Is Obamacare the pathway to a VAT?

Part I - Expansive Reporting

My intent was never to rant about taxes here at 3 Boxes (I do that enough elsewhere), but this little tidbit from page 737 of H.R. 3590 The Patient Protection and Affordable Care Act deserves some attention...

SEC. 9006. EXPANSION OF INFORMATION REPORTING REQUIREMENTS.
     (a) IN GENERAL.—Section 6041 of the Internal Revenue Code
of 1986 is amended by adding at the end the following new sub-
sections:
     ‘‘(h) APPLICATION TO CORPORATIONS.—Notwithstanding any
regulation prescribed by the Secretary before the date of the enact-
ment of this subsection, for purposes of this section the term ‘person’
includes any corporation that is not an organization exempt from
tax under section 501(a).
     ‘‘(i) REGULATIONS.—The Secretary may prescribe such regula-
tions and other guidance as may be appropriate or necessary to
carry out the purposes of this section, including rules to prevent
duplicative reporting of transactions.’’.
     (b) PAYMENTS FOR PROPERTY AND OTHER GROSS PROCEEDS.—
Subsection (a) of section 6041 of the Internal Revenue Code of
1986 is amended—
           (1) by inserting ‘‘amounts in consideration for property,’’
     after ‘‘wages,’’,
           (2) by inserting ‘‘gross proceeds,’’ after ‘‘emoluments, or
     other’’, and
           (3) by inserting ‘‘gross proceeds,’’ after ‘‘setting forth the
     amount of such’’.
     (c) EFFECTIVE DATE.—The amendments made by this section
shall apply to payments made after December 31, 2011.

Unless you often need to read the IRC, the impact of the above amendment to 26USC6041 is probably not clear.  Let's put it in context...

Section 6041 of the code today:

§ 6041. Information at source

(a)  Payments of $600 or more
All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments to which section 6042 (a)(1), 6044 (a)(1), 6047 (e), 6049 (a), or 6050N (a) applies, and other than payments with respect to which a statement is required under the authority of section 6042 (a)(2), 6044 (a)(2), or 6045), of $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.

OK, payments of $600 or more.  Now you get it, we're talking about Form 1099 - normally reserved to independent contractors/consultants or freelancers.  Not any more.  The changes to 6041, effective 2012, will expand the forms of considered payments to include any transaction and, by way of the new Subsection (h), will enlarge the payee types to include every form of entity - less those excluded by 26USC501(a).  That means that businesses will be required to "1099" every vendor and service provider that they paid > $600 during the course of the year.  Every one!  The cleaning service, every supplier, every freight carrier, every shipper (probably not the USPS though), the outfit that caters in lunch, the pizza place around the corner, the utility company, your accountant, your attorney, your mechanic, the phone company, your ISP and, of course, those guys that you traditionally 1099.  Basically - "every swinging richard".  But your business is not the only business required to do this.  For every 1099 you send to a vendor they will receive dozens, 100's or 1000's more - and your business, depending on size, can expect to receive dozens, 100's or 1000's of 1099's too.  Paperwork nightmare, eh? And just how do you harmonize your books with all those 1099's?

The good news:  Legislation regarding reporting credit card transactions takes hold next year so payments by credit card will likely be exempted.  The bad news about the good news:  You will need to sort out the payment methods used, for each payee, to get to the 1099-able amount - sheesh!

Want to tell the IRS what you think?  Good, they've invited your comments here.

Remember that this amendment to the IRC comes from the Obamacare bill.  No doubt Congress believes increased reporting will increase tax revenue and PRESTO! - Obamacare is funded.  Not a chance.  I do not believe that these new reporting requirements will do much to "increase compliance" or to increase tax revenue.  Nor do I believe that was the intent.

I believe that the real amendment here is not to Sec. 6041, but to American bookkeeping and accounting practices, an absolute necessity for the implementation of VAT - where tax is applied to every transaction.

More to come in part II - "Incrementalism and the Elephant".