Dems won’t repeal 1099 provision in ObamaCare

posted at 12:45 pm on July 31, 2010 by Ed Morrissey

The bad news: as I predicted yesterday, the bipartisan effort to repeal the ObamaCare provision that requires companies to create 1099 forms for every business-to-business transaction has run aground on the shoals of Pay-Go.  The good news: four months after the bill passed, the Associated Press has caught up to the story:

Tucked into the new health care law is a requirement that could become a paperwork nightmare for nearly 40 million businesses.

They must file tax forms for every vendor that sells them more than $600 in goods.

The goal is to prevent vendors from underreporting their income to the Internal Revenue Service. The government must think vendors are omitting a lot because the filing requirement is estimated to bring in $19 billion over the next decade.

Er, maybe the AP could have asked that question a few months ago.  Three months ago, Cato’s Chris Edwards had not only identified the provision, but the potential scope of the problem.  It would have been even more helpful to have had a debate on this provision earlier than that — oh, say, before Congress passed ObamaCare and Barack Obama signed it into law.

Instead, Democrats now need to either find new revenue to replace the $19 billion or make a commensurate amount of cuts, thanks to their Pay-Go rule and their no-deficit pledge for ObamaCare.  Guess which approach they took?

Republicans want to repeal the filing requirement and pay for it by changing other parts of the new health care law, a strategy that Democratic leaders won’t support. Democrats want to repeal the filing requirement and pay for it by raising taxes on international corporations and limiting taxpayers’ ability to use special trusts to avoid gifts taxes. Republicans won’t support that.

The House rejected the Democratic bill Friday after Democratic leaders brought it up under a procedure that requires a two-thirds majority for approval. The vote was 241-154, with nearly all Democrats voting in favor of the bill and nearly all Republicans opposed.

And guess who’s fault is that, according to Democrats?

“Despite all of their rhetoric about the need to eliminate this reporting requirement, Republicans walked away from small businesses when it mattered most,” said Rep. Sander Levin, D-Mich., chairman of the tax-writing House Ways and Means Committee.

No, Republicans refused to raise taxes on businesses in order to rescue Democratic chestnuts from the fire.  Business didn’t create this problem; Democrats did by passing a bill without proper debate, and without having a clue how its provisions would hamstring the private sector in red tape.  And let’s not forget that at least in the House, Democrats can pass anything they like, with or without GOP assistance.

Levin can toss blame until he turns blue from the effort, but this debacle belongs to Levin, Pelosi, the Democrats, and Barack Obama.  They have been hoisted with their own Pay-Go petard.


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But will the public recognize this blatant act? This is the second time they tried it in 2 days, the 9/11 bill and this. And if Anthony Weiner has anything to say about it the blame will be labeled with a big red R.

LifeTrek on July 31, 2010 at 6:16 PM

good point, if they do show it on the msm, they put weiner in a good light and those mean old GOP just won’t help anyone out

cmsinaz on July 31, 2010 at 7:00 PM

The government must think vendors are omitting a lot because the filing requirement is estimated to bring in $19 billion over the next decade.

What total idiots. First off, $19 billion over ten years is chump change for these goons; second, how much less in revenue are they going to collect as the 1099 paperwork strangles small businesses? Not to mention all the other horrible parts of Obamacare that will kill small businesses.

But really, hammering small businesses is the goal, isn’t it.

Missy on July 31, 2010 at 7:03 PM

How about this: Lets over-comply. Make the 1099 a part of the sales process. Create a 1099 for every single purchase, regardless of amount.

I’ll bet we can keep it up longer than the IRS can.

applebutter on July 31, 2010 at 7:43 PM

All tyrannies hate the middle class and small businesses, and our tyranny is following the game plan.

Dhuka on July 31, 2010 at 8:12 PM

Obamacare NEEDS TO BE REPEALED. COMPLETELY.

Kini on July 31, 2010 at 12:53 PM

That will involve repealing Obama and that has to wait till 2012. Until then all we can do is defund the mess.

JIMV on July 31, 2010 at 8:19 PM

It gets better with the new regulations for ‘enhanced’ 1099s. Under the new regs if you file paper 1099s the ‘A’ copies must all be machine readable by the IRS, starting with the first one. The allowance for the first 50 copies to be hand-written has been dropped. Machine-readable forms are now always required (see Pub 1220 page 5).

You must use a special MICR encoded blank 1099 form that the IRS will ship to you that they can optically read. You cannot print the 1099 PDFs from the IRS website and type into the boxes – they will not be accepted (see page 6 of the Form 1099 instructions). The fine is $50 per 1099. See http://www.irs.gov/pub/irs-pdf/p1220.pdf.

