Reforming the Reform: Senate Backs 1099 Repeal

Finn Torode
February 02, 2011

The Senate today didn’t repeal health care reform, but it did get rid of a provision that would impose a major paperwork burden on small businesses next year.

All 47 Republicans voted for an amendment to repeal the health care reform law enacted last year, but all 51 Democrats present voted against it. The amendment, which would have been added to legislation reauthorizing the Federal Aviation Administration, needed 60 votes in order to be approved.

But by an 81-17 vote, the Senate did pass an amendment that would repeal a health care reform provision that requires businesses to file 1099 forms with the Internal Revenue Service any time they spend more than $600 a year with any other business. That requirement, which is scheduled to go into effect in 2012, is a significant expansion of the current 1099 reporting requirement, which applies only to payments to unincorporated service providers.

Senators agreed with small businesses that complying with this requirement would be a nightmare. The only question was to how make up for the revenue that the provision was designed to generate. In theory, third-party reporting of payments to businesses makes them less likely to hide income from the IRS.

The amendment that passed directs the Office of Management and Budget to tap up to $44 billion in unspent funds appropriated for other purposes to cover the revenue that would be lost by repealing the 1099 requirement.

That’s the approach Republicans prefer, but many Democrats wanted to raise taxes on oil companies and multinational corporations instead. They contend Congress shouldn’t hand over spending decisions to the executive branch.

The amendment sets “a terribly dangerous precedent,” said Senator Daniel Inouye, a Hawaii Democrat, who chairs the Senate Appropriations Committee.

Difficult decisions on how to reduce spending lie ahead, he said, and its Congress’ responsibility to determine where these cuts will be made. Delegating these decisions to the executive branch “may be politically expedient,” Inouye said, but it also is “thoughtless and rash.”

Nevertheless, the Senate’s decision to tap unspent money to pay for the cost of 1099 repeal makes it much more likely to be agreed to by the House, which already passed total repeal of health care reform. Business groups hope 1099 repeal is enacted quickly because businesses would need time to change their accounting systems if the requirement does go into effect next year.

Business groups opposed the tax increases in the Democratic amendment, contending raising taxes on oil companies would increase energy costs.

“This amendment will cost good-paying manufacturing jobs,” said Aric Newhouse, senior vice president at the National Association of Manufacturers. “Discriminatory tax policies that pick ‘winners’ and ‘losers’ and pit industry sectors against each other undermine U.S. competitiveness, innovation and job growth.”

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