Friday, February 04, 2011

Don't forget how and why the Democrats put in the 1099 provisions in the health care bill

Kimberley Strassel reminds us of the history of the 1099 tax reporting requirement that the Senate Democrats just jumped on the bandwagon for repeal. Today they're pretending that they were always against it and that it just appeared in a virgin birth into their health care bill. Let's not forget that they wrote it for a reason, supported it, opposed efforts to repeal it, and then finally surrendered to its repeal while pretending that they were against it all along. What hogwash!
The White House and Democrats have worked hard in recent weeks to suggest that this first casualty of their signature legislative achievement was no big deal. President Obama went so far as to make the idea his own in his State of the Union address, offering up the end of 1099 as an example of his willingness to "improve" his health legislation. And the death of 1099 was indeed overshadowed by this week's headlines that the Senate GOP had failed to repeal the larger bill.

It is nonetheless worth recalling the 1099 saga. The entire arc of this tale—from Democrats' initial defense of the provision, to this week's full-scale rout—is an example of how dramatically politics has shifted. It has also starkly laid out the real threat that the White House faces over ObamaCare in the coming year. It's not full repeal. With 1099, Republicans have shown they intend to rip it up piece by piece.

The 1099 provision was a new requirement that businesses report to the IRS annual purchases from any contractor above $600. The provision targeted 40 million businesses and other organizations, crushing them under a costly bookkeeping mandate. But hey, desperate Democrats needed funds to pay for their $1 trillion healthathon. By closing this "loophole," they claimed, the IRS could commandeer a whole $17 billion in previously uncollected taxes.

This was symbolic of the entire slapdash process and rotten substance of ObamaCare. Like so many provisions, it mysteriously appeared in Senate Majority Leader Harry Reid's 2,000-plus page bill; to this day, no Democrat has claimed authorship.

Like so many provisions, it received no due diligence, and no attention until after it became law. Only then did National Taxpayer Advocate Nina Olson, a federal employee, explain that its giant costs would likely outweigh any new tax compliance. The requirement, it turns out, doesn't just crush businesses—it also crushes churches, charities and municipalities.
So as soon as people realized what a disaster this would be for small businesses, Republicans tried to repeal it. Nebraska Senator Mike Johanns and California Dan Lungren wrote a bill for repeal, but the Democrats were so concerned that any one aspect of their mammoth bill that would be removed could set a pattern for further cancellations of their bill. So they banded together to stop the repeal of the 1099 provision.
Speaker Nancy Pelosi held a vote on a House bill that would have repealed 1099 but also imposed costly new taxes on multinationals. She knew Republicans wouldn't vote for it (they didn't), which allowed her to keep 1099 while blaming the GOP.

Senate Democrats flat-out defended the provision. When Mr. Johanns got a September vote on repeal, he lured just seven Democrats—not enough for passage. In truth, many Democrats simply liked the provision, as evidenced by their votes for Florida Democrat Bill Nelson's amendment to keep 1099 but to raise the threshold to $5,000. (That, too, failed.) The White House remained opposed to repeal.
And now suddenly, they're on the bandwagon to repeal the 1099 provision. They're pretending that they were for its repeal all along. As if.
Only after their November rout did vulnerable senators begin to jump to Mr. Johanns. Yet Mr. Reid obstructed. In late November, Mr. Johanns marshaled 61 votes for repeal—including 21 Democrats—but Mr. Reid set the rules so that he needed 67. As for the nay votes, they were now balking at cutting even $17 billion from unused government money.

By January, the pendulum had swung. The White House, eager to put on a centrist smile, adopted 1099 repeal as its own. Senate Democrats followed this week. Mr. Reid, knowing he'd be hard-pressed to stop another vote, deputized Michigan Democrat Debbie Stabenow (who needs some re-election help) to steal Mr. Johanns's bill.

She changed five words and offered it as her own amendment to the Federal Aviation Authority reauthorization bill. Mr. Reid then allowed a vote on her amendment, while blocking Mr. Johanns's.

With a Democratic sponsor, 1099 repeal got 34 Democrats. Thus does the leadership that wrote the offensive provision, voted for it, and defended it, now take credit for exterminating it.
One provision down. Now on to others. Either they'll be repealed or we'll get the Democrats on the record for such individual votes against common-sense repeal of unpopular measures.