You have to phone the IRS and ask them to ship you the required number of blank 1099s that have the red-letter MICR printing. You have to feed these blanks into your printer and carefully align the empty text-boxes with your printer. Last year it took me more over an hour of fiddling to get it right.

Gideon7 on July 31, 2010 at 8:53 PM

If you have 250 or more 1099s you must file the ‘A’ copies electronically. If you use paper there is a $50 penalty for each item after the 249th.

The electronic format uses a 750-column fixed layout that dates back to the 1960s era of computer punch-cards. (For example: Two dollar amounts 199.95 and 395.95 would look like 0001999500039595).

See the summary diagram here.

Gideon7 on July 31, 2010 at 9:15 PM

How about this: Lets over-comply. Make the 1099 a part of the sales process. Create a 1099 for every single purchase, regardless of amount.

I’ll bet we can keep it up longer than the IRS can.

applebutter on July 31, 2010 at 7:43 PM

LOL. This is what they are already mandating. The amount you pay to a “vendor” doesn’t matter. Everything you pay to any vendor (gas station, postal vendor, restaurant, car rental, hotel, golf course, office supplies, phone company, internet, cell phone, etc.) has to be 1099′d.

He’s punishing us. Plain and simple. In Obamatopia, if you are successful, you will be punished severely.

Key West Reader on July 31, 2010 at 9:28 PM

Congressman Murphy Statement on His Bill to Eliminate 1099 Provision and Close Tax Loopholes For Corporations Who Ship Jobs Overseas

Nary a mention of ObamaCare, which, of course, Murphy voted for. And he swore he read the bill.

ChrisGibson for Congress

Connie on July 31, 2010 at 9:52 PM

four months after the bill passed, the Associated Press has caught up to the story:

Unexpected!

BacaDog on July 31, 2010 at 10:43 PM

First item on the agenda of the new Congress – repeal EVERYTHING these idiots passed.

It’s like they read 1984 and said to themselves “we could do that, but with more paperwork!”

Merovign on August 1, 2010 at 1:03 AM

My business sells tax forms, so I guess I should be happy about this…but I’m not: we don’t need this kind of busines. Not only 1099′s will be needed: Millions and millions of W9′s (Request for Taxpayer Identification Number and Certification) will also be necessary.

But what is more likely is that the entire system will collapse of its own dead weight first. There will not be enough forms…there will not be enough trees to make the forms from…there will not be enough postal employees or IRS employees to handle the tidal wave of paper. Every invoicing system in the country would have to be modified in order to implement this silly law, and it would take decades to do this. Even small purchases would have to be tracked, as most businesses will not otherwise be able to know whether they will buy $600 worth of goods or services from a given vendor before the year ends.

If 20 million of the 40 million businesses decide it is cheaper to await an IRS letter demanding the paperwork than to send out the forms, how many decades will pass before the appeals process is complete and the case can be settled? (HINT: it already takes a full 3 years for the government to process most W2 forms)

Businesses are rational. I believe this provision demanding oceans of useless paperwork will be widely and flagrantly ignored or imaginatively thwarted. This is what always happens when you try to turn “government OF the people” into “government ON the people.”

One method of thwarting this law would be for someone to create (at least on paper) an enormous “purchasing agency” to serve businesses. This agency (which could be totally automated) would generate all the paperwork for every purchase it made, and re-sell the goods or services to its client businesses. This way, most businesses would have to issue only ONE 1099…reflecting total purchases from the agency for the year instead of thousands of forms to a host of small vendors. The IRS would still have to process millions of filings…but they would all be from the agency. This strategy would thwart the intent of this silly law (sticking the government’s nose into every business), as it would make it extremely difficult for the IRS to learn more than it already knows: business already report total purchases on their tax returns.

And in fact the “purchasing agency” already exists: it is the Credit Card company.

So this law accomplishes nothing except to force an approximate 3% devaluation (the “agency”…aka “credit card company” fee) of our national currency by forcing virtually everything to be purchased through credit cards. Anyone who dares to pay via cash or check will have to obtain the taxpayer ID of the seller and issue a 1099.

