OPINION:
The U.S. House of Representatives is poised this week to send H.R. 5297 to President Obama’s desk. It’s a mixture of small tax breaks and tax increases, but one of the latter demonstrates how tone-deaf congressional Democrats have become. The tax increase in question imposes a new paperwork-filing burden on the 10 million homeowners who rent out their second homes - “landlords,” to use the preferred derogatory nomenclature of the left. Starting in about 100 days, homeowners will have to issue 1099-MISC forms to any person or unincorporated firm with which they do at least $600 in business over the course of the year. Starting in 2012, this requirement will extend to any person or business of any kind with whom the homeowner does business at this level.
These are not rich people. Out of the 10 million Americans who rent out homes, 8.7 million of them make less than $200,000 per year. These working homeowners earn a clear majority of the rental profits. This tax increase is aimed squarely at ordinary folks who have a second home they use to generate a modest supplement to their income.
It’s important to note how much of a burden this will be. Form 1099-MISC is one of the few that usually are paper-filed by taxpayers, and by hand. Ordinary Americans with vacation homes and condos they outgrew will have to order these forms from the Internal Revenue Service (IRS). They will have to get their own taxpayer identification numbers from the IRS. They will have to obtain a tax ID number from anyone with whom they do business, as well as their name, address and how much they were paid. Every January, a flood of these forms will wend their way to every plumber, repairman, property manager, homeowners association, etc. Copies will have to be sent to the IRS and retained by the homeowner in his records. They will lead to increased audits and higher compliance costs for taxpayers. The joke has been overused in Washington, but this tax increase really should be called the “Accountant Full Employment Act.”
If all this sounds familiar, it should. Congress passed a similar paperwork-burden tax increase on small-business employers as part of the Obamacare law. This version expanded 1099-MISC reporting (which small-business employers already have to do with people and unincorporated firms) to include all entities, including all corporations. So, a small-business owner will have to engage in the mind-numbing process described above for every office-supply store, every gas station, every restaurant, every airline, every online purchase, etc.
There literally will be millions of new 1099-MISC forms (few of them electronic) coursing through the efficient arteries of the U.S. Postal Service and the IRS. Even the IRS has said it would be overwhelmed by the load. The IRS commissioner has muttered a few things about exempting transactions made using debit or credit cards, but there’s no guarantee that will happen, nor are record-keeping burdens for small-business employers lifted by this potential regulation.
Not surprisingly, the public and small-business advocates reacted strongly against the small-business 1099-MISC tax increase. Congress moved swiftly to try to repeal the small-business paperwork tax in the House and Senate, but Democrats wanted to replace it with yet more tax increases. Congressional Republicans rightfully balked, and the tax increase is still in place.
There’s no reason to think that America’s 10 million homeowners who rent second homes are going to react any differently. Congressional Democrats seem so desperate for tax dollars that they are willing to pass unpopular tax increases in order to get them. According to the Joint Tax Committee, this increase in the form of a paperwork mandate is expected to grow federal coffers by $2.5 billion over the next decade. That is unlikely actually to happen, as tax scofflaws will continue to hide income and the honest will continue to report, as they always have. The only winners will be the bureaucrats and the accountants.
Expect to see Americans who rent properties waking up to this new paperwork nightmare and joining their small-business compatriots in the fight against needless paper-pushing rules coming out of Washington. Congress should repeal the 1099-MISC paperwork nightmare for small-business employers and homeowners alike. They should do so simply by repealing these tax increases, not by replacing them with higher taxes on anyone.
Ryan Ellis is tax policy director for Americans for Tax Reform.
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