Last month, a government panel led by Paul Volcker reported that Americans spend about $140 billion a year—or about one percent of GDP—on tax compliance. But rather than begin the process of cleaning up the tax code mess, President Obama and Democrats in Congress passed a new health care law that adds to the tax paperwork for small businesses. Once word got out, even some Democrats became nervous. And now, according to The New York Times, the provision may be headed for the chopping block:
To improve compliance, the law requires businesses to file a 1099 tax form identifying anyone to whom they pay $600 or more for goods or merchandise in a year. Businesses will also have to send copies of the form to their vendors, suppliers and contractors.
Businesses denounce the requirement, and even the national taxpayer advocate at the Internal Revenue Service, Nina E. Olson, said the reporting burden might "turn out to be disproportionate as compared with any resulting improvement in tax compliance."
The White House is nervous about a repeal, fearing that it could set a precedent for rolling back other unpopular features of the law. Moreover, the reporting requirement is expected to lead to a significant amount of revenue — $17 billion over 10 years — to help pay for the expansion of coverage and other health initiatives. It is unclear whether Democrats and Republicans can reach agreements on repealing the provision and on finding a way to offset the loss of money.
If there's any provision that seems most likely to get cut, it's the 1099 reporting requirement, which raises a relatively small amount of revenue at the cost of adding a major annoyance to an already onerous process. So I'd say the White House is probably right to be nervous about the possibility that it might go. The chances for repealing the entire bill are basically zilch in the near term; even if Republicans take over both the House and the Senate in November, and even if they actually decided that they had the stomach for taking down the whole bill, any repeal effort would eventually run into a presidential veto. But it's at least somewhat possible that if the 1099 provision goes down, Republicans in Congress could continue to chip away at the law bit by bit. And if they could gather even a bit of bipartisan support—as seems to have happened here, and as seems more likely now with Democrats finding that the law isn't helping them much politically—then Obama would have a much harder time saying no. Now, I don't think this is a highly likely scenario. But it's a lot more plausible than a straight-up repeal.
I first took a look at the 1099 requirement back in May.