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The difference between the parties

The fight over 1099 reform is one of the best case studies of the differences between Republicans and Democrats that we've seen this year.

Quick background: 1099 reform deals with a tax change in the health-care bill. The provision seeks to recoup taxes that small businesses should currently be paying but aren't. The problem is that the mechanism would mean a lot of paperwork. Enough, actually, that it's probably worth scrapping it. But that means you need to make up $17 billion.

Republicans wanted to do that by cutting public-health subsidies for the poor. Democrats said no. Democrats wanted to do it by cutting subsidies for oil and gas companies. Republicans said no. Democrats came up with another way to do it, this time by closing a tax loophole that allows hedge-fund managers to be taxed at a much lower rate than people in other professions. Republicans don't like this, either.

I really don't understand the vision of the economy, or of need in general, where it makes more sense to cut public-health spending than treat the income of hedge-fund managers like the income of, say, small-business owners. Is there some reason we want lots more people to enter the hedge-fund industry? Or that government should be directly subsidizing oil and gas production? I can at least understand the rationale for public-health programs. That sort of collective action is something you need government to organize. The presence of generous financial incentives for entering the hedge fund industry really isn't.

By Ezra Klein  | September 17, 2010; 4:35 PM ET
Categories:  Health Reform, Taxes  
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Comments

The real difference is that Democrats really wanted to fix this screw up, while Republicans had no intention of coming up with a workable plan. Republicans want the government to fail and they want people to hate the Democrats for not fixing this.

Posted by: AuthorEditor | September 17, 2010 4:49 PM | Report abuse

The GOP thinks they have an issue here that hurts the Dems. They will NOT solve that issue so long as they think they are winning the PR battle on it--UNLESS they can trade it for something very near and dear to their ideological hearts.

What gets me is that small business owners can't see that Dems genuinely want to fix this issue and that the GOP genuinely want to keep it alive for political reasons.

Posted by: lauren2010 | September 17, 2010 4:49 PM | Report abuse

And the beauty is Dems are impotent enough not to point out:
- how GOP wants to make rich richer while
- screwing small businesses

just because they can take this to Election.

This is a classic case for Dems to take to Public and show them that they are adaptive but 'playing politics' is much more important for GOP.

Posted by: umesh409 | September 17, 2010 5:05 PM | Report abuse

Another difference as I understand it is that the Democrats "fix" simply raises the reporting thresholds to $5,000 a year, where the Republicans want to do a clean repeal of the entire measure.

Posted by: jnc4p | September 17, 2010 5:10 PM | Report abuse

"The real difference is that Democrats really wanted to fix this screw up, while Republicans had no intention of coming up with a workable plan. Republicans want the government to fail and they want people to hate the Democrats for not fixing this."

That's rich. Who on earth enacted the screwup in the first place?

We have a huge excess of public health programs. The fact that you refuse to cut them, well, I guess it fits your ideological belief.

Posted by: krazen1211 | September 17, 2010 5:11 PM | Report abuse

"Republicans said no. Democrats came up with another way to do it, this time by closing a tax loophole that allows hedge-fund managers to be taxed at a much lower rate than people in other professions."

Hedge funds and venture capitalists, you mean?

But why would a big government stooge care about something like venture capitalism?

Posted by: krazen1211 | September 17, 2010 5:18 PM | Report abuse

It's really hard to over estimate the desire of either party to look for short term partisan advantage, no matter what it costs the country. But I think the Reps are sincere here: they really think that taxes & tax increases are morally wrong. Their ignorance scares me more than their cynicism.

Posted by: davidpancost | September 17, 2010 5:30 PM | Report abuse

One party wants to cut spending the other wants to raise taxes. Guess we see which is more popular in November.

Posted by: MrDo64 | September 17, 2010 5:32 PM | Report abuse

Maybe the Ds should have read the bill before they rammed it through? Then they wouldn't have to bellyache about the fact that the Rs won't help them fix their screw up. Pretty funny, actually.

