GOP Rejects 1099 Compromise Despite Bipartisan Consensus On Underreporting Of Taxable Income

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 Mike Johanns (R-NE) so-called 1099 amendment which would have repealed a tax reporting requirement for small businesses, but made up for the revenue shortfall by eliminating $11 million from the Preventive Health Task Force and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.