Every great once in awhile, the legislators who make up the United States Congress set aside short-term politics to craft truly historic legislation that improves the lives of Americans for generations to come.
Other times, the party in power takes advantage of sheer numbers to jam controversial legislation down the minority's throat like a French farmer force-feeding a flock of geese to make foie gras.
We'll let you decide which of those two was the case when Washington gave us the "Patient Protection and Affordable Care Act," otherwise known as Obamacare. Congress passed the 2,500+ page act last March, and the rest of us have been trying to figure out what it means ever since. (As former House Speaker Nancy Pelosi famously said, "we have to pass the bill so that you can find out what is in it, away from the fog of the controversy.")
But one provision drew immediate howls from small businesses across the country. Specifically, the healthcare reform law mandated that all businesses, tax-exempt organizations, and federal, state, and local governments file a Form 1099 at the end of the year for any business they spend more than $600 with. (We're talking 26 million sole proprietorships, 4 million S corporations, 2 million C corporations, 3 million partnerships, 2 million farms, a million charities, and 100,000 government entities.) The goal was to help pay for healthcare reform by making it harder for businesses to underreport their income. The problem, unfortunately, is that it did so with the bureaucratic equivalent of using a howitzer to kill a fly.
Let's say Joe the Plumber is just trying to make an honest buck in a tough economy. Now he's got to collect taxpayer identification numbers and file 1099s with every gas station, plumbing supply shop, equipment rental store, and quick-lube shop he patronizes during the year. Oh, and he'll also have to track the 1099s he gets from all his business clients! Congratulations, Washington — you've just taken a guy with a pickup truck and a pipe wrench and turned him into a rolling tax whistleblower!
Congress ratcheted up the pain in September with the Small Business Jobs Act, extending the 1099 requirement to landlords filing Schedule E. Let's say you rent out your vacation home a few weeks each season to help cover expenses. Now you get to track down ID numbers and file forms with your plumber, your cleaning crew, your cable company, your insurance company, and even the kid who cuts the grass when you're not around to do it yourself. Doesn't that sound like fun?
House Republicans drew a bullseye on the 1099 requirements before they even took office this year. President Obama agreed and called for repeal in this year's State of the Union Address. So on April 15, appropriately enough, Congress and the President granted everyone's wish. Of course, nothing is ever easy in Washington. Last month's law pays for the 1099 repeal by increasing "clawback" provisions that penalize taxpayers who claim more insurance subsidies than they're actually entitled to under the original bill. (Don't feel confused, the folks who passed the new law don't understand exactly how it works either.)
Here's the bottom line. Nobody really wanted to deal with the hassle. Even the IRS National Taxpayer Advocate Nina Olson testified before Congress that the rule's burden may turn out to exceed its benefits. Washington listened, and made life just a little easier for those of us who work and pay taxes in the real world.
What do you think? Now that the 1099 requirement is history, what would you say is the next thing Washington should do to make tax time easier?
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