Posted by: bgmma50 | September 17, 2010 5:38 PM | Report abuse

jnc4p,

The change raises the threshold to any single PURCHASE >$5,000, not any spending > $5,000/year. For the average small business, this would be reduce the reporting burden by >90%, while still ensuring the most sizable tax obligations are not skirted.

You may continue to find this arrangement unacceptable but at least accurately represent your objections.

There are idiots -- look around...

Posted by: bigDtex | September 17, 2010 6:30 PM | Report abuse

Ezra, this post is garbage. If you want to put a post on arguing about carried interest, write one. But don't put out a straw man calling it a loophole when you know people can honestly view it as deserving capital gains treatment. It would also be comforting if you used the term private equity rather than hedge fund. Very rare for the hedge funds to get that treatment because the holding period has to be above one year. But you should know that if you did a modicum of research rather than producing absolute drivel like this on the blog.

And how incredibly stupid is the below quote. Should we subsidize Little League? Aren't companies an example of collective action? Churches?

"I can at least understand the rationale for public-health programs. That sort of collective action is something you need government to organize."

Posted by: cdosquared5 | September 17, 2010 6:35 PM | Report abuse

"But that means you need to make up $17 billion." Yes, the PPACA is a deficit increasing measure and at least $17 billion need to be recouped before the PPACA breaks even. Despite the CBO and CMS evaluations -- which indicate a significant shortfall -- the Obama/Pelosi Regime continues to talk about "savings" and continues to be obstinate about cost-saving measures which might ruffle the feathers of the Social-Democratic "base".

What can we do to reduce the cost of providing health care to indigents? How can we best keep non-payers alive, happy and voting for the "base"?

Posted by: rmgregory | September 17, 2010 6:35 PM | Report abuse

seems like with the election of O'donnel, another charismatic hard-right 'prickly' type, the tea party ethos is quickly becoming the conventional wisdom of the electorate. I can't for the life of me understand the vitriol conservatives have against the poor (except possibly that they're a reminder of the human cost of Capitalism) but I have to agree with other commenters that the fault here lies with the Democrats for writing such an awful bill in the first place. We see this recurrently.. e.g., Cap and trade (RIP) was thousands of pages, where cap and dividend is twenty.. now it turns out that some fraction of the 2,500 pages of the health care bill is poorly thought out and the proposed fix incorporates tax law changes that have nothing to do with health care.

This is separate from the collective delusion of "obamacare is a socialist takeover"-- it's much closer to a big-business giveaway than "to each according to his needs"-- but it does appear to be rather awful legislation. Democrats are not learning. They appear to be getting stupider. And if the election is a choice between two competing versions of "stupid", the tea party will sweep it.

Posted by: johnnynyquist | September 17, 2010 7:21 PM | Report abuse

"I can't for the life of me understand the vitriol conservatives have against the poor"

You confuse vitriol with not wanting to expand the ridiculous state of the government health care industry complex.

The 1990s proves that universal health care is not a necessary condition for economic growth.

Some might enjoy their ideological spending (some might call it vote buying, but whatever) in the PPACA, which is of course, fine. All ideologues like their spending.

Posted by: krazen1211 | September 17, 2010 7:31 PM | Report abuse

"This is separate from the collective delusion of "obamacare is a socialist takeover"-- it's much closer to a big-business giveaway than "to each according to his needs""

I thought the whole point of this enterprise is that a bunch of people 'need' health insurance, and should only have to pay what they are able to. Is this described any better than by "from each according to their ability, to each according to their needs"?

Posted by: justin84 | September 17, 2010 11:06 PM | Report abuse

"Democrats came up with another way to do it, this time by closing a tax loophole that allows hedge-fund managers to be taxed at a much lower rate than people in other professions."

krazen1211: "Hedge funds and venture capitalists, you mean?

