September 18, 2010

Democrats and Republicans Move to Repeal Tax Provision in Health Law

A significant number of Democrats and Republicans have begun to petition for a repeal of the new regulations in the Health Care law that require businesses to increase their information-reporting. Under the new regulations, all businesses have to report to the IRS on all purchases of goods and services above $600 in a single year. This is to be done with a Form 1099 submission to the IRS and to their respective vendors, suppliers and contractors.

Many business owners, especially owners of small businesses, decried the new regulations as they feel it is an unnecessary administrative burden on their part. The National Taxpayer Advocate (NTA) head Nina Olsen, in her report, said that this requirement “might turn out to be disproportionate as compared with any resulting improvement in tax compliance”. However, whether Democrats and Republicans can succeed in finding an agreement to repeal the law is questionable.

The move is expected to generate some much-needed revenue for the government, estimated at $17 billion in 10 years that will be used to finance the health care benefits and initiatives. As such, the White House is apprehensive about allowing the repeal. Furthermore, it also fears that a repeal may set off a precedent to similarly do away with other unpopular aspects of the law.

In late July, 239 Democrats voted for a repeal but the number was less than the two-thirds majority needed for approval under the expedited procedure at that time. Next the Senate is scheduled to vote for a repeal in its next sitting. Most Republicans are in favor of a repeal. They see the new regulations as an intrusive move by the IRS in enforcing the health care law, including the requirement for most Americans to have insurance. In a recent speech, John A. Boehner of Ohio, the House Republican Leader said the “1099 Mandate” said the health care law could “wreak havoc on employers and entrepreneurs”.

Senate Democrats on the other hand, support a proposal by one of their own reps, Senator Bill Nelson of Florida for the threshold for reporting to be raised to $5,000 rather than $600 and for the businesses with less than 25 employees to be exempted from reporting altogether. But Republicans, led by Senator Mike Johanns of Nebraska opposed the proposal, and pushed for a complete repeal instead.

It has been an open secret for a long time that there is a big gap between taxes paid and taxes actually owed and efforts to reduce that gap has been proposed for years, ever since the Bush administration. But as can be seen, the task of narrowing the gap is not easy at all.

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