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.
This would be almost as easy as hiring offshore, and would go a long way to level the playing field.
That said, this discussion illustrates how the whole concept of taxing individual transactions becomes very difficult when you have a global electronic finance system, but no global government.

One Response to “Red tape causes offshoring”

  1. montmike Says:

    just to complicate the picture for the IRS:

    amazing stuff.