In August, Sen. Mike Johanns (R-NE) introduced a measure to repeal the 1099 reporting requirement in the Affordable Care Act — which requires small businesses to report any purchases over $600 to the IRS — and proposed paying for the $19 billion shortfall by eliminating $11 million from the Preventive Health Task Force and weakening the individual health insurance mandate. The amendment attracted seven Democratic Senators but did not receive the necessary 60 votes to move forward. Now, as the Senate prepares to re-consider repeal on November 29th, Johanns has introduced a different set of pay-fors that he hopes will attract additional Democratic support:

“My latest effort to repeal this costly mandate should easily win the support of my colleagues,” said Johanns. [...]

Johanns’ amendment directs the Office of Management and Budget (OMB) to identify $39 billion in unspent and unobligated accounts to replace the revenue that might have been generated by the 1099 paperwork mandate. This represents only about five percent of the total funds in unspent and unobligated accounts and gives the Administration discretion to ensure these funds do not affect ongoing and necessary programs.

A spokesperson at Johanns’ office told me that the Senator is only interested in repealing the reporting mandate and is no longer interested in making waves with controversial pay-fors that take away money from the mandate or prevention. Since President Obama, Senate Finance Committee Chairman Max Baucus (D-MT), and House Speaker Nancy Pelosi (D-CA) have all come out in support of stripping the provision, Johanns sees renewed momentum on the issue and hopes to build a coalition around removing the 1099 requirement.

But it’s unclear if this pay-for will be any less controversial. First, if Senators are hesitant to vote for specific cuts because they may target their favorite programs, they would also be hesitant to delegate the task of finding cuts to another agency — out of fear that it would target their favorite programs.

Meanwhile, CAP’s Michel Linden doesn’t think that the pay-for would score as deficit neutral. “Unspent and Unobligated balances are not real money sitting in some account, they are actually ‘budget authority’ – the ability for an agency to draw down funds from the treasury to turn into actual outlays,” he told me. “While canceling unobligated balances might save a little bit, I’m pretty sure the vast majority just goes away if its not used which means that canceling it won’t save any money.”

He makes the following analogy:

A parent says to their teenager, “You can spend up to $100 on school supplies this year.” The child then spends only $80. Now if the parent has promised the child that they get to keep the difference, then canceling that promise would actually save money for the family. But if the parent hasn’t made that promise – if instead the understanding is that the teenager can spend up to $100 but if he or she comes in low, then any change is expected to be returned to Mom and Dad – then “taking back” that other $20 has no real meaning for the family’s bottom line.

The very fact that Johanns feels the only way he can repeal the 1099 is if he farms out the task of identifying pay-fors to a separate agency, however, only reiterates the difficulty of actually going through with the GOP pledge of eliminating the entire law or even going provision by provision.

Baucus — who has introduced his own 1099 repeal bill — has yet to identify any pay-fors. His office has not returned my inquiries into this matter.

Earlier this morning, the Senate voted down Sen. Mike Johanns (R-NE) so-called 1099 amendment which would have repealed a tax reporting requirement for small businesses, but made up for the revenue shortfall by eliminating $11 million from the Preventive Health Task Force and weakening the individual health insurance mandate. Sen. Bill Nelson’s (D-FL) alternative proposal to require only larger businesses to report their transactions with vendors also failed to garner the necessary 60 votes.

It’s unfortunate — but all too predictable — that both parties couldn’t find agreement despite growing consensus surrounding the key issues in the 1099 debate. For instance, both the Bush and Obama Treasury Departments agreed that sole proprietors of businesses drastically underreport their taxable incomes and as a result underpay taxes. Both administrations recommended strengthening the reporting requirement to remedy this problem and now members from both parties believe that the health care law went too far and burdened small businesses with unnecessary paperwork.

Bu that’s where the consensus ends. The Johanns amendment completely eliminated the reporting requirement and paid for the change by weakening the individual health insurance mandate and taking $11 million from the Preventive Health Fund. When I asked Johanns office why the Senator was taking money out of prevention, they sent me a note saying that the he believed that the fund could be used as a slush fund. Here is how Johanns described it today on Washington Journal: “in all fairness, money from that Fund has already been diverted by the Obama Administration into other areas, and I believe it will be a slush fund for that,” he said. Needless to say, administration sources disputed that characterization.

After the Johanns amendment failed, Republicans rejected Nelson’s proposal because it required additional tax reporting — the kind of reporting supported by the Bush administration’s own Treasury Department. “Is that too much to ask in order that we get people to pay their income tax that they are owed that are not getting out of it to the tune of $17 billion?” Nelson asked on the floor. “In tightening up the law, we’re going to get people to pay their income tax, but we’re going to do it in a way that is not harassing any business but particularly small business because we’re going to exempt them if they are 25 employees or less.”

Ultimately, Senators will propose more fixes and the final amendment will hopefully improve tax compliance while minimizing the burden to small businesses. The sticking points are the offsets and as soon as the GOP abandons their politically motivated provisions, the 1099 requirements will likely be modified.