1099 skirmish indicative of party ideologies

Chris Prandoni Federal Affairs Manager, ATR

Upon returning from recess, the Senate was captivated by two amendments to the small business lending bill. Passions flared not only because of the punitive impact each amendment would have, but because the legislation each side advocated for exemplified the ideological differences between Republicans and Democrats.

This proxy war was fought over the 1099 reporting requirements for small businesses that the Patient Protection and Affordability Care Act radically increases. While both Democrats and Republicans agree that 1099 reporting for all small businesses are unnecessary and burdensome, they have offered different remedies.

Representing the Democratic camp, Sen. Bill Nelson (D-Fla.) proposed a tax hike on America’s five largest oil and natural gas producers. Sen. Nelson would use the newly garnered revenue to exempt some small businesses from 1099 reporting.

In the GOP corner, Sen. Mike Johanns (R-Neb.) offered an amendment that eliminates the reporting requirements for all small businesses. To plug the fiscal hole created by exempting small businesses from onerous 1099 reporting, Sen. Johanns wants to cut $15 billion in government spending.

While neither amendment received enough support to pass, they are indicative of the ongoing debate between Republicans and Democrats. A rejuvenated Republican Party has pledged to cut spending and reduce the size and scope of government. The Democratic Party, seemingly incapable of trimming America’s $3.7 trillion annual budget, looks to tax America’s most productive businesses to pay for its policies.

The Nelson amendment would have repealed the Section 199 tax deduction for America’s five largest oil and natural gas producers. Enacted in 2004 to foster domestic job creation and economic growth, Section 199 allows companies to deduct a portion of the income that they derive from domestic production and manufacturing activities. Section 199 is not unique to oil and natural gas producers—as many opponents of the rule claim—any domestic manufacturer may employ this tax credit. Democrats have long been coveting the revenue a full repeal of Section 199 for energy companies would bring—Obama included the measure in his budget and Congressional Democrats often cite it as a way to pay for their programs.

The oil and natural gas industry directly or indirectly employs 9.2 million Americans and adds over a trillion dollars of wealth to the American economy each year. Further taxing oil and natural gas producers will only lead to higher energy prices and fewer jobs—neither result is desirable, especially during the current economic climate.

Instead of solving the self-induced 1099 problem created by rushing health care legislation through Congress, Democrats resorted to their default policy: raising taxes.

Conversely, Republicans offered a tough but necessary solution: reducing spending. No matter how hard Democrats in Congress try, it will be impossible to raise taxes enough to cover the amount of money they are spending.

Federal tax revenues have averaged approximately 18 percent of GDP since 1970. According to the Congressional Budget Office (CBO), tax revenues over the next decade will climb back to this historical average—even if all tax hikes are avoided. According to CBO, federal spending will exceed this level for the entire decade, averaging 23 percent of GDP, leaving a five percent gap between spending and collected revenue.

Democrats’ innate tax-hiking tendencies reveal themselves when they talk about raising taxes on the top two percent of earners come January, supposedly to pay down the deficit—another problem they created through the stimulus, the auto bailout, and other expensive programs. After running up the Treasury’s tab by increasing spending by over twenty percent since 2008, Democrats are claiming to have found some religion. Their solution to “the deficit,” predictably, is to raise taxes on America’s most productive earners and only pay lip service to reducing spending.

Tuesday’s amendment skirmish provides the perfect lens through which to view America’s two parties. Democrats and Republicans have coalesced around the ideologies personified by Sen. Nelson’s and Sen. Johanns’ 1099 solutions. The choice for voters could not be clearer.

Christopher Prandoni is the Executive Director of the Alliance for Worker Freedom, an affiliate of Americans for Tax Reform.