Have Democrats become the party of big business?

I like to stay away from discussing politics (and religion) whenever possible, because people's opinions tend to be firm and emotionally charged. But this issue strikes me as too relevant to ignore, and the Tea Party's "big night" last night makes it only more so.

For decades, there has been an implicit assumption that the Republican party is the party more sympathetic to big business, whereas the Democrats tend to look out for small business and the middle class. But the Senate Democrats' inexplicable decision to reject a proposal to repeal the so-called "1099 footnote" in the recently-passed health care bill is the latest in a line of events that cast significant doubt upon that assumption.

The 1099 provision, which was tucked into the health care bill despite many Senators' insistence that they never knew it was there, requires all businesses to submit 1099 forms to the IRS for every vendor to whom they pay more than $600 in a year--a number so low as to make it clear which businesses the provision is targeting. A Wall Street Journal editorial notes that:

Meanwhile, small businesses are staring in horror toward 2013, when the 1099 mandate will hit more than 30 million of them. Currently businesses only have to tell the IRS the value of services they purchase from vendors and the like. Under the new rules, they'll have to report the value of goods and merchandise they purchase as well, adding vast accounting and paperwork costs.

Think about a midsized trucking company. The back office would have to collect hundreds of thousands of receipts from every gas station where its drivers filled up and figure out where it spent more than $600 that year. Then it would also need to match those payments to the stations' corporate parents.

Beyond the onerous cost to small businesses, many of whom don't have the resources to support robust back offices to begin with, this will also create an incredible burden on the IRS itself. Even if these businesses submit only 10 forms each--and that is likely a very conservative estimate, considering that only $50 per month adds up to the magic $600--that will mean a total of 300 million new forms being submitted to the IRS. Who is going to inherit the job of parsing through those hundreds of millions of new forms?

But the bigger problem at hand has to do with the original reasoning behind the 1099 provision in the first place. According to the Journal,

Democrats tucked the 1099 reporting footnote into the bill to raise an estimated $17.1 billion, part of the effort to claim that ObamaCare reduces the deficit by $100 billion or so.

But this "tax gap" of unreported business income is largely a Beltway myth, and no less than the Treasury Department's National Taxpayer Advocate Nina Olson says the costs will be "disproportionate as compared with any resulting improvements in tax compliance."

First of all, it makes little sense to me why this provision had any business being in a health care bill to begin with, other than as window dressing to make the bill seem less costly than it really is. But more importantly, it is completely ludicrous to spend time chasing after small businesses in search of $17 billion that might not exist, when the majority of U.S. companies--many of them large--currently pay no income tax. It would be far more sensible to take a much closer look at the multinationals that currently hide income overseas (as well as foreign companies who pay no income tax for revenues earned in the U.S.) than to attack small businesses and make their lives more difficult.

Democrats have said all the right things recently about supporting small businesses, and ensuring that they are free to create jobs and help our economy recover, but their recent actions are perplexing. As a small business owner myself, I watch the bailouts and stimulus and policies like these and I see the cost of running a small business increasing every day, while larger businesses (especially the largest) are largely given carte blanche. I wonder why, with policies like these, anyone would even bother to open a small business in this environment. Maybe that's exactly what our Senate wants, whether Republican or Democrat; I'm starting to wonder if there's really any difference any more from the perspective of a small business.

[Wall Street Journal]