Thursday, September 30, 2010

1099 reasons to hate Obamacare

From the 04 October 2010 Greater Niagara Newspapers

By Bob Confer

When Congress and the Obama Administration unleashed health care reform earlier this year they knew they were looking at substantial budget shortfalls over the long haul, so they developed a series of revenue-generation projects.

Among them is a new law that, once it goes into effect in 2012, will demand that businesses file 1099 forms for every company from which they purchase more than $600 in goods and services in a given year. The Administration believes that tax cheats are everywhere and this new law will help the IRS to collect over $17 billion in new revenues during its first 10 years.

$17 billion is a stretch to say the least. The actual number is no doubt just a fraction of that wild guesstimate and the cost of compliance to the economy will far outweigh the taxes that could supposedly be collected.

That’s because businesses – both small and large – will have to devote an incredible amount of time and money to the new standard. It doesn’t take much to spend $600 in one shot with another company. But, then, when one adds up the multitude of smaller transactions that occur over the course of 12 months they’ll find that most vendors they work with fall under the 1099 umbrella. So, for each and every one of their vendors, business will have to compile and track data, fill out forms, send them to vendors at the close of the fiscal year, collect those forms and then send the 1099s to the IRS.

Those tasks can add up in a hurry. In total it will take at least 25 minutes of a worker’s time on a per-vendor basis. Most small businesses have a supplier base that numbers in the tens if not hundreds while larger corporations will have thousands of partners to account for. Using Confer Plastics as an example, we had 360 vendors in 2009 that met the $600 minimum. Based on the 25-minute factor, it will take 9,000 minutes – or 150 hours – to satisfy the new recordkeeping standards. Therefore, someone in our office will have to waste nearly 4 weeks of her time on Obamacare’s new chore each and every year which prevents her from doing something that’s actually productive and would be a wise investment of her time and the company’s money.

Looking at the economy as a whole, there are 26 million businesses - some larger, some smaller than mine - that have to invest in similar efforts. The US Chamber of Commerce and the National Federation of Independent Businesses have both come out in full force against the 1099 rule and they say the cost to businesses will be the tune of billions of dollars per year.

Their numbers don’t tell the whole story, though. There will be another cost to businesses and individuals alike in the form of taxes needed by Washington to fund the bureaucracy created at the IRS by the new standard. Many new IRS clerks will be needed to collect, collate, analyze and act on the millions of 1099 forms set to come their way. How many new agents will it take? 5,000? 10,000? The new wages, benefits, equipment and facilities won’t come cheaply.

A few weeks ago Congress attempted to take care of the situation by holding a vote on one amendment that would have repealed the requirement and another that would have exempted businesses with less than 25 employees. Neither garnered the 60 votes necessary to advance, so the 1099 rule still stands and will continue to haunt businesses until it is resolved – if it ever is.

Even if you’re not a businessperson you should be concerned. Foolish regulations like these only serve to drive up the cost of doing business. Such costs can only be recouped with higher selling prices which in turn mean you’re paying more at the department store or repair shop.

Aren’t you paying enough as it is for government-run health care?

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