Why the Self-Employed Might Owe OfficeMax a 1099 … Small businesses and self-employed workers, look out: There is a blizzard of new tax paperwork on the horizon. The reason? To help fund the health-care changes, lawmakers passed a provision aimed at stopping cheats responsible for a big chunk of our "tax gap," the $300 billion-plus of revenue lost to tax evasion every year. … Starting in 2012, businesses could have to file hundreds of millions of new 1099 information reports with the Internal Revenue Service. The forms will be due whenever a firm buys more than $600 a year in goods or services from a vendor, even when the vendor is a giant company like Staples. They are designed to stop people and businesses from underreporting income. The new rules drastically expand current reporting requirements, and they apply to all businesses. But critics say the compliance burden will fall squarely on the shoulders of sole proprietors and other small businesses, plus small nonprofits and local governments. The rules even could affect people who work from home. The new provision took many by surprise when it passed in March. Some members of Congress now favor its repeal. So does the American Institute of CPAs, even though the rule would raise fees for accountants. Taxpayer Advocate Nina Olson recently questioned whether the new law's burden is "disproportionate" compared with its benefits. – Wall Street Journal
Dominant Social Theme: An additional, reasonable tax …
Free-Market Analysis: This US law seems fairly invasive. Year-to-year, any payments to a vendor of more than US$600 will have to be reported to the IRS. While we were aware of this payment mandate, we hadn't fully realized the consequences for gold and silver until a feedbacker pointed them out yesterday. Go on the Internet now and you will find reports that spell out the ramifications for precious metals purchases. Again, if someone buys aggregate annual gold and silver above US$600, the purchases apparently have to be reported, along with other purchases as well.
Predictably, there is already political pushback. Representative Daniel E. Lungren of California has introduced a bill, H. R. 5141 (referred to the Committee on Ways and Means), "to repeal the expansion of information reporting requirements for payments of $600 or more to corporations, and for other purposes." But commentary on the Internet regarding such efforts is not uniformly encouraging.
David Galland, writing in Casey's Daily Dispatch ("IRS to begin tracking gold and silver coin purchases"), reports the following: "So what are the odds that the movement to have this clause repealed will succeed? In my opinion, given the sheer quantity of new regulations embedded in the new health care legislation, most of which is equally wrong-headed, the administration and its allies are certain to take a hard line about making changes. Simply, once the hard shell of the legislation is cracked open, great swaths of the thing will be subject to being picked apart."
Galland adds: "Clearly, the battle is joined – but … I hold out little hope that any of these attempts at repeal will succeed. The Democrats know this is their Maginot Line. If Obamacare unwinds, then their already dismal chances of holding power after the November elections become dark, indeed. Further, the latest polls show that the health care legislation is gaining popularity and is now approaching a majority. As time passes and November approaches, I think the legislation's popularity will grow as more and more people decide they want something approaching 'free' medical, a want that becomes ever more acute as the economy struggles and unemployment continues to rise. … On the specific issue of setting the stage for a VAT, even politicians on the Republicrat side of the aisle are talking about the need for a national sales tax. Get ready for it, it's coming.
Nonetheless, it is interesting to us that more and more material regarding this law is beginning to appear on the Internet. We would expect a good deal of additional commentary (especially from the Internet alternative news community) on its ramifications in the weeks and months ahead. It is also surprising that a clause of this sort, one that affects virtually everyone in the United States – who has business-to-business dealings anyway – could be passed into law virtually without debate. It seems to us that such secretive mandates contradict the spirit if not the letter of the American (constitutional) Republican system.
We agree, too, that such transactional methodologies lay the groundwork for a VAT tax similar to that in many countries in Europe, Canada and Australia. The US income tax provides data on a person's assets and income, while a VAT-oriented tax may track a person's day-to-day spending. The information developed between these two taxes offers up virtually an entire snapshot of individual's lifestyle and personal preferences. Finally, while there is no mention of it that we can find currently, the law will certainly reignite fears that a US government confiscation of gold (if not silver) is an increasing possibility – as Ron Holland, contributing editor to ARBP's Swiss Confidential newsletter pointed out in last month's issue. Certainly, if the government is aware of citizenry's transactions in this regard, confiscation becomes more feasible.
Leaving aside issues of personal privacy, the legislation imposes cumbersome additional reporting requirements and, from a more parochial standpoint, should have a significant impact on the gold-and-silver business. It is certainly true that people who purchase gold and silver often do so within an anonymous ambit. Traditionally, gold and silver dealing have provided a last haven of none-reportable financial transactions. With current legislation, the status of gold and silver as an anonymous purchase is emphatically breached. In his article, Galland makes some suggestions as to what buyers can do between now and the time the law is implemented, as follows:
Meanwhile, if you are a physical-gold investor in these United States and would like to prepare… a few thoughts: 1. Use dips in the gold price to top off your portfolio before the 2012 implementation date; 2. Document your purchases so that, should you ever be dragged in to explain the source of funds you used to buy your gold in a subsequent sale, once the regulation is in place, you have a ready answer; 3. Consider opening a safe deposit box at a reputable Canadian bank, then make occasional gold buying/storage trips up north. I suspect that the availability of Canadian safe deposit boxes will become scarce well before 2012 rolls around.
In an article just published yesterday – "The Genius of Bernanke" – we pointed out that "… By insisting on the validity of increasingly discredited promotions, the elite puts its entire program in jeopardy and diminishes the probity and credibility of its various allies as well." The promotion in question, here, has to do with the competence of the federal government itself, as follows: "Through no fault of our own, your national government needs additional revenue and must take drastic book-keeping measures to ensure that the flow of funds continues uninterrupted so that we can better serve you."
The trouble with this dominant social theme, in part, is that it is not credible and thus is bound to raise resentments. The new record-keeping demands come at a time when the economy remains sour and joblessness in the US may be seen as high as 20 percent or more. The Federal government generally is held in suspicion after massive corporate bailouts and there is also frustration over the size of the federal workforce and the continued (relatively) high level of benefits. Finally, there remains a bias within the US toward smaller central government that does less with fewer dollars.
Such a massive expansion of federal taxing authority, perhaps combined eventually with a VAT, moves the US government further away from what would seem to be the express wishes of its citizenry. The law allows this sort of movement to take place, but increasingly one could speculate that the law is not being grounded in "the will of the people." Combine this salient point with the communicative ability of the Internet itself, and one would expect a lively debate to ensue in the coming months over the kinds of demands that central government in the US is increasingly (and for some, illegitimately) making on its citizens.