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  • Tyranny of the Naive

    Posted by Shannon Love on January 27th, 2011 (All posts by )

    Well, yipee. Obama supports revoking the infamous 1099 requirement of ObamaCare. I think the question we should ask now is: What the hell were they thinking when they inserted it in the bill in the first place?

    The requirement imposed such a huge burden on both businesses and the IRS that many wondered if either the private or public sector even had the information technology to process all the paperwork. Why wasn’t the incredible overhead imposed by the requirement immediately obvious to those who created it? Why didn’t the originators stop and ask, “Hey, is requiring every business to file a form for every purchase or sale over $600 even feasible?” Even if they didn’t care about the overhead and economic consequences, the political consequences should have given them pause.

    I think they simply didn’t understand the consequences because they were too naive about the realities of business, government administration and large-scale information management. I’m not saying the originators are stupid, no doubt they’re all Ivy League overachievers, but I’m willing to bet that none of them has any real-world experience outside of academics, activism or politics. They can’t start with an abstract idea like the 1099 requirement and intuitively extrapolate to the real-world consequences.

    Centralized government micro-management is breaking down as the world grows more complex. Complexity requires increasing specialization even by the most intelligent. There is no such thing as truly liberal education which gives the student a useful familiarity with all areas of knowledge and endeavor. We are all forced to learn more and more about less and less of total knowledge.

    Even worse, this specialization begins even earlier in life. Now we have magnet schools that funnel children into the arts, sciences or business in their mid-teens. Even without such formal specialization, children begin grouping into subcultures based around knowledge specialization. People today understand far less about the entirety of our civilization’s knowledge base than did people a century ago.

    No one today has the education or experience necessary to really understand the critical details about how others work. Outside our narrow specialties, we are all functionally naive, making decisions based on cartoonishly simplistic models of very complex systems. If we try to impose our naive notions onto others by the force of the state, we will inevitably get things seriously wrong.

    This is what happened with the 1099 fiasco. Naive planners didn’t understand what it would really take to implement their idea or what the economic consequences would be.

    Increasingly we face misrule by the possibly well meaning but globally ignorant. We face misrule at the hands of people so specialized that they can’t even understand the boundaries of their own ignorance.

    We face a tyranny of the naive.

     

    21 Responses to “Tyranny of the Naive”

    1. MadinMadtown Says:

      When I first heard of the $600.00 1099 requirement in the health care bill, I didn’t really believe it could be true. My sister-in-law, who runs a small business actually read the entire health care bill told me about it as we were discussing bookkeeping over dinner one evening. I am the bookkeeper for a small business. We started talking about the implications of airline tickets, restaurants, office supply stores, which were immediately obvious, and then how truly invasive this 1099 requirement was as we discussed the number of vendors with which we had made transactions over $600.00.
      Unfortunately, we had no real idea what was in the bill when it passed, let alone any discussion or trail of thought such as the Federalist Papers to understand why such a provision would have been mandated by a bill about health care.
      I am not so sure it was so naive; I suspect that there was a more sinister and insidious rationale behind it. The truth is that for small businesses, the threat of an audit from the IRS already hangs over us as a great threat. All of our books are already an open secret for the government to inspect and analyze at their behest at any time. We already spend thousands of dollars each year to try and comply with government regulations of an ever changing and arcane nature, and know that there will always be something that could be challenged or questioned; because no one actually understands every aspect of the tax code.

    2. David Foster Says:

      In his short book “Generals and Generalship,” general Archibald Wavell suggested that too many people, in thinking about miitary affairs, under-rate the importance of logistics and of the human factors of leadership:

      “For instance, there are 10 military students who can tell you how Blenheim was won for one who has any knowledge of the administrative preparations that made the march to Blenheim possible….Marlgorough’s most admired stratagem, the forcing of the Ne Plus Ultra lines in 1711, was one that a child could have thought of but that probably no other general could have executed.”

      and

      “To learn that Napoleon won the campaign of 1796 by manoeuvre on interior lines or some such phrase is of little value. If you can discover how a young unknown man inspired a ragged, mutinous, half-starved army and made it fight, how he gave it energy and momentum to march and fight as it did, how he dominated and controlled generals older and more experienced than himself, then you will have learnt something.”

