Repeal of 1099 rule a victory for business

April 10, 2011 by  

AZ Chamber of Commerce & Industry Pres. & CEO Glenn Hamer writes:

Buried deep in the thousands of pages of legislation that gave birth to the federal health care overhaul last year was a provision that had businesspeople of all political stripes steamed.

According to the bill, all businesses would have to file IRS tax form 1099 to report anyone with whom they did more than $600 worth of business in a given year. The administration said this would be a way to crack down on folks who were dodging taxes and, as a result, help fund the massive new healthcare scheme.

But for businesses – especially small ones – the 1099 provision was a recipe for a headache and a wrestling match with red tape. In the name of generating more tax revenue, the IRS would be burying entrepreneurs and mom and pop shops in paperwork.

But relief is almost here. The Senate on Tuesday passed by a wide, bipartisan margin a repeal of the 1099 provision and the bill is now headed to the president’s desk and his awaiting signature. According to a White House spokesman, “Small businesses are the engine of our economy, and eliminating the 1099 reporting requirement is the right thing to do.”

The White House’s statement is encouraging, but time and time again, the federal government – Congress and the executive branch – is more talk than action when it comes to fostering an environment conducive to growing business.

Consider the 2.3 percent excise tax on U.S.-based medical device sales, another tax provision buried in the new health care law.

That’s not a small annoyance. It’s a tax on innovation and a detriment to the very companies that are responsible for generating the high-tech, high-wage jobs that will help pull us out of this recession.

In an April 2 editorial in the Boston Globe, Boston Scientific Corp. CEO Ray Elliot estimates that the device tax will cost his company $100 million annually.

When high taxes make it too expensive do business in this country, companies start looking for more accommodating markets. The medical device field is no different.

According to a January 2011 study by PricewaterhouseCoopers, the U.S. is poised to lose ground to countries to like Brazil, India and China in the next decade in the medical device market.

Simon Friend, a medical device industry expert featured in the PwC study says, “If developed counties do not step up levels of investment in innovation, over the next decade new markets will surpass developed countries in innovative healthcare delivery.”

You might have seen the recent 60 Minutes piece on U.S. companies setting up outposts abroad in order to avoid our country’s 35% corporate income tax rate. One congressman’s solution was to introduce legislation that would tax companies based on where the company’s executive brain trust had an office, not where its paperwork said it was based.

This is missing the point. The solution to our country’s budget woes is not to come up with new schemes to boost government revenue through onerous 1099 rules, excise taxes on device sales and legislation to chase after corporations moving abroad.

We can get our economy back on solid footing by making the U.S. more hospitable to job creation by doing away with shortsighted maneuvers like the 1099 rule, encouraging high-tech innovators instead of putting targets on their backs and by lowering the corporate income tax.

There is a global battle for good jobs. Let’s not shoot ourselves in the foot.

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