Tuesday, March 29, 2011

Johanns Amendment (#161) on 1099 Repeal

Senator Johanns has offered an amendment (#161) to the small business bill (S. 493) repealing 1099 paperwork mandates.  The Johanns amendment is a verbatim version of H.R. 4, as passed by the House of Representatives on March 3 – and differs slightly from the prior versions of 1099 repeal considered in the Senate (both earlier this year and last Congress).  In short, the Johanns amendment would also repeal an additional 1099 reporting requirement enacted by Congress last September, and would use recaptured insurance subsidies instead of unobligated appropriations as the pay-for.  A complete summary follows below.

Timing on votes remains unclear, but votes on the 1099 issue MAY occur this afternoon.  While possible Democrat second-degree amendments on the 1099 issue may be introduced, none has been filed as of yet.  Staff may note however that Sen. Johanns recently gave a floor statement in which he criticized second degree amendments that “would be nothing but cover to keep the job-killing 1099 mandate in place while claiming to support its repeal.”


1099 Mandate Repeal:  The amendment repeals Section 9006 of the Patient Protection and Affordable Care Act (PPACA).  This Section 9006 information reporting provision requires vendors and small businesses to file Forms 1099 for any goods purchases that total over $600 in the aggregate over the course of a year—which will force all businesses, including small businesses, to file tax forms listing the amount of their annual transactions with vendors like their paper supplier, bottled water distributor, caterer, etc.  The Joint Committee on Taxation (JCT) estimates repealing this provision will result in a revenue loss of $21.9 billion.

According to a report issued by the National Taxpayer Advocate, the 1099 reporting requirements will affect 40 million businesses – ten times the number of firms the Administration asserts will benefit from small business tax credits.  The Taxpayer Advocate has also called the reporting requirement “disproportionate” and “burdensome” for small business.  For instance, the Taxpayer Advocate noted that small businesses “may lose customers” to larger chains more easily able to comply with the new requirements, and that “it is highly likely that the IRS will improperly assess penalties” for not filing forms.  Finally, the Taxpayer Advocate noted that “the IRS will face challenges making productive use of this new volume of information reports” required by the health care law, because “the amounts on the information reports and the tax returns” will not match for a variety of technical reasons.

Additional 1099 Mandate Repeal:  In addition to the above provision, the Johanns amendment ALSO repeals another 1099 mandate added in Section 2101 of last September’s Small Business Jobs Act (P.L. 111-240).  This 1099 mandate requires individuals receiving rental income to report payments to vendors related to that rental property (e.g., plumbers, electricians, lawn maintenance, etc.) in excess of $600 per year.

This provision was NOT included in the 1099 repeal bills the Senate considered last year, nor in the 1099-related amendments considered to the FAA reauthorization measure (S. 223) last month; those measures only focused on the 1099 mandates included in the health care law.  JCT estimates repealing this provision will result in a revenue loss of $2.8 billion.

Health Insurance Subsidy Recapture:  The amendment modifies the repayment levels for insurance subsidies provided under PPACA.  Under the health law, new health insurance subsidies are based on an individual’s (or family’s) most recent tax return – so that subsidy levels beginning in January 2014 will be based on reported income for 2012.  However, a family’s circumstances can change significantly during this time lag for a variety of reasons – a change in job, significant raise, divorce, birth, or death, to name just a few.

PPACA established a reconciliation process intended to recapture any subsidy over-payments – but the law capped the amount of such repayments at $250 for individuals and $400 for families for all families with incomes under 400 percent of the federal poverty level (FPL, $89,400 for a family of four); above 400% FPL, no limits applied.  The “doc fix” passed in December 2010 (P.L. 111-309) modified these levels to pay for a one-year adjustment to Medicare physician payment rates; the Johanns amendment would modify those levels still further.  The below spreadsheet shows the maximum repayment amounts (for individuals and families) under the original law, the current law (as modified in December), and the proposed Johanns amendment:

Percentage of Poverty PPACA as Enacted December 2010 “Doc Fix”           (P.L. 111-309) Johanns amendment
100-200% FPL $250/$400 $300/$600 $300/$600
200-250% FPL $250/$400 $500/$1,000 $750/$1,500
250-300% FPL $250/$400 $750/$1,500 $750/$1,500
300-350% FPL $250/$400 $1,000/$2,000 $1,250/$2,500
350-400% FPL $250/$400 $1,250/$2,500 $1,250/$2,500
400-450% FPL* Full subsidy $1,500/$3,000 Full subsidy
450-500% FPL* Full subsidy $1,750/$3,500 Full subsidy
Above 500% FPL* Full subsidy Full subsidy Full subsidy

(*While subsidies are only available to individuals and families with incomes below 400% FPL, the recapture penalties would apply to individuals who received subsidies, yet were not eligible for ANY subsidies based on their income.)

CBO and the Joint Committee on Taxation score this provision as saving $24.8 billion over ten years.

Tax Increase Allegations:  Democrat claims notwithstanding, many may argue that the subsidy recapture provision does NOT represent a tax increase, on the grounds that individuals will be repaying a subsidy they received in error.  In addition, most of the subsidies provided under PPACA are refundable in nature, and some would argue that limiting refundable subsidies reduces government spending, rather than increasing taxes.  Americans for Tax Reform has issued a letter outlining this position, stating that the language outlined above “is a net tax cut, and is therefore NOT a violation of the Taxpayer Protection Pledge.”

While some Democrats in the House expressed concern about the higher repayment requirements in the Johanns amendment, it is worth noting that December’s increase in subsidy repayments passed the Senate by voice vote, and passed the House by the overwhelming margin of 409-2, with 243 House Democrats supporting what they have now criticized as a “tax increase.”  Moreover, the provisions of the Johanns amendment requiring full subsidy repayment for all individuals and families with incomes above 400% FPL merely echoes a provision in PPACA itself – meaning Democrats would now oppose this provision in the Johanns amendment after having supported it during the health care debate last year.