    3. Dan from Madison Says:

      I run a small business and was stunned when I heard about the 1099 requirement in the health care bill. You can’t imagine the amount of paperwork (in and out) this would have required. Here’s praying that it is repealed.

      I think it was David Foster that said that we have Congress making laws on everything from baseball to refrigerants. Nobody up there specializes or understands the real world consequences in any of the legislation they are putting forth and this 1099 debacle is a perfect example. Hopefully it wasn’t done on purpose to put small business owners (or any business owner) under duress. You never know.

    4. Lexington Green Says:

      I read somewhere that the point of this was to start compelling businesses to keep records that would make it easier later on to impose a VAT.

      Laws are written by lobbyists. The question is always: Who benefitss from this provision?

      I don’t know the answer in this case, but I do not believe this was inserted out of pure ignorance. Someone believed they would benefit from this provision.

      I suppose it would be possible to determine who drafted and inserted this provision.

    5. Mitch Townsend Says:

      It’s arrogance, not naivete. They refuse to acknowledge the potential importance of anything they don’t already know. Their conceit is that they have already considered the main issues and the remaining piddly details can be cleaned up by lesser beings. A little humility would make them more cautious.

    6. Anonymous Says:

      “I’m not saying the originators are stupid, no doubt they’re all Ivy League overachievers, but I’m willing to bet that none of them has any real-world experience outside of academics, activism or politics. They can’t start with an abstract idea like the 1099 requirement and intuitively extrapolate to the real-world consequences.”

      I suppose we have different understandings of the word ‘stupid’, but it seems to me that anyone who cannot link theories to anything remotely resembling reality is, well, …. stupid. (Ivy League paperwork notwithstanding)

    7. John W. Says:

      “I’m not saying the originators are stupid, no doubt they’re all Ivy League overachievers, …”

      You’ll have to explain why the second clause rebuts the first, because I sure don’t see it.

    8. Mike Says:

      I used to run a small business and when I learned of the 1099 requirement was glad that I no longer do.

      I think the 1099 requirement was inserted with the idea that it would increase tax compliance that would then lead to increased revenue. Of course, I could predict what would happen with my Directional U night school MBA.

      So I’m with Anonymous on the stupid thing.

    9. karrde Says:

      My impression: the 1099 provision was dreamed up by people who don’t have any experience running an organization with less than $1,000,000 in assets.

      And it might have been aided and abetted by the lobbyists for large accountancy firms.

    10. MadinMadtown Says:

      Lexington Green,
      The preparatory Value Added Tax theory seems plausible to me. Why was the threshold made at $600.00? Since the entire process was done under a cloak of secrecy, one tends to imagine nefarious motives rather than benign ones.

    11. Lexington Green Says:

      I do not believe that something this important was the result of naivete.

      Someone wanted a material advantage out of this legislation.

      I would like to know who it was.

    12. Jeff the Bobcat Says:

      I am a CPA (non-practising) with an MBA who runs a small business (48 employees). I just finished my 1099’s for 2010 for the few vendors who need them currently. I would have to hire a person to just comply with this new tax provision.

      Maybe that’s the reason for it….job growth by mandate. I have often wondered when a politician says anything about focusing on private sector job creation how that can really happen, now I know.

    13. Roy Says:

      Underground economy. That’s the reason for the 1099. Think, folks, think. Gov’t income from taxes *depends* upon voluntary compliance. Without that assist, collecting taxes becomes enormously more expensive, gov’t exponentially more costly. Demanding issuing 1099s expected to close “the tax gap”, to make all those evading taxes pay “their fair share”.

