ObamaCare's stealth assault on small business

Small-business owners face a world of troubles these days: a weak economy, impending health-care mandates, the prospect of higher taxes.

But one concern you hear about more and more is a huge new expansion in their IRS reporting requirements — a paperwork nightmare that will commence in 2012.

I got an earful on the subject after a recent speech to a group of employers in a small vacation town. They owned shops, a garage, restaurants. They did all their own bookkeeping at nights and on weekends. They did not enjoy it, but they were used to it. But now, they feared their lives were about to be consumed by a new bureaucracy.

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They have reason to be afraid. Right now, business owners file two forms when they employ people: a W-2 for employees and a 1099 for freelance contractors. A typical small business files 10 such forms, at a cost of 3–5 hours of time per year.

Embedded in the new health-care law, however, is a staggering requirement: using a new form — the 1099k — small businesses will have to start reporting all their purchases of goods from other businesses. (You can see a draft version of the 1099K form on the IRS website.)

Did you rent a car or stay in a hotel? 1099K.

Buy ink and paper from Staples? 1099K.

Lease space in a local mall? 1099K.

Collect revenue from PayPal, eBay, or Amazon merchants? 1099K.

And don’t forget to collect each company’s taxpayer ID number while you are at it!

There are some exceptions: Businesses with revenues of less than $20,000 are exempt, as are purchases that total less than $600 for the year. Non-exempt businesses, however, are looking at a sudden lurch from approximately 10 forms per year to probably several hundred.

The IRS intends the measure as a revenue-enhancer. If more transactions are reported, more can be taxed. The provision got tucked into the health-care bill not because it has any relation to health-care, but in order to plump the revenue side of health-care reform—and thus tilt the numbers to make the total bill look less costly.

Nobody will excuse tax evasion, of course. But there should be some proportion between the revenue value to government and the time cost to business owners.

One reason that the United States does not have a VAT is that Congress has declined to add “tax collector of first resort” to the responsibilities of the small-business owner. If that is now to change, let’s make the change in the full light of day—with a full debate of costs and benefits—not stealthily in an obscure addendum to the most important piece of social legislation since the 1960s.

We should have invited those small-business owners I met in that vacation town into the debate in advance of the decision, not after the fact.