Mindless Paperwork: One Aspect of the Health Insurance Reform Law That Needs to Change

This is crazy:

[B]eginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.

Right now, the IRS Form 1099 is used to document income for individual workers other than wages and salaries. Freelancers receive them each year from their clients, and businesses issue them to the independent contractors they hire.

But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they'll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.

What possible connection does this have to health care? It turns out, it's just budgetary.  Requiring the issuance of 1099s by all businesses to virtually everyone it buys from is supposed to (a) deter businesses from expensing things that aren't really deductible and (b) help catch people and businesses which are underreporting income.  This allowed an increased revenue projection that would offset part of the cost of the bill. 

As I said, this is insane.  The bookkeeping requirements alone are impossible.  Tracking expenditures by vendor is just beyond the ability of most small businesses, not to mention getting and recording taxpayer ID numbers.  Can you imagine? "Who was that guy we hired to paint the outside of the building? I can't remember. Wasn't he somebody's cousin?"

If this isn't repealed, the net result is that hundreds of millions of additional tax documents will be generated every year. As far as I know, even that number might be understated.  This means that before filing a tax return, every business will have to wait for their 1099s to come in from every business customer - even if they don't anticipate a 1099 from a particular person because they didn't know they were buying for a business purpose!

The example of a coffeeshop is illustrative. If I buy coffee for clients throughout the year and expense it, eventually I will get over $600. I have to issue a 1099 to Starbucks?? Apparently so.  Okay, so it's February and I need the taxpayer ID number and corporate mailing address from the coffeeshop.  Right now, in a 1099 situation, you have the payee complete a form giving you that info, and it isn't onerous because it's rare.  Is every Starbucks going to have that info posted in the window now? Because remember, I have to repeat this process with every vendor, and every vendor has to provide the information to every customer. 

I can't just rely on the name of the place to determine whether I have to issue a 1099.  Some restaurants are owned by franchisees, others owned by the franchisor.  If I go to 19 different places with the same name on the door throughout the year, I'd have to figure out which are owned by whom to determine if they get a 1099! And businesses change hands all the time.  What if the taxpayer ID number changes during the middle of the year because the place got sold? Assume I spent $400 there when it was owned by the first company and another $400 when it was owned by the second. Total expenditures for the year at that place are over $600, but the corporate identity of the vendor has changed. Issue a 1099 or not? Also, the first company has gone out of business. What's the point?

Either businesses will spend thousands of dollars dealing with this crap or they will just ignore the whole thing and pray they don't get caught. I don't know what's worse. Of course, if any small business with a decent amount of income doesn't file thousands of 1099s, the IRS will immediately suspect something is up. It's like the Form 27B/6 from Brazil.

Instead of blanketing the country in paper, if you need to raise revenue to pay for the law, then do it some other way.

Comments

[Oscar Leroy]

It's hard to believe this reform hasn't gotten more popular like Obama said it would.

[Harry R. Sohl]

1) Small businesses have computers. Even I, as an individual, could pull a report and know who I paid $600+ in 3 seconds.

2) Are you expensing off $600+ a year in "business costs" for coffee for "clients"? I personally think you should have to provide signed receipts, so a 1099 is actually way easier for you.

[lambert strether]

Too bad "progressives" weren't advocating for single payer, or we could be pushing the discourse now toward a solution that actually works. Part of the reason single payer would save $350 billion a year is that it would eliminate useless paperwork like this by the insurance companies, who, as Anthony Weiner said, bring no value to the transaction.

* * *

One could also view this legislation as full of bugs, and not features. First, it destroys many small business, and as we have seen at least with the big banks, making big business bigger is a policy that has bipartisan support in Versailles. Second, it provides business opportunities for many parasitical rent seekers, who will "help" small business by filling out the forms, advocating for them with the IRS, handling the inevitable lawsuits, and so forth.

[lambert strether]

Ah, tired from RL. Features and not bugs. My bad.

[William]

This is long overdue. Contractors wouldn't be able to pay workers off the books if they had to report all of their income. This should bring a large part of the shadow economy into the light. It's only fair for those who pay taxes.

[Mithras]

Harry Sohl- $600/year works out to $11.50 per week. What professional or sales rep doesn't shell out that much on food and drink for prospective or existing clients every week? Every day? Under the current system, you produce the receipts and you have a valid deduction. Under this proposed change, if you don't figure out who to issue the 1099 to and in the right amount, the deduction can be denied.

Strether - *smacking forehead* Wow, you're right! If progressives had only collectively demanded single payer or nothing, then surely we'd have single payer now. It would have been so easy.

[Ruckus]

Harry
Logically I can only conclude that you are a CPA. One who thinks that small business exists to create financial paperwork for you to sift through. That thinks that it's OK that I will spend hours every day doing bullshit work with no value. Instead of the one 1099 I do now because I purchase goods for resale from companies who go through the process of having invoices to track what we all purchase and resale and the information is already there. The only salvation that I can think of is that the IRS will be so inundated with BS paperwork that they will freeze up under the load. Oh wait congress will just give them more money to hire more people,buy more computers because paperwork is what we produce in this country. Busy work paperwork, that's what we produce.

[lambert strether]

lambert writes:

or we could be pushing the discourse now toward a solution that actually works.

mithras, immediately, distorts:

then surely we'd have single payer now. It would have been so easy.

Obviously, what I wrote is quite different from what Mithras says I wrote.

What amazes and appalls me is that he can only think people are too stupid to scan upthread to check his claims against the evidence. Well done.

[Mithras]

Strether-
Exactly how does failure - in this case, demanding single payer and failing to get it - push "the discourse" in a positive direction? In the real world, failure in legislative efforts is punished.

How about this for an idea? Maybe loudmouthed "blog activists" could try to convince a majority of Americans that single payer is the way to go, rather than sitting around complaining that some Daddy figure in Washington isn't delivering.

[Contractor]

This is great. Now my 1099s will be lost among millions(billions?) of others and I can just ignore the whole tax thing completely!

[Nathanael]

I'll tell you what will happen: each time a purchase is made, the taxpayer ID number will be requested and a 1099 will be issued on the spot (remember, there's no rule AGAINST issuing 1099s for amounts smaller than $600, and there's no clear rule against multiple 1099s for multiple transactions, because I've gotten those!). The Postal Service will get a fortune in the mailing costs to the IRS.

[lambert strether]

Hilarity:
How about this for an idea? Maybe loudmouthed "blog activists" could try to convince a majority of Americans that single payer is the way to go,

Yes, that's exactly what the Baucus 8 did with civil disobedience -- although they were physicians, instead of "loud mouthed bloggers." Of course, the Ds, and our friends, the "progressives," didn't give them any oxygen, so the word never got out, at least not to places like this. Too bad about that.

So, your model of what bloggers should do is help out with "legislative efforts"? How's that workin out for ya? Not too well, by your own admission in this post. Well done!

[radamisto]

Tracking expenditures by vendor is just beyond the ability of most small businesses, not to mention getting and recording taxpayer ID numbers.

What? They can't use EXCEL???

[Ruckus]

radamisto
It's not that we can't do the work. It's not that our payments can't be tracked by Quicken or some other accounting software. Or that we can't do a spreadsheet. Most can or could learn.
It's the amount of work involved with no benefit for Anyone. The system we have now works, why do we need to fuck it up by adding more staff and costs to the customer? What is the point?
Oh yah there isn't one. Busywork, that will help the economy.