      People living in the real world know (even those not needing to pay taxes but supported by the gov’t)that everyone makes choices about large scale spending based upon cost as at least a major factor. Taxes do influence decisions. Those same people know that everyone, as opposed to only huge corporations or the so-called rich, does what they can to minimize their tax payments. And, finally, those same people know that at same level of taxation the system will break. That is, taxpayers will conclude the (wealth transfer, with nearly half the average taxpayer’s income going to some sort of tax or other) system lack morality and will *therefor* not restrain their ability to evade as well as avoid taxes. The 1099 program aimed at halting this tax rebellion.

    14. Robert Schwartz Says:

      IIRC, the story was that the provision was inserted because the CBO was willing* to score it a revenue raiser. It would make the Obamacaresnotawitaboutyousucker bill look like it was revenue positive even though the bill is an Saffir Simpson force 5 economic disaster. So, in it went.

      They were neither naive nor stupid, they had just worked themselves into a political corner with members who threatened to bolt unless CBO gave the bill its nihil obstat.

      Of course that score will also be used to beat Republicans who vote for repeal with the claim that they are busting the budget.

      *my guess is that it floated though some JCT proposals in previous years and had scored well.

    15. Michael Kennedy Says:

      “there are 10 military students who can tell you how Blenheim was won for one who has any knowledge of the administrative preparations that made the march to Blenheim possible…”

      That is what made Eisenhower the SHAEF commander. He was the expert. Ironically, the actual head of logistics (G4), JCH (Jesus Christ, Himself) Lee set himself up in Paris in luxury and set up an enormous bureaucracy. He was an impediment to the latter part of the campaign.

    16. Brian Dunbar Says:

      There is a silver lining in the 1099 cloud: there is money to be made by a savvy organization that can do 1099 submission for business.

      Not that the IRS is making it easy: the requirements for automated 1099 submission are weird and seemingly not real easy to automate.

    17. Anonymous Says:

      NYTimes: “To improve tax compliance, the law requires businesses to file a 1099 tax form identifying anyone to whom they pay $600 or more for goods or merchandise in a year.”

      The law is worse than this discussion has considered. The law requires creating a 1099 not just on individual transactions over $600, but for any vendor where purchases cumulate to more than $600 in a taxable year.

      Every transaction would need certifying information, on the chance that later transactions would cumulate over the $600 limit. It is nothing short of requiring a total transaction database, with certifying information, for every company in the US. I suppose, under compliance penalties.

      Every business in the US would become dependent on the mercy of the IRS, in total detail. Woe be to any business where the transactions did not add up exactly to the company’s expense accounting.

    18. Jim Miller Says:

      The $600 number interests me, because I can’t figure out where it came from.

      If whoever chose it was looking for a round number, either $500 or $1000 seem much more likely.

      Perhaps there is some precedent in the tax code?

    19. Dan from Madison Says:

      Jim – I know you get a (or are supposed to get) W2-G for winnings over $600 at a casino so maybe if you could find the origins of that number you will get closer to solving the mystery. Also on this page there are many things that come into effect when the $600 figure is breeched.
      http://www.irs.gov/govt/tribes/article/0%2C%2Cid=102552%2C00.html

    20. sassamon Says:

      The value, $600, may have been chosen because $50 a month, for 12 months, equals $600.

    21. Andrew_M_Garland Says:

      NYTimes: “To improve tax compliance, the law requires businesses to file a 1099 tax form identifying anyone to whom they pay $600 or more for goods or merchandise in a year.”

      The law is worse than this discussion has considered. The law requires creating a 1099 not just on individual transactions over $600, but for any vendor where purchases cumulate to more than $600 in a taxable year.

      Every transaction would need certifying information, on the chance that later transactions would cumulate over the $600 limit. It is nothing short of requiring a total transaction database, with certifying information, for every company in the US. I suppose, under compliance penalties.

      Every business in the US would become dependent on the mercy of the IRS, in total detail. Woe be to any business where the transactions did not add up exactly to the company’s expense accounting.