Burying small businesses in paperwork

Rep. Joseph R. Pitts | Congressman, Pennsylvania 16th District

Every year millions of Americans risk their savings and work hard to start a small business. According to the National Federation of Independent Businesses, about 1 in 10 adults are currently taking steps to create a business.

These new businesses are the lifeblood of our economy and the engine of American job growth. Fifty-five percent of all jobs in the private sector come from small business and, since the 1970s, about two out of every three new jobs have been created by small businesses.

Last week’s unemployment report showed that the job market is still extraordinarily weak. We need to create millions of new jobs in order to bring unemployment back down to a more stable level. Making it harder to run a small business makes it harder to create new jobs.

One provision in the new health care law will be yet another costly distraction for small business owners. In order to raise revenue to pay for the $1 trillion new health care program, the law includes a provision requiring businesses to file a 1099 form with the IRS for each supplier or service provider they pay more than $600 to in a year.

Tom Schell, a rare coin dealer in Lititz, said the provision will require him to file 4,000 1099 forms a year.  He told the Intelligencer Journal/Lancaster New Era, “I probably would just get out of it if it actually came to that.”

While businesses already provide 1099s for payments to non-corporate service providers, the law radically expands the requirement to include corporate vendors and all purchases of goods. The Congressional Budget Office estimates that the requirement will increase revenue by uncovering more taxable income.

The office of the National Taxpayer Advocate within the IRS estimates that this provision will affect 40 million businesses. In July, they issued a harsh report on the consequences of the 1099 provision. They noted that small businesses in particular will be harmed by the new reporting requirements.

They state that the new burden on businesses would be disproportionate compared the actual revenue gained. For a relatively small increase in revenue, small businesses across the country would need to purchase new software and accounting services to handle the new paperwork.

The new requirement could actually lead to fewer small businesses and less choice for consumers. According to the report, “Small businesses that lack the capacity to track customer purchases may lose customers, leaving the economy with more large national vendors and less local competition.”

The new provision would go into effect in 2012, but businesses will probably need to prepare for the requirements starting next year and perhaps even sooner. With the clock ticking, pressure is on Congress to provide relief before businesses suffocate under the deluge of paperwork.

In the last week of July, Rep. Dave Camp (R-CA), the leading Republican on the House Ways and Means Committee, prepared to offer a simple amendment that would have eliminated the provision. The measure appeared to enjoy broad bipartisan support. Rather than let the amendment pass, Democratic leadership removed a larger tax bill from consideration on the House floor.

The very next day, the House considered a brand new bill that removed the reporting requirement, but introduced new tax increases to make up for lost revenue. This bill failed because it was brought up under expedited rules requiring two-thirds of the House to agree. I voted against the bill because I thought it solved one problem by creating a dozen other problems.

It’s just been four months since President Obama signed the new health care law, and already Democratic leadership is conceding that portions of the bill will harm the economy. We cannot create a massive new government entitlement program without someone footing the bill.

Small businesses all over America have just been told that they will have to pay billions more in taxes to foot the bill for Obamacare.  That’s money that might otherwise go to job creation.  That’s just one reason why America isn’t creating more jobs.

Rep. Joe Pitts (R) represents the 16th Congressional District of Pennsylvania.

Tags : business finance congressional budget office economics internal revenue service pennsylvania unemployment ways and means committee
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