"But why would a big government stooge care about something like venture capitalism?"

krazen, you're missing the point. The argument is that these people should be taxed at the same rate as everyone else who manage other people's money. These VC managers get to claim a capital gains rate because their business is structured as a partnership. But if their own capital is not at risk, why do they get to claim their fee as a capital gain--a lower rate than if it were ordinary income?

There is no good policy reason for this loophole, except as a sop for the support of those in that field. Tax their fee as ordinary income, and they'll still be making tons of money and there will still be plenty of incentive to have funds and do deals.

Posted by: dasimon | September 18, 2010 12:53 AM | Report abuse

So let me get this straight: the Democrats pass a bill with a tax provision that in hindsight is excessively onerous, so much so that both parties agree that it should be repealed. But repealing this provision creates a hole in the budget, because of all the other spending that was packaged with this specific provision. Why is this something the Republicans are responsible to fix? How could any intellectually honest person put blame on the Republicans for not fixing this? If the Democrats screwed up and there's $17B in revenue that they can't actually get out of this bill, they need to find $17B of spending to cut from the rest of the bill.

Ezra tries to frame this as "Republicans want to cut health spending for the poor," when the reality is Republicans are saying "your bill won't raise as much revenue as you said it would, so you need to scale back the spending."

If my wife told me she got a new job that will pay an extra $100 a month so she signed us up for DirecTV at a cost of $100/month, and it turns out the job only nets an additional $50, the burden is on her to cut back on that new spending, not on me to come up with an extra $50.

Posted by: ab13 | September 18, 2010 12:57 AM | Report abuse

At the heart of this matter is one fundamental philosophical difference.

Democrats believe in taxing - really punishing - rich people, even if they earned every penny through their own hard work and ingenuity, because they believe that rich people must be forced to pay for being successful. Government, according to the Democrat worldview, has a duty to force rich successful people to pay, so that government can redistribute rich people's money to people who haven't earned anything at all.

Republicans believe that people who are rich are the lifeblood of the entire country, the engines for financing, for growth, for investment, and for jobs. Republicans - particularly Tea Party Republicans - care about the poor too, but believe in jobs, innovation and growth launched by the people, not make-work invented by the government and paid for with taxpayer cash.

The Democrats are decidedly wrong on this issue. Their understandable empathy with the supposed have-nots does not make their solutions automatically valid. And those solutions, by and large, rarely include any component where the individual must find a way to make it on their own.

Republicans, again particularly those in the Tea Party movement of which I fully subscribe, feel that the American can-do spirit is all we have ever really needed. We do not need financial advisory boards justifying their existence by harassing American small business using taxpayer dollars. We do not need "health care" that is little more than a destruction of competition in the marketplace and a massive additional debt for our kids.

This is the year when people woke up and recognized that Barack Obama was attacking the very essence of what it means to be American. Part of that includes the right to try to be wealthy -- and to keep it if you succeed.

It's a huge growing movement that liberal Democrats have been slow to see, but its a very strong movement, one that will give America a real chance to return to prosperity built on the genuis and indefatigable efforts of its citizens, not on government handouts and "spankings" of those who have are rich.

In sum: Self-righteously soaking the rich because you don't have enough money is a ticket to endless poverty. Why? Because the money they've made has to go somewhere. It might go into banks where those banks make loans to citizens to buy homes or build factories. It might go into expanding their company's office space so they can hire new employees, employees who will then have money to buy from stores, rug cleaners, internet service providers, and so forth.

Americans at some level understand this. We deep down inside realize that every time we spank a rich person for the "sin" of being rich, we spank ourselves ten times more.

Your logic seems so simple and impeccable Ezra. In fact, it is dumb person's simpleton thinking at the most fundamental level. The path to a better life and a better society is right here in the American heart and soul.

DWS

Posted by: dstafford2 | September 18, 2010 8:30 AM | Report abuse

"krazen, you're missing the point. The argument is that these people should be taxed at the same rate as everyone else who manage other people's money. These VC managers get to claim a capital gains rate because their business is structured as a partnership. But if their own capital is not at risk, why do they get to claim their fee as a capital gain--a lower rate than if it were ordinary income?