And so our business will do everything it can to help get this silly law struck down, thwarted, or buried.

landlines on August 1, 2010 at 2:36 AM

I have a couple that owns a promotional products company…they sell to hundreds of companies every year. They are small, a staff of two besides themselves. They will now have to hire someone just to for this purpose, and the accountant will naturally be involved.
This makes a small business, smaller…revenues less, focus on selling and promoting less, increase their exposure to errors greater, allows more government intrusion, their is nothing good about this bill.
This couple represents hundreds of small business…tailors, printers, handymen, gardeners, painters, the list is endless…and all will have to raise their prices to offset their costs. And a raise in prices means more taxes, so more raise to offset that cost.
Liberals are complete idiots when it comes to business and economics.

right2bright on August 1, 2010 at 7:11 AM

Here we go again. GOP going too easy before election time.
Get the personal lube ready people.

Hey anyone know if Bill lit up any of his medical MJ at the reception? He didn’t? ooo why not? They want the rest of us to have it though right? you watch people you watch. We’re getting effed in Novemeber. too soft GOP too soft.

johnnyU on August 1, 2010 at 7:58 AM

Of those so-called “moderate” Democrats

“We need 39 seats. Take it, for instance, say we win 34,” Rep. McCarthy (R-CA) said. “Why would they want to keep her [Pelosi]? And why wouldn’t they want to go with other people to be able to produce it?” McCarthy asked. “Why do you think that if we don’t win 39, we still couldn’t be able to get speaker?”

His musings suggest the GOP is looking at options to make now-House Minority Leader John Boehner (R-Ohio) the speaker of the House by pursuing a coalition with Democrats.

Good luck.

maverick muse on August 1, 2010 at 8:10 AM

right2bright on August 1, 2010 at 7:11 AM

Compliant bookkeeping/tax software would certainly sell.

maverick muse on August 1, 2010 at 8:13 AM

So this law accomplishes nothing except to force an approximate 3% devaluation (the “agency”…aka “credit card company” fee) of our national currency by forcing virtually everything to be purchased through credit cards. Anyone who dares to pay via cash or check will have to obtain the taxpayer ID of the seller and issue a 1099.

landlines on August 1, 2010 at 2:36 AM

God help us.

maverick muse on August 1, 2010 at 8:15 AM

It’s like they read 1984 and said to themselves “we could do that, but with more paperwork!”

Merovign on August 1, 2010 at 1:03 AM

That’s a good one. Is it an original? I may want to borrow it.

forest on August 1, 2010 at 8:56 AM

We really should just eliminate business taxes all together.

Count to 10 on August 1, 2010 at 9:11 AM

How about people just not do this? How about we engage in massive civil disobedience and not fill out the mounds of business-killing, job-destroying paperwork this administration commands.

They tell us they can’t round up all the illegal aliens, so clearly they won’t have the resources to throw us all in prison.

It’s just time to completely and totally rebel against this jerk and his disastrous administration.

englishqueen01 on August 1, 2010 at 9:55 AM

He’s punishing us. Plain and simple. In Obamatopia, if you are successful, you will be punished severely.

But only if you work hard. Obama doesn’t go after the millionaire, billionaire Hollywood leftist/professional athlete types, but the guys who often work 6, 7 days a week for extended hours to keep a business afloat.

The disdain for the working class is palpable. It’s time the working class show some disdain for our dear leader.

englishqueen01 on August 1, 2010 at 9:58 AM

I am a small business owner. I say this cautiously, now.

This is no longer about being business friendly or not. It is clear, small business owners are seen by this administration as ENEMIES.

Obama has alienated our allies, emboldened our enemies, rewarded the lazy and the corrupt, surrendered the sovereignty of our borders and now has declared war on the economic engine that empowers this nation.

The Perfect Storm.

sclemens on August 1, 2010 at 10:26 AM

It’s a shell game. The Democrats won’t repeal this, because that would benefit small business. Can’t have that.

SagebrushPuppet on August 1, 2010 at 10:38 AM

As an admin. asst. at a small business, I already pull out my hair and spend hours of my (non-client, non-billable) time trying to get independent consultants to provide tax ID’s on Form W-9. This new provision, on top of the health care mandate, is going to be a nightmare of gigantic proportions.

For those who haven’t seen the IRS draft of Form 1099-K for 2011, it’s here: http://www.irs.gov/pub/irs-dft/f1099k–dft.pdf

Gaebler.com Resources for Entrepreneurs has a great article posted http://www.gaebler.com/IRS-Form-1099-K.htm. If you want to see how hellish the new reporting requirement will truly be, read the comments by Concerned CPA on 6/15/2010.

