Statements on Introduced Bills and Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - June 25, 2007)

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Ms. COLLINS. Mr. President, I rise in support of the Civil Rights Tax Relief Act of 2007, which I joined Senator Bingaman in introducing today.

The primary purpose of this bill is to continue our efforts to remedy an unintended consequence of the Small Business Job Protection Act of 1996, which made damage awards that are not based on ``physical injuries or physical sickness'' part of a plaintiff's taxable income. Because most acts of employment discrimination and civil rights violations do not cause physical injuries, this provision means that plaintiffs who succeed in proving that they have suffered employment discrimination or other intentional violations of their civil rights are taxed on the compensation they receive.

Until a few years ago, this problem was compounded by the fact that attorneys' fees awarded in successful civil rights actions were treated as the plaintiff's taxable income, despite the fact that these fees were paid over to the plaintiff's attorney, who was also taxed on the money. Back in the 108th Congress, I joined with Senator Bingaman in offering legislation to correct this inequity, and I am glad to say that this double taxation of attorneys' fees was eliminated as part of the JOBS Act we passed in 2004.

But more remains to be done. Plaintiffs who are successful in employment discrimination or civil rights cases often receive a lump-sum award meant to compensate them for years of employment. Unfortunately, these awards are then taxed at the highest marginal tax rates, as if the award reflected the plaintiff's normal annual salary. As if that were not bad enough, successful plaintiffs can also find themselves subject to alternative minimum tax.

Let me explain how our bill eliminates this unfair taxation. First, the bill excludes from gross income amounts awarded other than for punitive damages and compensation attributable to services that were to be performed, known as ``backpay,'' or that would have been performed but for a claimed violation of law by the employer, known as ``frontpay.'' Second, award amounts for frontpay or backpay would be included in income, but would be eligible for income averaging according to the time period covered by the award. This correction would allow individuals to pay taxes at the same marginal rates that would have applied to them had they not suffered discrimination. Our bill also ensures that these awards do not trigger the AMT.

The Civil Rights Tax Relief Act would encourage the fair settlement of costly and protracted litigation of employment discrimination claims. Our legislation would allow both plaintiffs and defendants to settle claims based on the damages suffered, not on the excessive taxes that are now levied.

This bill is a win-win'' for civil rights plaintiffs and defendant businesses. I invite my colleagues to join in support of this commonsense legislation.

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