There is no good policy reason for this loophole, except as a sop for the support of those in that field. Tax their fee as ordinary income, and they'll still be making tons of money and there will still be plenty of incentive to have funds and do deals."

VC managers will simply pass some of the cost on to the investors. You know, the guys who grow new businessses.

Posted by: krazen1211 | September 18, 2010 12:36 PM | Report abuse

I'm still waiting for anyone to explain how this makes a lot of paperwork, including Ezra. I know the 1099 is just an example here, but it's a bad one. Any small business that uses any common bookkeeping software can in a minute create a list of who they spent $600 or more on. You print that list to 1099s and you're done. If it becomes common for everyone to know everyone else's EID# so they can generate 1099s they will probably be printed on receipts or available online in a central list. Plenty of regulations are a pain; this one is a piece of cake.

Posted by: TomCantlon | September 18, 2010 3:12 PM | Report abuse

The comments here perfectly illustrate the difference as well. Every Republican partisan posting here tees off for political points with ridiculous talking points*, evasion, and angry bombast. None evince any interest in actual policy.

* Star example: "The 1990s proves that universal health care is not a necessary condition for economic growth."

Yes, and nothing has changed since then. But why stop at the 90s? The 20s had some nice growth and there was no government health care to speak of then! Also, didn't Reagan prove that deficits don't matter? Republicans should go into mathematics. They're so nimble with proofs.

Posted by: dfhoughton | September 19, 2010 2:41 PM | Report abuse

"Every Republican partisan posting here tees off for political points with ridiculous talking points*"

What's so partisan about saying that the Democrats made their bed, so let them lay in it?

Posted by: bgmma50 | September 19, 2010 7:53 PM | Report abuse

er. lie in it. and about it, for that matter.

Posted by: bgmma50 | September 19, 2010 7:55 PM | Report abuse

I see that Ezra has once again shown his liberal bias. It must be that journolist group he headed coming out.

Posted by: gfafblifr | September 20, 2010 7:00 AM | Report abuse

How to get the economy moving again? Here is how "Obamacare should be repealed" well lets think about this...
Obama promised the American people that the entire health care debate would be televised live on C-Span so every American would know there were no back room deals and no corruption in creating our new health care system. . Maybe it is just the American in me but I do not like being lied too. So what we ended up getting because of Obama's lie to America is a watered down 400 page piece of pork. Very few people left or right want this bill. Business sure doesn't want it and that is slowing hiring. Obama until you apologize to the American people for your numerous lies you will remain just a lame duck joke of a president! You would think that for once he could have put aside pandering to special interest groups and done the right thing, Instead we had a great opportunity as a nation and he wasted it for all of us. If you cared about America you would go on television admit you have lied to the American people repeal health care and try to convince the public that from now on you will be on their side. If you care about America do something now!As always keep those comments coming. I can be
contacted at work http://www.usa-businessreview.com

Posted by: Loxinabox | September 20, 2010 9:37 AM | Report abuse

So the “Bush Tax Cuts” have now become the “Obama Middle Class Tax Cuts” –

Boy, it must be really killing the Democrats that the majority of Americans want the “Bush” tax cuts to continue – and worse, they have to keep hearing the name “Bush” ! Well, you can’t change history folks . . . Remember how the Democrats continually said the Bush tax cuts were only for the rich ??? Now they are being forced to admit that they were actually for everyone – exactly as President Bush said.

Posted by: Loxinabox | September 20, 2010 9:44 AM | Report abuse

Well said. The most sobering dimension of all of this is the spirit of a nation that would find public health cuts a moral stance worth taking. I support education reform in part in the hope that the body politic might develop more discernment skills early in life. In the meantime, I applaud your good faith efforts to inform, Mr. Klein.