GrannyDee on August 1, 2010 at 10:39 AM

This will also create a blizzard of paper work stimulating the post office and creating thousands of new jobs at IRS. What’s wrong with you people, Nanzi did say the health care bill would stimulate jobs. That Pay Go thingy keeps it interesting wouldn’t you say.

Kissmygrits on August 1, 2010 at 10:41 AM

We’ve all seen what happens when labor costs get unreasonably high: those jobs are driven into and taken over by the “underground economy.”

So if at some point compliance costs for certain transactions get unreasonably high, it is only natural that those transactions will similarly be driven into the “underground economy.”

By trying to control too much, the government will drive itself into a war of attrition against a vastly superior force.

This is precisely why successful government requires “consent of the governed.”

landlines on August 1, 2010 at 12:15 PM

Stop spending your money, strangle the beast til it dies.

southsideironworks on August 1, 2010 at 12:35 PM

Since most businessmen are MUCH smarter than any GOV beauracrat, how about if you have a $1000.00 order you break into 2 different $500.00 orders, would that work?

concernedsenior on August 1, 2010 at 12:50 PM

Since most businessmen are MUCH smarter than any GOV beauracrat, how about if you have a $1000.00 order you break into 2 different $500.00 orders, would that work?

concernedsenior on August 1, 2010 at 12:50 PM

The threshold for issuing a 1099 is $600 per year. In your scenario, the only way that might work (but please don’t take my word for it)would be to pay the first $500 to the vendor during one year, then the second half the next year.

SagebrushPuppet on August 1, 2010 at 2:39 PM

By the way, you can easily spend $600 or more per year on business-related postage. Good luck on getting that W-9 from the US Postal Service!

SagebrushPuppet on August 1, 2010 at 2:43 PM

Dems won’t repeal 1099 provision in ObamaCare

It appears the provision eliminates the burden of determining which vendors should receive a 1099, a burden which currently exists for business. No longer burdened with following changes to the exceptions to the rule, some costs associated with filing 1099s will actually decrease.

Of course, the provision’s obvious cost is related to the increase in number of forms to be filed. The cost to file, including forms, envelopes, stamps, software, and processing time, does not seem catastrophic to a business. Business compliance will be facilitated by improvements in accounting software.

This is a clever law designed with the dual purpose of catching under reporting of income and providing a boost to the US Postal Service. Some entrepreneurs will undoubtedly benefit as well.

A more beneficial Republican strategy to help businesses would be to eliminate the 1099 filing requirement altogether.

rukiddingme on August 1, 2010 at 2:51 PM

Chewy the Lab on July 31, 2010 at 1:22 PM, karenhasfreedom on July 31, 2010 at 1:56 PM

The entrepreneurial spirit is strong in both of you.

rukiddingme on August 1, 2010 at 2:53 PM

AZfederalist on July 31, 2010 at 2:04 PM
Fishoutofwater on July 31, 2010 at 3:12 PM
SoldiersMom on July 31, 2010 at 3:07 PM
slickwillie2001 on July 31, 2010 at 4:20 PM
landlines on August 1, 2010 at 2:36 AM
englishqueen01 on August 1, 2010 at 9:55 AM

It is amusing that some conservatives openly support disobeying laws applying directly to them, all the while expecting full obedience to laws applying directly to illegal immigrants.

Bishop on July 31, 2010 at 12:52 PM
phillypolitics on July 31, 2010 at 1:09 PM
listens2glenn on July 31, 2010 at 1:47 PM
sdillard on July 31, 2010 at 3:15 PM

It is equally amusing that some conservatives openly support businesses paying cash for goods and services to keep certain transactions off the record, all the while opposed to other businesses engaged in the same behavior with illegal immigrants.

Illegal immigrants kindly thank you for your change of heart and full support.

rukiddingme on August 1, 2010 at 2:56 PM

Not enough people are willing to put everything on the line and sadly that is the only way to bring us back from the brink.

thomasaur on July 31, 2010 at 3:29 PM

By all means, please expound

rukiddingme on August 1, 2010 at 2:58 PM

I’m hearing a lot of talk about civil disobedience based on not filing required forms, but not so much about filing unrequired forms….

Seems to me that it’d be pretty easy to file literally billions of forms with random payors, payees, and amounts. It’d be very interesting to see how the IRS is supposed to pry $19B out of that.

cthulhu on August 1, 2010 at 3:02 PM

The 1099 business to business transaction calculation is actually a prelude to the VAT tax…

sirpatrick on August 1, 2010 at 7:46 PM

The socialists always need to control everything. And make ironclad laws for that control.

