Healthcare bill deepens regulatory morass

One of the biggest, least-understood problems with US economic policy is a lack of attention to the costs of regulatory complexity, including tax preparation.  America has traditionally been an easy place to do business, so the recent Gordian knot of basic compliance has arisen almost unnoticed.

Compliance costs are regressive, falling disproportionately on small businesses that lack a full-time accounting and compliance staff.  Since small businesses are the biggest source of US employment, it is logical to conclude that increasing regulatory complexity measurably increases total unemployment (expanded thoughts here, here and here).

Weeks after healthcare reform passed, reporters are still trying to figure out the ramifications of the 2400-page law.  Here’s an ominous one from CNN:

Health care law’s hidden tax change to launch 1099 avalanche (ht Eric)

Some choice quotes from the article:

…in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services…

While this sounds almost exactly like existing law, the subtle addition of “corporation” and “goods” makes it vastly broader:

…under the new rules, if a freelance designer buys a new iMac from the Apple Store, they’ll have to send Apple a 1099.

So apparently every business will soon be generating 1099s for the office landlord.  The web hosting provider.  The local restaurant where sales meetings are held.  The airline.  The travel agent.

This is just the latest straw on the camel’s swayed back.  With each new sheaf of regulatory paper, the small businessperson increasingly asks himself two questions:  ”Could I offshore this?” and “Should I leave the country?”

Of course, not everything will be offshored, and not everyone will leave.  But these are not questions America’s entrepreneurs should even be asking.

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