Although death and taxes might, according to Benjamin Franklin, be the only certainties in this world, Congress is surely striving to add another – that is, the certainty of uncertainty. Congress, it seems, is committed to keeping taxpayers in as much doubt as possible for as long as possible about the status of a variety of important provisions that will affect both substantive tax liabilities and compliance obligations.
Just over four months ago, Congress passed and the President signed sweeping health-care legislation that, among other changes, would have imposed substantial new reporting obligations on taxpayers. Starting in 2012, section 9006 of the law will require businesses to file Forms 1099 for each vendor to whom each business pays more than $600 in a given year for goods. A variety of commentators, politicians, and interest groups have suggested that this new requirement would produce an avalanche of new paperwork that would burden taxpayers and bury the IRS.
Yet now, while the provision has yet to take effect, both Democrats and Republicans are angling to repeal this measure. At first blush, the desire of Congressional Democrats to repeal a provision from the health-care legislation seems a bit odd, given that the legislation has been the centerpiece of President Obama’s first term. Nevertheless, sensing the unpopularity of this provision and hoping to pre-empt a Republican proposal to do the same thing, Democrats have introduced the Small Business Tax Relief Act of 2010, which would repeal the provision. (Text and summary are available through Tax Notes, but we have not yet found an ungated version from Thomas or gpoaccess.)
One interesting aspect of this legislation, which now seems to have stalled in Congress, is the manner in which its sponsors have proposed paying for it. The new reporting provision of the health-care legislation was estimated to produce a little more than $17 billion in new revenue to the Treasury over 10 years, partially offsetting the costs of the legislation. Given that deficit-control (if not reduction) seems to be temporarily ascendant in U.S. politics, a repeal of the provision imposes an obligation on its sponsors to find offsetting revenue increases (or, ostensibly, spending reductions) so that the legislation remains deficit-neutral.
Faced with this obligation, the sponsors of the new legislation did what comes naturally to politicians – they borrowed, in this case from earlier failed legislation. To pay for the repeal of section 9006, the sponsors of SBTRA took a number of revenue-raising international tax provisions from H.R.5893 — American Jobs and Closing Tax Loopholes Act of 2010, previously known as the “tax extenders” legislation, which stalled in the Senate in late June. Our colleague, David Shakow, summarized that legislation here.
Yet, by borrowing the revenue raisers from the earlier tax extenders legislation, Congress has left open the question of how the extenders themselves would be funded. Moreover, the revenue raisers have been eyed by taxpayers as a way of funding another popular provision. In a letter sent to the Senate earlier this week, a number of multinational taxpayers indicated a willingness to support the revenue raisers on the condition that Congress extend the popular R&D tax credit. Congress may try to use revenue from the still-lingering proposal to change the taxation of so-called “carried interests,” which according to the earlier scoring, was projected to raise some $14 billion.
All of this wrangling to match revenues with expenses is no doubt a consequence of Congress’s apparently newfound awareness of deficit-spending. Nevertheless, the wrangling also highlights a larger problem that we have previously discussed – namely, the increasing use of temporary tax provisions. Temporary legislation may be a popular way for Congress to make its numbers look better; but it also makes it increasingly difficult for taxpayers to plan their affairs.
In the tax universe, only one thing remains certain, and that is the continuation of uncertainty for taxpayers.
UPDATE: It seems that Congress’s efforts to match spending with revenue raisers has grown even more complicated.