Repeal of ObamaCare's Small Business Tax Reporting Provision Goes Nowhere In the Senate, Again


When Democrats crafted this year's health care overhaul, they knew it would be expensive. And they also knew that they needed to produce a legislation that was "paid for"—scored by the CBO to reduce the deficit. That meant piling on just about every revenue raiser that anyone could come up with that might play well with the CBO. One of those revenue raisers turned out to a requirement that would force small business owners to fill out a separate 1099 tax form each year for each outside business that they conducted more than $600 in transactions with. Credit card purchases, already recorded electronically, would be exempted, but the added reporting was expected to pick up billions worth of unreported transactions and, as a result, add about $17 billion in new tax revenue. And that new revenue could then be used to help pay for the law's expensive expansions of insurance coverage.

But in addition to raising revenue, the provision added a major new tax-related paperwork hassle to small business tax reporting. Business didn't like it. Republicans didn't like it. A couple of Democrats admitted early on that it was probably a bad idea, and at this point, just about everyone agrees that the provision needs to go: Even President Obama has said that, as written, the provision is "burdensome." 

Trouble is, despite widespread agreement that the provision is a bad idea, the parties can't agree on how to fix it. According to Politico, the chief disagreement is whether or not to add that $17 billion in "lost" revenue to the deficit. A proposal by Democratic Sen. Max Baucus, would repeal the requirement but not attempt to make up the revenue. A proposal by Republican Sen. Mike Johanns would make cuts elsewhere in order to allow for repeal without increasing the deficit. And so, in a similar situation to what occurred last time the Senate attempted to defuse the provision, the Senate once again failed yesterday to strike down the requirement:

The Senate on Monday failed to repeal an unpopular element of the health care overhaul even though Democrats and Republicans agreed it needed to be jettisoned to prevent businesses from being saddled with undue tax paperwork.

Caught in a partisan dispute over how to proceed with eliminating new tax reporting rules, the Senate twice was unable to reach an agreed-upon threshold of 67 votes to eliminate a provision that critics have seized on to illustrate the failings of the health care legislation championed by Democrats.

A Democratic plan to overturn it attracted only 44 votes in support with 53 against; a Republican plan that would have cut other programs to make up the shortfall caused by the repeal fell short on a vote of 61 to 35.

The effective end result of the Republican proposal would just be to substitute program-cuts for revenue raising, using the money saved by cutting those programs to fund the law's expenses. I suppose that's better at the margin than paying for the law through new paperwork burdens and expanded tax collection, but mostly what this little drama suggests is that there are real limits to fighting the law through minor tweaks.