TEXAS ASSOCIATION OF BUSINESS

Employers face more government hurdles

By Bill Hammond
July 27, 2010 6:00 AM
OA Online

If you are a small business that buys more than $600 annually in supplies from Office Depot, the cost of doing business just got higher. If you are spending a $1,000 to have someone build a website for your new company, the cost of business just got higher. And what is to blame for this new anti-business measure? Obama’s new health care law.

What in the world does the health care law have to do with business operations? Buried in the new law is a provision under which businesses that spend more than $600 with another entity will have to file an IRS Form 1099-MISs for each transaction in excess of that amount.

This is an enormous expansion of the current law, which dictates that 1099s only have to be filed when paying outside contractors. The provision places an onerous burden on small businesses, many of which cannot afford trained accountants necessary to provide complete documentation for every single $600-plus transaction in which an employer engages. That burden includes gathering the taxpayer ID number during the transaction between each person or company or face the wrath of the IRS.

According to the General Accountability Office, the new 1099 changes could yield up to $17 billion per year in new federal tax revenues. So why was this massive tax change slipped into a bill about health care?

According to CNN, last fall, as the debate raged over its projected cost, congressional supporters of the bill began a desperate search for “revenue enhancers” to bring the net cost down — and eliminating the 1099 exceptions for corporations and goods was seen as an easy way to bring in more cash without raising tax rates.

Passing such a massive, anti-business overhaul would likely require some sleight of hand by Congress. Burying the 1099 expansion in the controversial, 2,000-plus page health care bill that was hard-fought, though always likely to pass, seemed like the perfect solution for House Speaker Nancy Pelosi.
According to SMC Business Councils, a typical business now processes approximately ten 1099 filings annually. However, under the new 1099 provisions, filings would increase by a factor of 20 to 40. The average cost to small business under the new law is approximately $6,000.

In these difficult economic times, adding this excess cost to businesses will undoubtedly cause jobs to be lost in order to make up the lost revenue. Employers will be inundated with paperwork and forced to become ad hoc forensic accountants. The penalties they will incur could result in thousands of dollars of additional lost revenue for employers.

The Texas Association of Business takes seriously any threat to employers and businesses across the state. Obama’s anti-business priorities like the government takeover of health care, anti-industry “cap and trade” and the pro-union “card check” bill have received attention because they are such brazen attempts to hurt the Texas economy. The expansion of 1099s, however, represents a threat not just to employers in Texas, but across America. This is just another reminder that Obama’s politics of change are really just Washington’s politics as usual.

TAB proudly supports HR 5141, the “Small Business Paperwork Reduction” mandate to correct this gross overreach in Obamacare. We must curb the size of government and support our employers.

Hammond is president and CEO of the Texas Association of Business.