Cross-posted at Liberty Central.

Advocates of the president’s health care bill made a lot of promises in the run-up to passage of the law. They said health care costs would go down, people could keep insurance that they were happy with, the law would not increase the budget deficit, and small business would not be burdened by the new law. In the months since the law was signed, federal officials have begun to admit that all of those assurance were false. The latest shoe to drop comes from the IRS, which now says that businesses and charities will face significant new burdens – burdens which even this agency says may be ‘disproportionate’ to any benefit from the law:

The new regulations, which kick in at the start of 2012, require any taxpayer with business income to issue 1099 forms to all vendors from whom they purchased more than $600 of goods and services that year. That promises to launch a fusillade of new paperwork: An estimated 40 million taxpayers will be subject to the requirement, including 26 million who run sole proprietorships, according to a report released this week by National Taxpayer Advocate Nina Olson…

“The new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance,” the Taxpayer Advocate Service wrote in a report released this week.

The new rules are aimed at reducing the “tax gap” between what individuals and businesses owe and what they actually pay. The federal government misses out on estimated $300 billion each year from tax underpayment. The expanded reporting requirements, which Congress slipped into the landmark health care reform bill passed in March, are an attempt to create a paper trail of 1099s exposing business-to-business payments that might otherwise stay off the radar.

But the cost of that paper trail could swamp the small companies, sole proprietors freelancers forced to generate it. Pennsylvania business networking organization SMC Business Councils surveyed its members and found that they currently average 10 filings a year of 1099 forms. The new rules would push that average to more than 200 filings per year for a typical small business, the industry group estimates…

Henschke foresees another unintended consequence of the new reporting provisions: that in order to cut down on tax forms to be filed, businesses will trim the number of vendors they do business with. “I’ve actually heard businesses talking about consolidating their purchases, going from 150, 200 vendors, down to less than 100,” he said. “That will most certainly lead to some small businesses being swept under the door…”

That was just one of seven major pitfalls the Taxpayer Advocate Service foresees in the new rules. It also questions whether they will actually do much to close the tax gap. Because of product returns and other complications, the payments documented by the 1099 trail won’t match up cleanly against the revenue businesses report. “The IRS will face challenges making productive use of this new volume of information reports,” Olson’s office concluded.

That could help explain one otherwise puzzling aspect of the new tax law, which is that despite the sweeping reporting requirements, the Joint Committee on Taxation — a nonpartisan Congressional committee that analyzes pending tax legislation — estimated that it would bring in only about $2 billion a year in new tax revenue. Committee staffers wouldn’t comment on the record.

So 40 million more taxpayers will be required to file 1099 forms, and many businesses will go from filing about 10 annually to filing more than 200. Small vendors will likely lose a great deal of business, as their customers try to limit their purchases to only large suppliers. And even according to the Internal Revenue Service, these new reporting requirements will bring in only a negligible amount of new tax revenue.

How many businesses will be shut down by this new law? How many jobs will be lost? Speaker Pelosi suggested people would not find what was in it until after it was signed into law. She wasn’t kidding!

And apart from the burden imposed on businesses, the IRS also says it will need a lot more tax money to enforce this new law. The taxpayer therefore takes a double hit.

Is this the change American voted for?