Mike Johanns and the ‘1099 problem’

MIKE JOHANNS AND THE ‘1099 PROBLEM’…. The story of the day in health care circles is a renewed focus on what some have labeled the “1099 problem” — and a proposed “fix.”

The Affordable Care Act included a provision that requires expanded 1099 reporting for businesses. The loophole-closing move has traditionally enjoyed bipartisan support — the idea is predicated on the notion that more reporting will reduce fraud and improve tax revenues — but after health care reform became law, the “1099 problem” became a favorite GOP talking point. By forcing businesses to report more transactions to the IRS, the argument goes, the law is causing burdensome headaches throughout the private sector.

Enter Sen. Mike Johanns (R) of Nebraska. The conservative senator, with quite a bit of backing, wants to ease the tax rules, even if it would make it easier for businesses to skirt tax laws.

Don’t worry, Johanns responds, we can pay for expanded loopholes that encourage fraud by all but eliminating the Prevention and Public Health Fund included in the law. In other words, Johanns wants to make it easier for businesses to cheat on their taxes by taking money away from prevention programs.

Matthew L. Myers, head of the Campaign for Tobacco-Free Kids, explained last week, “This shortsighted tradeoff would continue a nonsensical system in which we spend billions treating debilitating diseases that we know how to prevent, while shortchanging the proven services that prevent these illnesses in the first place. It would chip away one cornerstone of a new health care system that is intended to be less costly, more rational and lead us toward a healthier society.”

I can appreciate why the 1099 issue has been deemed problematic, and I’m not unsympathetic to businesses that resent the additional bureaucracy. But (a) tax evasion really has been a serious issue; (b) there are better ways to address the problem; and (c) Johanns is talking about gutting funds for HIV prevention, cancer screening, and flu vaccinations. Republicans tend to be backwards on health care policy, but this is kind of crazy, even for them.

Harold Pollack had a terrific item on this yesterday.

Tighter tax requirements on small business prevent some firms from committing tax evasion, and it imposes some costs and bother on law-abiding firms which now have to fill out some more paperwork and presumably update their Quicken software. Senator Johanns believes that it’s so vitally important to loosen these requirements that he would make up the lost revenue by slashing federal funding for critical public health efforts — efforts that are already taking some tough hits because of the state and local budget crisis.

Senator Johanns’ amendment will be debated September 14. Florida Senator Nelson proposes a saner alternative that would raise the 1099 reporting threshold to $5,000 and would exempt firms with fewer than 25 employees. Nelson would finance this measure by reducing tax breaks for large oil companies rather than by zeroing out important public health measures. You might think NFIB would welcome this reasonable fix. No dice.

Odds are, Johanns’ push will come up short this week. But this is nevertheless a sign of where the policy debate is headed after the midterms — when Republicans aren’t working to shut down the government over health care, they’ll be pushing measures like these.

For more, check out this Kaiser Health News item, as well as this report from the Center on Budget and Policy Priorities, which explains quite clearly why Johanns’ measure would “raise premiums, increase the ranks of the uninsured, and eliminate preventive health funding.”