Time for the Senate to repeal 1099 clause

By: Rep. Dan Lungren, 3rd Congressional District
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On March 3, the House of Representatives passed my proposal to strike the expanded 1099 reporting requirements contained in the health care bill by an overwhelming vote of 314-112. This vote is a strong show of support for the small business community and a recognition that government cannot continue to heap additional mandates on the productive sector. It has been a long road. Last year when I introduced legislation to repeal the 1099 expansion, I had exactly one cosponsor — myself. This January I introduced the bill again as H.R. 4 with 245 original cosponsors, and eventually 273 cosponsors from both parties. One could say that if bipartisanship has a name it is “1099 Repeal.” The idea for H.R. 4 had its genesis in the groundswell of concern among the small business community over the unintended consequences of a 170-word provision buried within the 340,000 words of the health care law. Essentially, Section 9006 of the “Patient Protection and Affordable Care Act” will require all businesses — and non-profit organizations — to file 1099 forms for every business-to-business transaction over $600 per year. This new mandate is set to take effect on Jan. 1, 2012. Regardless of one’s view of the health care bill itself, the new 1099 filing requirement could not be more ill-conceived. The focus of Congress must be to expand opportunities for small businesses. Unfortunately, Section 9006 takes us in precisely the opposite direction. We should be looking for ways to free small companies from unnecessary burdens. We should be looking for ways to free up “the animal spirits” in order to encourage entrepreneurship. Rather than imposing new obstacles for companies, we should be seeking ways to restart the engine of job growth. Imposing new paperwork burdens on our nation’s job creators is misguided and certain to hamper the efforts of small companies to work their way out of our nation’s lingering economic distress. We do not have the luxury of thinking of the small business community as a constant variable which can easily absorb additional costs of doing business. Even in normal times, it is challenging for new business ventures to succeed. In a report for the Small Business Administration (SBA), Office of Advocacy, Paul Headd points out that although small businesses are a dynamic source of job creation for our economy, they also operate in an environment best characterized by the notion of “creative destruction.” In this regard, SBA data indicates that half of all small businesses fail within the first five years. The new 1099 filing requirement is emblematic of the broader array of regulatory obstacles that add to the difficulty faced by small business owners who are just trying to survive. This new government mandate only adds to the perceived burdens that lie ahead and raises what might best be described as an “uncertainty tax.” If we want to encourage investment, hiring and business growth, we should be looking at ways to create an environment that is more friendly to entrepreneurship. In this regard, the new filing requirement is a step in the wrong direction. I would also suggest that the specific impact of Section 9006 involves more than the additional paperwork requirements and compliance costs. Although this alone is sufficient justification for repeal of this onerous provision, there are also potential behavioral responses to it which are equally pernicious. If a company does business with a number of suppliers, Section 9006 would require 1099 forms to be filed with respect to each of the suppliers where the sum total of the transactions exceed $600 per year. One possible effect is there will be new incentives for companies to reduce the number of their suppliers by relying on larger entities. Small businesses could prove to be a casualty of the law. According to National Taxpayer Advocate Service analysis of 2009 IRS data, about 40 million businesses and other entities will be subject to the new requirement, including roughly 26 million non-farm sole proprietorships, 4 million S corporations, 2 million C corporations, 3 million partnerships, 2 million farming businesses, 1 million charities and other tax exempt organizations and more than 100,000 government entities. The overwhelming number of small businesses follow the law, and yet they will be forced to assume a new reporting burden which is patently unfair. Finally, I would suggest that Section 9006 conveys the worst possible message to the small business community. It reflects a disconnect with the day-to-day reality faced by the men and women involved in the pursuit of enterprise. The House has shown that we can work together to demonstrate to those who create jobs that we do in fact understand their struggles, and that it is our intention to remove rather than to impose new obstacles in their path. It is my hope that the Senate passes H.R. 4 with great dispatch. Rep. Daniel E. Lungren is the chairman of the House Administration Committee.