The Senate approved the repeal the expanded 1099 information reporting requirements contained in last year’s health care law. This has bipartisan support, so the change is widely expected to also clear the House. At the time of the original passage, we discussed details of these requirements and the significant challenges that such reporting would require. The additional 1099 reporting was to be effective for payments made after December 31, 2011, but it now looks like it will be repealed before ever being required.
The real story involves the reason that the 1099 reporting was expanded in the first place. The expanded 1099 reporting was passed to pay for a part of the health care benefits of the Patient Protection and Affordable Care Act (PPACA). It is widely agreed that significant income tax goes unreported. The IRS income-matching program involving Form W-2 and Form 1099 is one of the easiest ways of bringing additional income into the tax system. Of course, this benefit to the government ignores the challenges and costs faced by businesses that must comply with this reporting. Because the additional 1099 reporting is onerous, most in Congress are not anxious to face the consequences of the 1099 reporting that partially funded the PPACA.
As part of the PPACA cost estimating process, the additional 1099 reporting was estimated to raise $17 billion of taxes over 10 years. Now, this estimated $17 billion will not be collected. Supposedly, to avoid adding to the budget deficit, the current 1099 change authorizes the Director of the Office of Management and Budget to cut unnecessary unobligated spending. The Social Security Administration’s expenses are exempt from any proposed cut. But, other than exempting Social Security, no specific spending cut is identified or required. So, the OMB Director is supposed to wave his budget-cutting wand and eliminate $17 billion of spending.
Wouldn’t it be nice if balancing the budget were that easy? Since the OMB Director is at it, perhaps he should also just eliminate the rest of the federal budget deficit.
Voters should demand more of Congress. Until some specific spending decreases are identified, the reality is that the federal deficit just increased another $17 billion. For anyone who claimed the PPACA had a specific budget effect, the repeal of the underlying revenue generation is a big deal. This is particularly true since the Congressional Budget Office (CBO) also amended its cost estimate of the PPACA to account for serious omissions that existed in the estimates the CBO initially gave Congress, and upon which Congress supposedly based its voting decision.