What began as a big Democratic mistake has now led to a big Republican mistake. Republicans are often likely to vote for smaller government and less deficit spending. At a time of outrageous deficits and government growth, a big majority of Americans want that. However, on July 30, deficit reduction efforts led to a very big Republican mistake over a paperwork nightmare.
Less than $2 billion a year, of the trillions needed by the new Healthcare law, was to come from taxes on those under reporting income. To get it, Healthcare created a paperwork nightmare. Businesses were to file four billion more 1099 forms, starting in 2012. Business people (and the Internal Revenue Taxpayer Advocate) strongly opposed the complexity and cost, which would especially damage small business. Businesses also sharply cut political contributions to Democrats.
House leaders tried to fix the paperwork nightmare early, so it needed a two-thirds vote. It failed, as nearly all Democrats voted yes and nearly all Republicans no. Republicans wanted to make up lost revenue by changing other parts of Healthcare. Democrats wanted to raise taxes of international corporations and limit trusts to avoid gift taxes. Neither saw why this became a big Republican mistake.
They did not see that repealing the paperwork nightmare would automatically INCREASE tax collections. That is because this Healthcare Mess would make businesses spend $100+ billion per year filing 1099s. These costs would cut income taxes by $25+ billion a year. Congress also should save billions on the extra Internal Revenue agents, who were to enforce the 1099s, and persecute small businesses, by tripling the number of their tax audits. Almost all economists agree that small businesses create 100% of net new jobs, so this could have meant the Great Depression of 2012. That means 1099 repeal revenue, and related Internal Revenue cost savings, are around 15 times the mythical $2 billion in tax collections. This was a very big Republican mistake. Why should it take a Florida small-business CPA to see that?
The $2 billion also was always mythical, because it is hard to match business 1099s to taxable gross income. In 45+ years of heavy tax practice, I never heard of one such case. This is partly because only some consider cost reimbursements to be income. In addition, massive adoption of accrual accounting and fiscal year income tax returns would make 1099 matching impossible. The many new 1099s, in big new payment categories, with many new payees and recipients, plus credit card and debit card exemptions, also guarantee countless errors and a massive INCREASE in cash payments and non-reporting. We still get limited compliance with 1960s travel and entertainment diary rules, so opposing repeal was a big Republican mistake.
The Healthcare 1099 repeal involves smaller government, less business and government spending, . It deserves unanimous bi-partisan support.
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