Paperwork headache: Senate fails to ease tax requirement that could swamp businesses

more images

more images

Senate fails to cut tax provision in health law

WASHINGTON — The Senate failed Tuesday to repeal or ease an arcane tax reporting provision of the new health care law, leaving millions of businesses in the lurch for now.

It was an inconclusive ending to an early skirmish over repealing part of President Barack Obama’s signature domestic policy achievement. But it signaled battles to come if Republicans gain control of Congress in the midterm elections this fall.

Tucked into the health law is a requirement that businesses file tax forms called 1099s with the Internal Revenue Service for every vendor that sells them more than $600 in goods. Business groups say it would create a paperwork nightmare for more than 40 million companies as they struggle to keep going in a weak economy.

Even Obama wants this provision changed. The White House is backing a proposal by Sen. Bill Nelson, D-Fla., to exempt firms with 25 or fewer workers and raise the reporting threshold to $5,000 for the rest.

But Nelson’s amendment failed a 60-vote procedural test 56-42. That vote came shortly after the Senate also sidelined, by 46-52, an amendment by Sen. Mike Johanns, R-Neb., that would have repealed the reporting requirement.

“We’re stuck on this issue of whether or not businesses are going to have to file these 1099s,” Nelson said.

The votes were a sidelight in a debate over broader legislation to help small businesses, but nonetheless they underscored the difficulty of making any substantial changes to the health care law.

Although majorities in both the House and Senate are now on record opposing the current 1099 reporting requirement, lawmakers disagree over whether to repeal or merely modify it, and how to plug a revenue gap that could be as large as $19 billion over ten years, depending on the approach Congress chooses.

The health care law gradually expands coverage to more than 32 million uninsured people, overhauls the health insurance market and guarantees coverage for people with health problems. Republicans are vowing to repeal it if they take control of Congress in November, saying its mandate that all Americans carry health insurance amounts to big government overreach.

Nelson accused Republicans of trying to start the repeal now. Johanns’ amendment would have reduced some of the subsidies available under the health care law. “He starts to gut the health care reform bill,” Nelson said.

Republicans essentially responded they’ll be back.

“Whether this was an intended consequence, or an unintended consequence, this is a disaster for small businesses around the country,” said Johanns. Most major business groups back his approach.

Congress still has time to act, since the reporting requirement will not take effect until 2012.