News & Articles
Business groups that opposed the additional reporting of transactions to the Internal Revenue Service – a provision called “1099” for the form it would have required – were happy to see President Obama sign a bill repealing this measure in mid-April. The provision, which was intended to increase business tax revenue, would have taken effect in 2012. Its opponents argued that it created a significant paperwork burden to generate minimal returns, and ultimately both Republican and Democratic lawmakers agreed. Announcing the repeal, the President acknowledged the vital role small businesses play in the U.S. economy and noted that bilateral collaboration had brought about the repeal of the component. The bill the President signed also repealed another tax reporting requirement passed last year, which took effect January 1, 2011, requiring landlords to disclose more about their business expenses.
When Congress passed the 1099 business tax reporting requirement in 2010, it drew immediate criticism. It would have required business owners to report all transactions totaling $600 or more paid to other businesses for products and services. With its repeal, business tax reporting reverts to previous guidelines, which require only disclosure of payments made to unincorporated businesses.
The repeal might have resolved business leaders’ concerns, but it left government coffers with a shortfall of $21.9 billion – the projected revenue from the repealed requirement. Accordingly, the Senate and Congress both developed strategies to address this. The Senate version proposed spending cuts. The version President Obama signed into law reflected the Republican-controlled House proposals that the Senate passed on April 5. The new law changes parts of the healthcare bill of 2010 that deal with health insurance tax credits for low- and middle-income taxpayers. Individual taxpayers’ eligibility for credits – paid directly to health insurers – is calculated based on personal income reported for the previous year. The new law will require more people whose incomes rose over the past year to return overpayments.
Democrats had opposed the changes to health insurance tax credits because they believe the revisions penalize people who receive year-end bonuses. Acknowledging this and his party’s commitment to more affordable health care, Obama noted that he looked forward “to continuing to work with Congress to improve the tax credit policy in this legislation.”
The debate over how to tackle the budget deficit has no easy answers. Former Federal Reserve Chairman Greenspan jumped back into the fray on April 17 by recommending allowing the Bush tax cuts to expire and a return to Clinton-era tax rates. He also noted that major cuts in entitlement spending were needed.