…and are treated summarily…but limiting the damages that someone seeks is not determined by a legislative body — it’s to be determined by a JURY of one’s peers! To do anything else undermines the judicial system!!!

John

September 14th, 2010
4:26 pm

‘As for the president’s interest in Republicans’ ideas: If he was being sincere, then why didn’t any of the very limited number of their ideas that he even acknowledged publicly — tort reform comes to mind — make it into the bill in any serious way?”

Kyle, you fail to mention while the president wanted to hear the Republican’s ideas…even had it televised, the Republican’s didn’t want to talk about getting any of their ideas into the legislation or offering solutions to be debated in areas where there was differences. Republicans wanted to scrap the whole thing and start over…and would not talk about anything else.

John

September 14th, 2010
4:31 pm

Kyle…you mention tort reform. Of course, in tort reform you really mean limiting of damages. That was passed in the state of GA. The GA Supreme Court ruled it unconstitutional this year.