Red tape causes offshoring
Speaking of the frictional costs of outsourcing, consider that a big reason for offshoring is simply to eliminate red tape.
Let’s say I want to outsource a $1000 job to a specialist, such as a computer programmer.
If I contract it to an American, in addition to the job itself, I must also:
- Have a system in place to remember to file a 1099 next year.
- Have a system in place to recall the paid amount next year.
- Re-read Forms 1099 and 1096, which change a bit every year.
- Fill out and mail Form 1099.
- Fill out and mail Form 1096.
- Risk making a mistake, incurring penalties.
- Risk being late, incurring penalties.
This consumes hours of work, but more importantly consumes valuable attention. Another half dozen things to worry about. But it all goes away if I send the work offshore. Poof.
Yet we really do need 1099s, or something like them, to limit tax evasion. A reasonable simplification might be:
- Enter data directly at IRS website — eliminate paper and PDF filings.
- IRS Web API for financial app integration.
- PayPal and QuickBooks auto-report to the IRS Web API whenever you send a payment (assuming you set them to do so).
- Eliminate form 1096.
- Stop changing the 1099 every year.