House and Senate spar on repeal of 1099 reporting rule

Last week, the U.S. House of Representatives passed H.R. 4, a bill repealing the health care reform law provision that requires businesses to furnish 1099 statements to corporate vendors.  The Small Business Paperwork Mandate Elimination Act of 2011 passed with a vote of 314-112, with 76 Democrats voting with the Republican block to eliminate the 1099 portion of what has come to be known as ObamaCare.
Previously, the Senate voted for a similar elimination of the 1099 rule, which is set to go into effect in 2012, but there are differences between the chambers regarding what portions of the new 1099 reporting law should be eliminated and what should be kept in place.
The House bill seeks to eliminate all of the changes to 1099 reporting put forth in the health care legislation that became law in 2010. The Senate would like to keep the portion of the new 1099 rules that relates to 1099 requirements on landlords.
What does this mean?

There's no question that the tax gap is real. The IRS estimates that almost 20 percent of the total tax liability of the nation goes unpaid every year by individuals and businesses that underreport income. Hundreds of billions of tax dollars never get paid. The 1099 reporting rule was designed to combat this shortfall, and the IRS has been given authority to hire enough people to process all of the additional paperwork and go after the taxpayers who are not paying their fair share of tax.

If the 1099 reporting rule is too difficult to follow, what alternatives do we have? Public humiliation for those who get caught underreporting isn't really our national style, although some sort of scarlet letter displayed by tax dodgers might be effective. Another alternative is to stop taxing businesses altogether. Businesses pass the cost of tax to consumers through higher prices for products and services, so the consumer ultimately pays the tax anyway. Is it time to remove corporate (all?) income tax and give serious thought to a national sales tax?
Going back to the original legislation, the Patient Protection and Affordable Care Act (aka ObamaCare) requires that all businesses, including tax-exempt organizations and government agencies, must issue 1099 forms to any vendor from whom they purchase at least $600 worth of goods or services during a calendar year. This expands the 1099 requirement to include payments to your utilities companies, office supplies stories, restaurants, hotels, service companies, and so on.
The American Institute of Certified Public Accountants (AICPA) and many other organizations have voiced objections to the reporting requirement, describing the rule as burdensome, costly, and unnecessary.
The House bill has been returned to the Senate where it faces an uncertain fate. The Senate hopes to retain the portion of the 1099 reporting requirement that requires landlords (including individual who own rental property and owners of vacation homes used as rental property) to complete 1099 forms for services provided by any unincorporated service providers (including accountants) but not for the purchase of goods. This landlord provision comes from the Small Business Jobs Act which was signed into law last fall. Businesses will be prohibited from taking a deduction for 1099-related services if the 1099 form is not filed.
The problem that lawmakers in both chambers face is that, due to the self-imposed requirement that no legislation will be passed that in effect lowers taxes without a PAYGO - a budget neutral alternative - there must be a cut in expenses or an increase in revenue somewhere else to pay for the money the government expects it will lose by revoking this provision.
The White House has indicated that it supports repeal of all of the new 1099 provisions.
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