Grassley is a senior member of the Senate Judiciary Committee. His complete statement follows.
Floor Statement by Sen. Chuck Grassley: The Civil Rights Tax Fairness Act of 2000
Mr. President, I rise today to introduce The Civil Rights Tax Fairness Act of 2000. I am being joined by Senator Robb in this effort. Civil rights legislation has been in force throughout this country for nearly thirty years; its purpose being to provide real remedies to victims of discrimination.
The Civil Rights Tax Fairness Act restores certain remedies for victims of discrimination by eliminating taxes on emotional distress awards. This tax was incorporated into the Small Business Job Protection Act of 1996, making the taxation of awards received in discrimination cases involving back wages or non-physical injuries ( including emotional distress) taxable. The result of the 1996 legislation was to discriminate against people involved in civil rights cases. People who received damage awards because of a bar-room brawl or slip-and-fall incident, often caused by simple negligence, get tax free awards. While, for similar types of psychological injuries caused by intentional discrimination the damages are taxed. The result of this taxation is that the attorneys and government make out better than the victims who had their rights violated.
A second part of The Civil Rights Tax Fairness Act changes the current law, which requires people who receive back pay awards in discrimination cases to be bumped up into a higher tax bracket. When back pay awards are received by a person in a case the IRS considers it taxable income to be taxed in the year it is received, even though the award received covers many years of lost wages. Currently no averaging of back pay awards is allowed, but The Civil Rights Tax Fairness Act attempts to address this problem. The act provides for income averaging of back pay awards, making it possible for the award to be taxed over the number of years it was meant to compensate.
The third area that The Civil Rights Fairness Act attempts to combat is the double taxation of attorneys' fees that takes place under current law. Presently individuals who receive awards end up having to include in that award their attorneys' fee. This fee can end up being larger than the actual award received by the plaintiff. The current tax implications in the law require the plaintiff to pay taxes on their award and on the attorneys fees received by their lawyer.
One real life example recently brought to my attention involves an Iowa citizen named Don Lyons. Mr. Lyons, a man attempting to do the honorable thing by helping out a co-worker with filing a sex discrimination complaint against their employer, was unjustly retaliated against. After prevailing in court and receiving a $15,000 remitted judgment, Mr. Lyons then had to deal with the present tax laws, which not only devoured his judgment, but required him to actually pay thousands of more dollars to the government in taxes.
First, Mr. Lyons had to pay taxes on the $15,000 he received as punitive damages from his employer. After he pays his taxes he is left with $9,533. However, when Mr. Lyons takes into account the taxes that he has to pay on the combination of his settlement and attorneys' fees, he ends up owing $67,791 in taxes. When you subtract the $9,533 Mr. Lyons had left from the initial judgment he ends up still owing the government $58,236 in taxes. Mr. Lyons attorney, Ms. Victoria L. Herring, also has to pay taxes on the fee she received for taking Mr. Lyons case. Mr. Lyons ends up paying taxes on money that he never even received, making him a good example of why it is important to pass The Civil Rights Tax Fairness Act and end double taxation. Everyone Should agree that this is a extreme example of unfair taxation.
Mr. Lyons helped out a co-worker, was attacked by his employer, and received damages in a court of law. People count on the legal system to protect them and when their civil rights are violated the system needs to function properly. It is disheartening to learn that, in actuality, Mr. Lyons is going to be taken to the cleaners by the government tax system, and as a result, he ends up owing $58, 236 to the government for the "privilege" of having won his retaliation case.
It seems to me that there is something fundamentally wrong with the law when it hurts the people it is supposed to protect. This being said, it is time to change the mistakes made in the past by passing The Civil Rights Tax Fairness Act 2000. This bill will go a long way toward helping out victims of discrimination by eliminating taxes on emotional distress awards, ending lump-sum taxation, and ending double taxation. The changing of the law will have positive effects on citizens like Mr. Lyons, allowing similar victims to keep more of their awards. At the same time, it will be beneficial for business, since they will be able to settle discrimination claims for lower settlements.
I ask unanimous consent to have printed in the record after my remarks the letter I received from Mr. Lyon's attorney, Victoria L. Herring. Ms. Herring does an outstanding job of quantifying and personalizing the importance of The Civil Rights Tax Fairness Act.
Thank you Mr. President.