House votes to end unpopular new business tax rule

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WASHINGTON (AP) — An unpopular tax filing requirement for businesses tucked into the new health care law would be repealed under a bill overwhelmingly passed by the House Thursday.

The provision would require millions of businesses to file tax forms for every vendor that sells them more than $600 in goods each year, starting in 2012. The requirement is projected to raise nearly $25 billion over the next decade by ensuring that vendors pay their taxes. But lawmakers in both parties say it could create a paperwork nightmare for businesses and the Internal Revenue Service.

The filing requirement is so unpopular in Congress that it is unlikely to ever take effect. The House voted 314 to 112 Thursday to repeal the filing requirement, with 76 Democrats joining all Republicans in voting to pass the bill. The Senate passed a similar measure last month, and attached it to an unrelated bill to help modernize the nation’s air traffic control system.

However, many Democrats and Republicans — and the House and Senate — disagree on how to make up the potential revenue, so the debate could drag on for months.

“Frankly, it is an attempt to repeal a provision of the health care bill that never should have been there in the first place,” said Rep. Dan Lungren, R-Calif., who sponsored the House repeal bill. “Let’s not make it a political football now.”

President Barack Obama’s budget office released a statement saying the administration supports repealing the filing requirement — even though it was included in the health care law he championed — because it would “place an unnecessary bookkeeping burden on small businesses.” The administration, however, opposes both the Senate and House plans to make up the potential revenue.

Businesses already must file Form 1099s with the IRS when they purchase more than $600 in services from a vendor in a year. The new provision would extend the requirement to the purchase of goods, starting in 2012.

The requirement would hit about 38 million businesses, charities and tax-exempt organizations, many of them small businesses already swamped by government paperwork, according to a report by the National Taxpayer Advocate, an independent watchdog within the IRS.

“If we wonder why we have a high unemployment rate, it’s because of provisions like this,” said Rep. Charles Boustany, R-La. “The president thinks it’s bad, Democrats think it’s bad, Republicans think it’s bad, even the Senate thinks it’s bad. It’s taken long enough to move on this. Let’s do it. Let’s get it done.”

The Senate bill would make up the lost revenue through unspecified spending cuts. The House bill would make up the lost revenue by changing another part of the health care law, requiring more families to repay tax credits designed to help them pay insurance premiums, if their incomes increase beyond certain levels.

Starting in 2014, the new health care law will provide tax credits to low- and middle-income families to help pay health insurance premiums, if they don’t get insurance through their employers.

The credits will be paid directly to insurance companies throughout the year. The amount will be based on family size, premium costs and income, as reported on previously filed tax returns. Under the law, if a family’s income increases, and they no longer qualify for the tax credits — or qualify for a smaller amount — they would have to repay a portion of those tax credits when they file their federal tax returns. The House bill would increase the amount people would have to repay, generating a projected $25 billion over the next decade.

House Democrats said the provision amounts to a tax increase on middle-income families.

“Despite Republican claims, it is a tax increase,” said Rep. Joseph Crowley, D-N.Y. “Democrats are ready to repeal (the filing) requirements. But we will not do it on the backs of hard-working middle class Americans.”

Republicans said they merely want people to repay subsidies they are no longer entitled to receive.

“The fact is, what this comes down to is, returning an improper government subsidy, and that is not a tax increase,” said Rep. David Dreier, R-Calif., chairman of the House Rules Committee.