GOP Uses 1099 Tax Debate To Set Precedent For Repealing Health Reform

Today, the Senate is expected to take up a measure that would repeal a part of the health care law that requires small businesses to report payments of more than $600 to corporations and payments for goods and property (as well as for services). Now most folks I’ve spoken to agree that while vendors are notorious underreporters of income — the IRS estimates that sole proprietors pay taxes on less than half of their income or underreport their income by some 57% — this current provision is just too burdensome. Just ask the White House: “We are committed to reducing the gap between taxes legally owed and taxes paid,” Treasury Secretary Tim Geithner and Health and Human Services Secretary Kathleen Sebelius wrote to Majority Leader Harry Reid and Minority Leader Mitch McConnell today. “However, the administration believes that the burden created on businesses by the new information reporting requirement on purchases of goods that exceed $600, as included in Section 6041 of the Internal Revenue Code as modified by Section 9006 of the Affordable Care Act, is too great.”

And to that end Sen. Bill Nelson (D-FL) has proposed a compromise that would “exempt businesses with fewer than 25 employees” from the requirement and “significantly increase (from $600 to $5,000) the threshold for payments that must be reported.” “The amendment would also give the Treasury the regulatory flexibility to further limit the requirement both before and after its 2012 implementation.”

In other words, Nelson’s solution addresses the paperwork concern while simultaneously trying to close the tax hole. The original measure raised $17.1 billion over ten years and to offset some of that cost, Nelson would reduce companies for oil companies. Sen. Mike Johanns (R-NE), meanwhile, has proposed an alternative would completely repeal the reporting requirement and make up the revenue shortfall by defunding public health and exempting more people from the individual health insurance mandate. Harold Pollack explains:

Should we promote public health by providing extra funds for HIV prevention, cancer screening, flu vaccination, and the like?

Or should we zero out these funds in order to repeal a small health reform provision that clamps down on rampant tax evasion? That’s the choice Congress is likely to face next week. Some prominent Republicans want it to choose the latter, although you likely won’t hear about it — at least, not in those terms….To repeat: Tighter tax requirements on small business prevent some firms from committing tax evasion, and it imposes some costs and bother on law-abiding firms which now have to fill out some more paperwork and presumably update their Quicken software. Senator Johanns believes that it’s so vitally important to loosen these requirements that he would make up the lost revenue by slashing federal funding for critical public health efforts — efforts that are already taking some tough hits because of the state and local budget crisis.

Invention in preventive services is something both Republicans and Democrats have rallied behind — it’s something the GOP tried to take credit fro on the floor of the Senate. What’s going on here is an effort to establish a precedent for repealing portions of the health care law, not to address the paperwork complaint. They’re seizing on an unpopular provision to weaken the health care law and sell that accomplishment in the midterm — both to their base and business supporters. Tellingly, Johanns’ amendment does not address the problem of underreporting income; it strips the 1099 provision and allows vendors to underpay their taxes, and shift that burden to all of us.