The average small-business owner spends about 12 hours filing his taxes each year. Thanks to one of Obamacare’s oft-overlooked provisions, that figure will soon increase exponentially.
The new law requires all businesses to submit 1099 tax forms to the Internal Revenue Service (IRS) for each vendor from which they purchase more than $600 in goods in a year. Business owners will now have to keep receipts and file forms for every trip to the coffee shop, the local lunch spot, and the office supply store. After all, those $3 lattes each day add up.
Lawmakers must repeal this nightmarish new rule. Many American businesses—particularly small ones—simply can’t afford to devote scarce resources to bureaucratic minutiae like this.
Businesses already must file 1099 forms whenever they spend $600 on services in a year. Jacking up the reporting requirements further to include goods will increase the amount of time and money that firms have to spend complying with federal rules—and thereby decrease the amount they can devote to more productive pursuits, like creating jobs and growing their businesses.
Over the last 15 years, small businesses have created 65% of new jobs in this country. And while the small-business sector has revved up in recent months, it’s nowhere near full strength. Indeed, small-business employment grew by just 0.2% in July—a drop from the growth rate posted in June.
The new 1099 rules promise to slow those growth rates even further. Instead of bolstering their sales forces or expanding their production capacity, business owners will have to deal with mounds of costly new paperwork.
The IRS’s independent Taxpayer Advocate estimates that the 1099 provision will affect about 40 million businesses, including 26 million sole proprietorships. That’s 10 times the number of companies the White House claims will benefit from Obamacare’s small-business tax credits.
Most small-business owners can’t afford the army of accountants needed to comply with these new mandates. The National Association for the Self-Employed (NASE) reports that fully 40% of its members prepare their taxes on their own. The new reporting requirements may force these folks to shell out for tax-preparation help that they cannot afford.
At a recent press conference, Pat Felder, the owner of a small car parts store in Baton Rouge, La., estimated that she “will go from filling out four 1099 forms to several hundred because of this law.”
Felder isn’t alone. NASE estimates that businesses with fewer than ten employees currently file an average of two to three 1099s a year. This new provision would push that figure up to 27—a 1,250% increase.
Now is the worst possible time to burden businesses with needless and costly paperwork. The Bureau of Labor Statistics recently announced that total nonfarm employment declined by over 130,000 last month. And the unemployment rate is stuck at 9.5%, with 14.6 million people still out of work.
It’s not even clear that the IRS can shoulder the new 1099 burden. The Taxpayer Advocate has publicly expressed concern that the avalanche of paperwork triggered by the new rules could strain the agency to its breaking point.
Fortunately, many Republicans and Democrats agree that these new 1099 rules have to go. Rep. Dan Lungren (R.-Calif.) has introduced a bill that would scrap the new provision. Sen. Mike Johanns (R.-Neb.) has done the same in the Senate. And many Democrats have signaled their willingness to repeal the filing requirements.
Obamacare is a clunky, job-killing monstrosity. And we’re just beginning to appreciate the damage it will do to the economy. For the sake of our nation’s 30 million small businesses, it’s crucial that lawmakers repeal the law’s 1099 requirement. Doing so will allow entrepreneurs to create the jobs and wealth our economy needs to fully recover.