Senate Finance Chairman Max Baucus has unveiled an alternative to an amendment to the small-business lending bill dealing with expanding 1099 tax reporting for small businesses, but the language has quickly drawn criticism from a leading small business organization.
Baucus' amendment, introduced Thursday night, would exempt businesses with fewer than 25 employees from having to file a 1099 for every business or individual from which they purchase more than $600 in goods and services. The amendment also raises the reporting threshold from $600 to $5,000.
The original provision was included in the healthcare reform bill and has consistently faced pushback from small-business groups and Republicans. They cite the measure as an example of Democratic tax policies hindering the economic recovery.
On Thursday night, Senate Majority Leader Reid filed cloture on the Baucus alternative and the original amendment from Sen. Mike Johanns, R-Neb., repealing the provision from healthcare reform.
A statement from the Senate Finance Committee Democratic staff said the amendment "was introduced as an important first step to demonstrate that Senate Democrats understand the concerns of small businesses and intend to address those concerns. If these changes are not enough, further changes to this reporting policy will be made."
In a statement issued today, Johanns said the alternate amendment "picks winners and losers instead of fixing the 1099 problem and may actually discourage hiring." Johanns picked up the support of Sen. Blanche Lincoln, D-Ark., for his amendment on Thursday. A call to Lincoln's office seeking a response on whether she would also support the alternative amendment was not returned.
"If you are a small-business owner with 24 employees, why would you hire more if your reward is a mountain of new tax paperwork?" Johanns asked.
Johanns' sentiments were echoed by the National Federation of Independent Business, which has been pushing hard to repeal the provision. The group supported a House Democratic effort one week ago to repeal the provision.
"The only way to solve this problem is the Johanns amendment," said NFIB Tax Counsel Bill Rys.
He said the amendment still leaves many unanswered questions, such as what happens to the smallest companies, otherwise exempted from the reporting requirement, when a larger company has to file a 1099 with them.
"[They are] still not out of this loop," Rys said.
Baucus' amendment is paid for by repealing a tax break allowing the five largest oil companies to deduct 6 percent of their income from oil and gas production. The amendment would affect BP, ExxonMobil, Royal Dutch Shell, ConocoPhillips and Chevron.
The statement from the Finance Committee said it was not clear whether the goal of the tax deduction, which was originally enacted to increase domestic production, has been met.
"When the [tax] deduction took effect in 2005, domestic oil production averaged about 5.5 million barrels per day," the statement said. "Now, five years after the deduction took effect, domestic oil production has actually fallen slightly, to 5.48 million barrels per day."
Johanns called the pay-for "another tax hike that could increase prices at the pump."
An officer at a large domestic independent petroleum refiner, which would not be affected under the Baucus amendment, said the deduction was meant to cover manufacturing activities, which includes the refining of petroleum, but has been used by the large oil companies to cover exploration as well.
The officer added that the major oil companies will not have a bad year because of losing the deduction.
"We would need [the deduction] a whole lot more than they do," he said.
This article appears in the August 7, 2010 edition of National Journal Daily PM Update.