Small problem: the socialists who have no principles neglect to allow for other “lawbreakers” who just want to feed families, survive, or outwit regulators. Their “perfect world” runs up against 50% + citizens who are looking out for themselves.

Fail bigtime but your “experiment” will eventually inoculate 60% against this stupidity.

Caststeel on August 1, 2010 at 9:56 PM

The 1099 requirement in Obamacare is exactly what is needed to track a VAT tax.

All the Obamacrats need to do now is sneak in a tiny VAT tax on the 1099s and they’ll be off and running, including the claim that Obamacare’s VAT tax is balancing the budget.

drfredc on August 1, 2010 at 11:25 PM

The 1099 business to business transaction calculation is actually a prelude to the VAT tax…

sirpatrick on August 1, 2010 at 7:46 PM

This. Once they have a documented paper trail, of course the next incremental step is to impose a “processing fee” of some type. “For the children!” somehow, or something.

Because They’re Democrats!

Who is John Galt on August 2, 2010 at 2:09 AM

I buy over $600 from vendors every single week. What a reporting mess that will make for us.

Voter from WA State on August 1, 2010 at 12:52 AM

So do my husband and I and millions of other businesses. That’s the point. These people are evil.

Nalea on August 2, 2010 at 7:52 AM

Effing stupid! I suppose this includes farmers & ranchers, too.
And since my hubby drives our truck commercially for farmers hauling grain & cattle, that’d count, too.
So do we have to fill one out when we rent a pasture?
Buy fencing supplies?
OMG I am going to have a brain aneurism from all the paperwork we have to fill out already & now there’s more.
We need a Rancid.
I’m so tired of this crap.

Badger40 on August 2, 2010 at 7:55 AM

if you are successful, you will be punished severely.

Key West Reader on July 31, 2010 at 9:28 PM

In our ranching & truck driving business we are not even successful yet.
Bcs of the punishments through DOT, USDA, EPA, blah blah blah we can’t even hardly get our feet off the ground.

Badger40 on August 2, 2010 at 7:58 AM

I just informed my husband of this law and he reminded me that we’ve always had to file a 1099 for every vendor that we buy over $600.00 from. Unless there is something else involved in this law, this is old news. I still think this admin is evil, however.

Nalea on August 2, 2010 at 8:40 AM

Somebody needs to point out that IRS itself is quite clear in its Instructions for Form 1099-MISC that it applies ONLY to those enterprises which are a “trade or business.” “Trade or Business” is a legal term defined at 26 USC Section 7701(26) in the tax code as “conducting the affairs of a public office.” Very few enterprises are in fact a “trade or business” and therefore should simply ignore the Obamacare 1099 requirement. It’s about time that Americans learned that the income tax is not applied to “all that comes in,” but is an excise tax levied only on “gains and profits” or “wages” derived from federal-related privilege or activities. There are numerous legal terms of art in the tax code, and they are to be given only the meaning as defined in the tax code. “Trade or business” is a biggie, but so are “wages,” “employee,” “employer,” “United States,” “U.S. Person,” and so many others that fool the great majority of us into volunteering to pay taxes we don’t really owe.

DigginDeep on August 2, 2010 at 2:07 PM

Congress tried the same thing about 10 years ago. Most small business like me just ignored it. Don’t know if it’s still the law or they repealed it. As best as I can guess from my tax returns, the IRS is at least 4 years behind on matching up the currently filed 1099′s. Nothing to do with this but everyone says the recovery is strongly dependent on the small businesses. These people are all 1099′ers and Sub-Chapter S. We do not come under unemployment compensations or record keeping. There are no help programs for us. What would the trues numbers look like If we were included. My the way I have just lost my 15 year contract with the Wall Street Journal at $25.00/hr and replaced by non-English speaking individual who is working for $6.50/hr. Yes that’s below minimum wage.

jpcpt03 on August 2, 2010 at 3:41 PM

Levin can toss blame until he turns blue from the effort, but this debacle belongs to Levin, Pelosi, the Democrats, and Barack Obama

All of whom should be required to serve as an intern alongside a small business owner! They need to understand how to make payroll, profit & loss statements, fica, suta, futa, hire/fire, pay taxes…

TN Mom on August 2, 2010 at 10:15 PM

Uh, wasn’t there a bit that got inserted into the Obamacare law that stated that the IRS is precluded from prosecuting anyone who does not comply with the Obamacare bill? So what exactly does the IRS have in it’s enforcement arsenal to use against us if we refuse to comply?

Rorschach on August 3, 2010 at 5:10 PM

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