When Asshat Legislators Don't Read The Crap They Vote In
Obamacare included this cute little provision mandating that businesses track and paper-trail all transactions over $600, and report them to the IRS, reports the WSJ:
Democrats tucked the 1099 reporting footnote into the bill to raise an estimated $17.1 billion, part of the effort to claim that ObamaCare reduces the deficit by $100 billion or so.But this "tax gap" of unreported business income is largely a Beltway myth, and no less than the Treasury Department's National Taxpayer Advocate Nina Olson says the costs will be "disproportionate as compared with any resulting improvements in tax compliance."
Meanwhile, small businesses are staring in horror toward 2013, when the 1099 mandate will hit more than 30 million of them. Currently businesses only have to tell the IRS the value of services they purchase from vendors and the like. Under the new rules, they'll have to report the value of goods and merchandise they purchase as well, adding vast accounting and paperwork costs.
Think about a midsized trucking company. The back office would have to collect hundreds of thousands of receipts from every gas station where its drivers filled up and figure out where it spent more than $600 that year. Then it would also need to match those payments to the stations' corporate parents.
Most Democrats now claim they were blindsided and didn't understand the implications of the 1099 provision--which is typical of the slapdash, destructive way the bill was written and passed.
...Yesterday the White House endorsed a competing proposal from Florida Democrat Bill Nelson that would increase the 1099 threshold to $5,000 and exempt businesses with fewer than 25 workers. Yet this is little more than a rearguard action in favor of the status quo; the Nelson amendment leaves the basic architecture unchanged while making the problem more complex.
Businesses would still have to track all purchases, not knowing in advance which contractors will exceed $5,000 at the end of the year. It also creates a marginal barrier to job creation--for a smaller firm, hiring a 26th employee would be extremely costly.
Punish productivity! Diminish hiring! Create lots and lots of make-work that creates nothing!
Mary McCandless had a smart comment at the WSJ:
Here's what I wrote to NC Senator Kay Hagan - and haven't heard a word back from her!Dear Senator Hagan,
Since your office assured me you had read the entire ObamaCare bill before you voted for it, I assume you approve of the requirement in the bill that all businesses issue 1099 tax forms to all suppliers of amounts spent in excess of $600.
Does this mean that I must get the Federal Tax ID numbers for Time Warner Cable for the internet service they provide my business? Does this mean that I must get the Federal Tax ID numbers for Verizon for my phone service? Does this mean that I must get the Federal Tax ID numbers for Duke Power for my utilities? And how about Forsyth County for my property tax payments?
My main concern is the businesses to which I must provide my own tax ID number. How do I protect myself and my business from identity fraud when my tax ID number is floating around in cyberspace - passed along to who knows who?
Did you really consider the ramifications of this requirement when you were reading all 2000 pages of the ObamaCare bill that was rushed to the floor for a vote (violating your and Obama's pledge that it would be published for at least 72 hours before the vote?)
How will you protect me and my business from the fraud caused by this bill, and how I am going to get all the tax ID numbers of the vendors I do business with?
Sadly, this was well publicized before the final bill was voted on as one of the huge problems with it. Even if they didn't read the bill, they were likely told about this provision...though I suppose they may have chose not to believe that it was there.
The Former Banker at September 15, 2010 1:05 AM
It's coincidence that the candidates that were supported by the Tea Party won yesterday. The people are happy with the job the professional politicians are doing and wouldn't want them replaced with rank amateurs.
Full disclosure: I don't think I've ever voted in a primary before yesterday.
MarkD at September 15, 2010 6:27 AM
They are "Asshats." Hey we wan't to keep heaping more and more costly legislation and bureaucracy on you small businesses, and we also want you to hire more people. ASSHATS!
One of the most basic goals of business is to be lean and effecient. Can't do this when the government keeps interfering.
David M. at September 15, 2010 7:03 AM
I process the 1099s for my company, a credit insurer with some defunct medical business in the process of attrition. Medical payments do not fall under the current corporate exemption, so we file almost 6,000 1099s each year. This change will only add another 50 or so 1099s to what we already file. Not a big deal.
HOWEVER, what hasn't been discussed much in the articles I've read on the matter are the potential fines related to 1099 reporting. Each year the IRS does "TIN matching" - looking to see if the taxpayer ID and names I provide on the 1099s match the TIN/name pairings in the IRS' records. If they don't, I am potentially subject to a fine of $50/error, up to maximum of $250,000 penalty per year. The Health Care Reform increased these penalties to $100/error, to a max $1.5 Million/yr.
Our proposed penalties have averaged around $4,000 the last 5 years. Currently, my small company can get these penalties abated by documenting our "due diligence" in acquiring taxpayers' ID #s, but every year I wonder if this is the year they force us to pay up.
My boss, who used to work for a much larger insurer, which files tens of thousands of 1099s, says each year, they simply paid the $250,000 maximum penalty due to the sheer volume of their 1099s. The necessary due diligence to ensure a minimal error rate is simply infeasible and cost-prohibitive.
Cindy G at September 15, 2010 8:49 AM
So, does this mean that passing a bill in order to find out what's in it is not an effective way to legislate?
Conan the Grammarian at September 15, 2010 9:00 AM
"My boss, who used to work for a much larger insurer, which files tens of thousands of 1099s, says each year, they simply paid the $250,000 maximum penalty due to the sheer volume of their 1099s. "
So basically it's piracy. You pay a large fee to someone who can command guns to be pointed at you, in order to stay in business. It's a protection racket that Al Capone would be jealous of.
Cousin Dave at September 15, 2010 1:54 PM
I used to work for a bank -- we did construction loans.
So we had to do 1099's. The system is so complicated already that we were never sure which 1099's we had to generate and didn't. The final conclusion by the five CPA's and a lawyer was generate them all, let god sort it out.
Jim P. at September 15, 2010 8:31 PM
Hmm, we had a buisness convention/tradeshow at a local hotel not too long ago. I figure every single company that was there spent at least 1000 on the hotel. 3-day show, at least one room, more likely 2.
Just picture it, needing to trade tax forms when checking into a hotel on every multi day buisness trip, plus the airlines, 4 round trip tickets, plus extra charge for the gear/materials.
I'd put it down as one more hurdle for growing from 25 to 26 employees, there are so many. No one wants to add the 26th unless the same day they plan on hiring 20 or so more.
Joe at September 16, 2010 8:47 AM
This is scary.
I still want someone to pass a bill saying that no bills can be over 20 pages. And I'd like a bill saying that no bill can be on more than 1 subject, but I know that the politicians would figure out ways to argue that multiple things are one subject.
Dave Barry once said that politics is made up of 2 words: poly, meaning "many" and "tics", meaning "blood-sucking insects". Hard to argue with that.
KrisL at September 16, 2010 6:33 PM
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