Report: GOP repeal of filing provision would allow tax-dodging

A Republican proposal to repeal a new tax filing requirement would simply allow businesses to continue avoiding owed taxes, while simultaneously cutting billions in vital preventive care, analysts at the Center on Budget and Policy Priorities (CBPP) warned Monday.

The researchers said the Democratic alternative, which scales back the new filing requirement rather than eliminating it outright, offers the better balance by reducing the new paperwork burden while also taking steps to close the tax gap.

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"While critics have raised legitimate concerns about some of the paperwork requirements related to that provision, policymakers can address those concerns by modifying the provision, rather than by repealing it outright and thereby allowing substantial tax avoidance to continue," the CBPP analysts write.

"Repealing the provision entirely," they add, "would leave in place a clearly inadequate reporting regime that has failed to prevent widespread tax avoidance."

The controversial reporting requirement — included in the Democrats' health reform law — will force businesses to file 1099 tax forms when they purchase more than $600 in goods from another company, even a corporation, in the course of a year. Previous rules required that only services exceeding that amount needed reporting — and then, purchases from incorporated entities were exempted. 

The business community is fighting tooth and nail against the broader requirements, which take effect in 2012, arguing they will hobble companies with an enormous amount of red tape during economic times when the resources should go toward hiring instead.

Conservative lawmakers agree, and Sen. Mike Johanns (R-Neb.) introduced legislation last month repealing the provision in its entirety. The requirement, Johanns said, is "nothing more than a government-imposed obstacle to economic growth and job creation."

But the provision, by forcing compliance with tax obligations, is also estimated to generate revenues of more than $17 billion over the next decade, according to the Congressional Budget Office (CBO). To pay most of the tab, Johanns has proposed to eliminate an $11 billion fund designed to encourage innovation in the field of preventive care.

The Nebraska Republican calls that money "a slush fund" for things "that aren't specifically related to healthy outcomes."

CBPP disagrees, arguing that the funds will promote new tactics for preventive care; bolster state efforts to detect infectious disease; and foster local, community-based programs designed to tackle obesity, reduce tobacco use and encourage exercise.

Democrats have offered an alternative to the Johanns proposal. Sponsored by Sen. Bill Nelson (D-Fla.), the bill would eliminate the filing requirement on purchased goods for companies with fewer than 25 employees, while hiking the filing threshold, from $600 to $5,000, for larger businesses.

"Nelson," CBPP writes, "has offered a balanced approach that responds to concerns over paperwork burdens while still strengthening tax compliance."

A procedural vote on the Johanns amendment is scheduled for Sept. 14. The Senate is expected to move to the Nelson amendment immediately afterward.