Aug. 22, 2014 SIGN IN | REGISTER

Johanns: Health Reform Makes Small Businesses Sick

I don’t know a single person who would deny that businesses face a mountain of paperwork to comply with a whole host of laws, most significantly tax laws. Remarkably, the recently passed health care law will dramatically increase that paperwork mountain unless we stop it.

Section 9006 of the new health care law requires that all businesses, charities, and local and state governments file 1099 tax forms if they purchase $600 or more in goods from another business throughout the year. This includes supplies, shipping costs, phone and Internet services, you name it, all in the name of compliance.

Now consider this: The National Taxpayer Advocate Service — a division of the Internal Revenue Service — reports that the IRS “will face challenges making productive use of this new volume of information. ... In our view, it is highly likely that the IRS will improperly assess penalties that it must abate later, after great expenditure of taxpayer and IRS time and effort.” Why would we pass legislation that would knowingly make the government more inefficient and less effective? Nothing about this provision makes sense, including its timing. It baffles me that at a time when we desperately need to hire workers and grow our economy out of a recession, Washington would pile on a massive new paperwork mandate that would wrap both our government and our businesses up in more red tape.

The paperwork mandate is a double whammy for small-business owners. Not only will their tax reporting burden increase because of additional tax filing requirements, but businesses will think twice before purchasing goods and services from smaller companies. If they have to fill out an additional 1099 form for each individual vendor with whom they do business, they will be less likely to work with small businesses.

This provision of the health care law has nothing to do with health care. Moreover, it creates a perverse incentive for companies to consolidate suppliers, cutting small businesses out of the picture. If you want purchases to go only to the giant retailers, Section 9006 of the health care law is for you. If you want vibrant Main Streets where small businesses thrive, then my legislation hits the mark.

The Taxpayer Advocate Service recently estimated that this mandate will affect as many as 40 million American businesses, including about 26 million sole proprietorships, not counting farms. This is 10 times the number of firms the administration asserts will benefit from the small-business tax credits contained in the law. It will create a negative rippling effect across the country and throughout our economy.

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