Daily Archives: September 14, 2010

Public Health Prevention vs. Tax Fraud

On the floor of the Senate today, debate will be held on an amendment introduced by Senator Mike Johanns of Nebraska. An amendment to what you ask? An amendment to the Small Business Paperwork Mandate Elimination Act introduced in the House by Representative Dan Lungren. If you haven’t heard about any of this, I’m not surprised. It’s not the kind of thing that plays very well to a large public audience. The reason is simple: because the proposed act would eliminate public health funding provisions of the Affordable Care Act (ACA) to ensure that certain small businesses are able to continue their tax-evading ways. When you frame the issue that way, not too many people are going to be in favor of it.

At issue is IRS Form 1099. If you’ve ever done any contract work or consulting for which you were paid more than $600, you probably got one of these in the mail sometime in January or February of the following year, because companies are required to report them. But there were a lot of loopholes in the law that made it easy for a significant amount of income to go unreported. As Harold Pollack writes, “Firms did not have to report any payments to corporations. They also did not have to report payments for goods and property, as opposed to services.” When payments aren’t reported, this has two potential effects. First, the person who was paid may not report the income. Second, the firm making the unreported payment can keep its books balanced by reporting less income than it actually made. In both cases, income is under-reported, and that means less income tax is paid to the federal government. And by “less” I mean about $1.7 billion a year.

So, the ACA included a provision to ensure more stringent Form 1099 reporting. Of course, businesses that have been enjoying the fruits of the loose tax rules are not happy about this. Thus, the introduction of Rep. Lungren’s bill to roll back the new restrictions and return to an era of easy tax evasion. But, remember that $1.7 billion a year? Well, that would have been new revenue to the federal government under the ACA, which would have been used to offset some of the new costs associated with the law. Under pay-as-you-go rules, rolling back the tax provisions means a loss of $17.1 billion in revenue over 10 years, which means some expenses need to be cut. That’s where Sen. Johanns’ amendment comes in with the solution: Just eliminate the funding for public health and prevention. I guess he thinks we don’t really need it. I think he’s sorely mistaken. What we don’t really need is businesses not paying taxes on their full incomes. Fortunately, the Republicans don’t yet have a filibuster-proof majority in the Senate to pass the Johanns’ amendment. Unfortunately, if they win big in November, this is the sort of thing that they’ll be fighting for up on Capitol Hill.

Note: Many of the ideas in this post were drawn from a post written by Harold Pollack over at The New Republic. I paraphrase him heavily here, and wish to give credit where credit is due. I also wish you to read his piece here.


Posted by on September 14, 2010 in Uncategorized

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