Health-care funding provision could face repeal

By N.C. Aizenman
Washington Post Staff Writer
Sunday, August 29, 2010

Five months after the adoption of the sweeping new health-care law, momentum is building to modify and possibly repeal one of its funding sources. The sums in question are small in comparison with the total trillion-dollar tab for the health-care overhaul, but some see the move as an opening for further changes to a law Democrats had been determined to leave untouched.

The provision, which takes effect next year, will require businesses to file 1099 tax forms reporting any purchases they make of goods or services above $600 from any individual or business, including corporations. Currently, businesses only need to file 1099s when they buy services - and only when the vendor is an unincorporated person or business.

The move - designed to clamp down on tax evasion- was projected to raise $17.1 billion over 10 years toward the cost of the health-care law.

But the measure has prompted alarm from small businesses, who complain that it could prove exceedingly labor-intensive and expensive.

Members of Congress from both parties have taken notice, and the Senate is scheduled to vote Sept. 14 on two amendments to an unrelated bill: One would eliminate the 1099 provision; the other would exempt businesses with fewer than 25 employees, raise the reporting threshold to purchases above $5,000, and exclude those made with a credit card. A 60-vote majority would be required in both cases.

Democrats contend that this represents the usual tweaking of major new statutes and say even removing the 1099 provision would not mark a step toward repealing the larger law because the 1099 measure doesn't directly involve the health-care system.

But Douglas Holtz-Eakin, a former Congressional Budget Office director and top economic adviser to John McCain's presidential campaign, warned, "I think this is the first of many provisions of this legislation people will find to be unworkable in practice - we're going to see more of this."

The 1099 measure attracted little attention during the months-long health-care debate. As far back as 2007, President George W. Bush's administration and Senate Finance Committee Chairman Max Baucus (D-Mont.) discussed proposals for closing the estimated $345 billion annual federal tax gap - the difference between taxes owed and taxes paid. So in spring 2009, as Baucus and others were looking for ways to offset the cost of the health-care bill, the 1099 provision offered a ready answer.

It wasn't until after the new law was adopted, as business groups started holding meetings to tease out the practical implications, that the outcry over the 1099 provision erupted.

"I've never seen an issue resonate so deeply in the minds of small-business owners," said Giovanni Coratolo, a vice president of the U.S. Chamber of Commerce.

To what extent the concern is warranted is difficult to say.

An IRS ombudsman estimated that 40 million businesses, including 26 million sole proprietors, will be affected. Chris Walters of the National Federation of Independent Business pointed to owners such as Pat Felder of Baton Rouge, who estimates that her auto parts supply business will have to start filing 1099s on several hundred vendors - including office supply stores, gas stations, even the grocery where she gets meat for company barbecues.

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