Posted by: pbkritek | September 20, 2010 10:05 AM | Report abuse

"jnc4p,

@bigDtex: The change raises the threshold to any single PURCHASE >$5,000, not any spending > $5,000/year. For the average small business, this would be reduce the reporting burden by >90%, while still ensuring the most sizable tax obligations are not skirted.

You may continue to find this arrangement unacceptable but at least accurately represent your objections."

My understanding is that it was $5,000 in combined purchases per year from a single vendor. If it's $5,000 per purchase, then that's absurd, because all you will have to do to avoid the reporting requirement is have the vendor split the invoices.

Regardless, there are considerably more efficient ways to extract the same amount of revenue.

Posted by: jnc4p | September 20, 2010 11:00 AM | Report abuse

There is such a simple difference between the two parties. Just ask your self this question ...who do you trust more with your money the government or your self? See how simple the choice is?

Posted by: Loxinabox | September 20, 2010 3:10 PM | Report abuse

Loxinabox said...

***
There is such a simple difference between the two parties. Just ask your self this question ...who do you trust more with your money the government or your self? See how simple the choice is?***

Well if you keep the money, I guess you'll ensure that roads are repaired, mail is delivered, parks are clean and kept, our water is clean and food is inspected for our consumption, right, sparky.

Posted by: mydustymusic | September 20, 2010 6:16 PM | Report abuse

Democrats (Progressives) believe that we get our unalienable rights from society.

Republicans believe that we get our unalienable rights from our Creator.

Democrats (Progressives) believe in collective salvation.

Republicans believe in individual salvation.

Posted by: FastEddieO007 | September 20, 2010 7:05 PM | Report abuse

The whole serious IRS Form 1099 problem Klein addressed was knowingly and intentionally created for the self-employed and small business by Obama, Nancy Pelosi, and other rich leftists who have never been small business people, pick tax cheats who have never been small business people or actually worked for an honest living to be Chair of the tax-writing Ways and Means Committee, Treasury Secretary, etc., and wrote this and other unfair burdens for small business people into their socialistic health bill, which won’t help many struggling self-employed and real small business people or their employees get needed health insurance and care, in secret and rammed it through with the aid of the “Louisiana Purchase,” the “Cornhusker Kickback,” and other gross misconduct because they are deeply prejudiced against, and, indeed, hate self-employed and small business people, against whom this is retaliation under color of law for not voting for them and paying them off with the kind of “campaign contributions,” reported and unreported, including sweetheart loans and access to no-risk, high-profit deals nobody offers the rest of us, that are called payola in the music industry. They have both real incomes and tax-free federal “welfare” that a poor working mother and her child, or the unemployed, much less most small business people and our employees, can only dream about, from higher salaries and better job security, and free health care we can’t and still will not be able to buy for love or money, to their own airplanes and chauffeured limousines. It was in the Washington Post that I read how Members of Congress’ investments, through allegedly blind trusts, consistently out-perform the results obtained for private citizens by the best money managers, a result clearly explained only by misuse of inside information and other crimes.
These people, sworn, and highly paid to perform specific relevant duties and to uphold the Constitution and laws, specifically including tax laws, have the audacity to say publicly that they have been letting unnamed alleged small businessmen commit $17 billion a year of tax fraud that they know about, and, of course, that small business people are the world’s worst tax cheats. Even the IRS’ own Taxpayer Advocate, a position created after the last big round of exposures of abuses and corruption there that actually got exposed, has come out publicly against the great burdens on self-employed and small business people imposed by this new law as drafted by Pelosi & Co., but Wealthy Tax Cheat in Chief Secretary Geithner still opposes curing this problem.
Of course, if one assumes, arguendo only, that the Democrats’ original assumptions behind this were correct, what kind of effect do they, or you, think taking $17 Billion more out of the small business sector would have on job creation, the economy, or the small business community?

Posted by: peterschamberlain | September 21, 2010 3:06 PM | Report abuse

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