Opinion

Senate’s 1099 repeal shows Obamacare’s edifice is crumbling

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John Berlau
Senior Fellow, CEI
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      John Berlau

      John Berlau is director of the Center for Investors and Entrepreneurs at <a href="http://cei.org/">CEI</a>. He is also a contributor to OpenMarket.org. Berlau has written about the impact of public policy on entrepreneurship for many publications including The Wall Street Journal, Barron's, Investor's Business Daily, and National Review. He has been the guest on many radio and television programs including MSNBC's "The Situation" with Tucker Carlson and CNBC's "Street Signs" with Ron Insana, and the Your World with Neil Cavuto on Fox News.

      Berlau previously was Washington correspondent for Investor's Business Daily and a staff writer for Insight magazine, published by The Washington Times. In 2002, he recevied Sandy Hume Memorial Award for Excellence in Political Journalism from Washington's National Press Club . He was a media fellow at the Hoover Institution in 2003. Berlau graduated from the University of Missouri-Columbia in 1994 with degrees in journalism and economics. He is the author of the book Eco-Freaks (Nelson Current, 2006), which has been in Amazon's top 100 best-selling non-fiction books.

Although the U.S. Senate voted along partisan lines Wednesday to defeat repeal of the Patient Protection and Affordable Care Act — also known as Obamacare — it overwhelmingly on the same day voted to repeal one of the provisions that has proven most burdensome to entrepreneurs: the mandate for business to file IRS 1099 reports on any purchase over $600.

The House should follow suit, and President Obama should be true to his newfound dislike of the provision and sign the repeal into law. Then, while the law’s constitutionality is before the courts, Congress should continue pruning the branches of Obamacare that have proved to be the most burdensome to doctors, entrepreneurs, consumers, and savers and investors.

The next “branch” that should be up for pruning is the stealth “medicine cabinet tax” that prohibits consumers from purchasing over-the-counter drugs — including pain relievers, prenatal vitamins, and Pedialyte for kids — with their flexible spending accounts and health savings accounts unless they go through the cumbersome process of getting a doctor’s prescription. The Los Angeles Times reports that Sen. Kay Bailey Hutchison (R-Texas) and Rep. Erik Paulsen (R-Minn.) plan to introduce measures that would get rid of this provision next week.

Both provisions impose incredible paperwork burdens that should have been considered before the law was rammed through last year.

Sen. Mike Johanns (R-Neb.), who supported the 1099 repeal before it was “cool,” has shared powerful examples of how the rule is harming small entrepreneurs in Nebraska and across the country. A small fire truck manufacturing company told him the rule will cost the firm an extra $23,000 in accounting fees. A restaurant owner says the rule “forces me not to hire local vendors” and instead go through a “single regional contractor.”

The “medicine cabinet tax” on HSAs and FSAs has created a similar paperwork burden as well as outright confusion about how to comply with the law. Requiring a prescription defeats the purpose of over-the-counter drugs. The number of prescriptions that consumers have to request and doctors have to write and renew could likely go up more than tenfold.

That is, if consumers simply don’t decide to get the prescription drugs that may now be cheaper for them to buy, but more expensive to the health care system. As an editorial in the San Jose Business Journal puts it, “No one is going to pay for the doctor’s visit, spend time in the doctor’s office, or schedule time off work to accomplish this.”

Retailers also face a big burden. Payment systems were already programmed through the industry-developed Inventory Information Approval System with a list of eligible OTC drugs for medical account debit cards to prevent cheating with these accounts, alleviating one of the concerns this provision supposedly addresses. But now, cashiers may have to play the role of pharmacists in verifying prescriptions, a process that will likely add substantial costs in time and money, resulting in price increases across the board for retail items.

Obamacare’s edifice is crumbling in the courts and in Congress. Although the 1099 rule and medicine cabinet tax can both be ended before full repeal of the health care law, it should be remembered that they were enacted because of the flawed process of ramming this bill through Congress.

Both are gimmicky revenue “offsets” done so the Congressional Budget Office would technically score Obamacare as reducing the deficit, and score repeal of the law or even of these individual provisions as increasing it.

  • ricky

    Yes, the purpose of the 1099 provision was to find tax cheats, but that is not what this is about. It’s about having it get the TIN/EIN from everyone you did business with (purchase of any good or services), whether big corporation, small business, worker, etc., and issue them a 1099 at year-end. Unbelieveable burden, plus large penalties for not complying.

    But the kicker is this: What was Congress’ mind-set when they thought up this provision? It is so outlandish that if was also the mindset for the rest of Obamacare, then we are all in trouble. The 1099 provision was a complete “takeover” by the federal government in terms of documenting everything you and reporting it to the federal govt. I never had any doubt that it would have to be repealed. It wasn’t doable…..

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  • Joe Steel

    This is an outrage. The 1099 provision was an attempt to stop tax cheaters. I thought it would be in trouble in the House. The House is controlled by anti-American radicals but I didn’t know the Senate had so many traitors in it.

  • brotherwiki

    Correct me if I am wrong but… the 1099 clause cannot be repealed because… As the Florida judge noted, ObamaCare has no severability clause. This is good news! When the Senate acted to repeal or severe one part of the bill they actually acted to render the whole bill null and void. If I am correct, then all the House has to do is pass the Senate repeal and let Obama sign it. Then proceed according to the rule of law: the entire ObamaCare bill is summarily repealed by the Senate, House and President agreeing to severe the 1099 clause when there is no severability clause permitting them to do such a thing. Then proceed to replace it with common sense solutions that are constitutional.

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