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For THIS Congress Might Defund Public Health?

Should we promote public health by providing extra funds for HIV prevention, cancer screening, flu vaccination, and the like?

Or should we zero out these funds in order to repeal a small health reform provision that clamps down on rampant tax evasion?

That’s the choice Congress is likely to face next week. Some prominent Republicans want it to choose the latter, although you likely won’t hear about it—at least, not in those terms.

Instead, you will hear about how Republicans are trying to undo some of the damage health care reform supposedly inflicts upon small business.

Here is the basic issue, as described by the essential folks at the Center for Budget and Policy Priorities and in Sunday's New York Times. In theory, all businesses must file 1099 tax forms with the IRS for any payments of more than $600 that go to unincorporated contractors. But the rules have been loose: Firms did not have to report any payments to corporations. They also did not have to report payments for goods and property, as opposed to services. This made it easy for them to under-report income and, as a result, avoid paying taxes on that income.

The Affordable Care Act tightened existing tax law to address both of these problems, by tightening the rules and forcing businesses to report more of those payments. But this effort to enforce what was, after all, existing law has not gone over well with groups like the National Federation of Independent Business, which has been decrying this “1099 collation calamity.”

Truth be told, I have some sympathy for small business people here. On a practical level, paperwork is a genuine hassle, one that demands time and resources. As always, the circumstances of some small firms might merit specific adjustments to the new rules. As always, there is another, unmentioned issue that is more psychic. Taxes seem especially burdensome when they are easy to evade. Somehow, it seems extra unfair when you actually pay the money and you still have to fill out the paperwork.

Still, more than half of sole proprietor business income goes unreported. And the dollars add up. The 1099 provisions in the Affordable Care Act will, according to government projections, raise an estimated $17.1 billion over the next ten years. That’s $17.1 billion of money rightfully owed to the United States Treasury that is left unpaid.

It’s hardly surprising that the voices of small business—especially conservative voices that opposed health reform—are enraged by these provisions. Perhaps more surprising—or maybe not--our normally-sclerotic House and Senate has sprung into action to fix this problem. Representative Dan Lungren has introduced the "Small Business Paperwork Mandate Elimination Act." Nebraska Republican Senator Mike Johanns has introduced a bill to accomplish the same thing.

Worse still, the Senator proposes to finance this tax measure by eliminating altogether the Prevention and Public Health Trust Fund, which is probably the most obviously justified and obviously under-funded component of the whole health reform effort. (The bill would also weaken the individual mandate—an equally ill-advised measure fit for a separate posting.)

To repeat: Tighter tax requirements on small business prevent some firms from committing tax evasion, and it imposes some costs and bother on law-abiding firms which now have to fill out some more paperwork and presumably update their Quicken software. Senator Johanns believes that it's so vitally important to loosen these requirements that he would make up the lost revenue by slashing federal funding for critical public health efforts—efforts that are already taking some tough hits because of the state and local budget crisis.

Senator Johanns' amendment will be debated September 14. Florida Senator Nelson proposes a saner alternative that would raise the 1099 reporting threshold to $5,000 and would exempt firms with fewer than 25 employees. Nelson would finance this measure by reducing tax breaks for large oil companies rather than by zeroing out important public health measures. You might think NFIB would welcome this reasonable fix. No dice.

The Johanns amendment will fail, in part because it requires 60 votes, in part because is a comically bad piece of legislation. Still, it provides a scary glimpse into what will happen if Republicans win the House and Senate this November. Talk about a calamity.

Harold Pollack is the Helen Ross Professor of Social Service Administration at the University of Chicago.