New 1099 Law - Foundation For VAT

Obamacare – stalking horse for a VAT?
By: Mark Tapscott
Editorial Page Editor
05/06/10 3:26 PM EDT
Slowly but surely the word is spreading that buried deep within Obamacare’s 2,400 pages are all kinds of unpleasant surprises for individual Americans and their families as they seek medical care and insurance coverage.

But did you know Obamacare is also a stalking horse for imposing a European-style value-added tax (VAT)on Americans? CNN’s Money desk is raising alarms, though not of an approaching VAT kind:

“But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they’ll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.

“The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations. Taken together, the two seemingly small changes will require millions of additional forms to be sent out.”

Curiously enough, though, the CNN writer doesn’t seem to understand what this change in tax law is really all about, settling instead for the government spin that it was needed to help generate new revenue to pay for Obamacare:

“Why did these tax code revisions get included in a health-care reform bill? Welcome to Washington. The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.”

The IRS estimates that the federal government “loses” about $300 billion in annual revenues as a result of business transactions that aren’t reported and therefore don’t boost the amount of taxable income that is reported. “Using 1099s to document millions of transactions that now go un-tracked is one way to begin to close the gap,” according to CNN.

But there’s the essential fact that puts this hidden surprise in Obamacare into perspective – The 1099 can be used to track and report to government millions more transactions that go into the creation, marketing and selling of all products and services. It thus becomes the paper trail for the government’s imposition and collection of a VAT.

With a VAT, government gets to tax a good or service at every stage from its production to it sale, but to do so, it first has to track all of the constituent transactions. Once that is possible, it opens up vast new opportunities for government to collect taxes to help pay for government benefits. That’s why the European welfare states all went to VATs decades ago.

It’s also a key reason none of the European economies grow as quickly as the free market economies in North America and Asia, or create new jobs as quickly, or generate entrepreneurial opportunities.

For more analysis of the Obama administration’s drive for a VAT, see last week’s Examiner editorial on the tax-hike charade.