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Sherman: Iowa consumers at risk of double taxation, thanks to Congress

Steve Sherman: Right now, tax law is written in a way that forces a consumer who wins a lawsuit to pay taxes on the full amount awarded by the court.

Steve C. ShermanbySteve C. Sherman
September 7, 2022
in Opinion
Reading Time: 3 mins read
tax documents on the table

Photo by Nataliya Vaitkevich on Pexels.com

Partisanship in Washington is out of control. Both parties have lined up in a way that hurts average middle class Americans in fly over country thanks to bad policy. It is time for the elites in Washington to pay attention to real Americans and their problems.

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Democrats have run up the tab with hundreds of billions in new spending offset by zero cuts in existing obsolete programs thereby putting Iowa’s next generation on the hook for trillions in generational theft. Republicans did their part when they did not put in place protections and safeguards for the Paycheck Protection Program (PPP) to prevent fraud. Both parties held hands and pass this bill in the post Covid-19 pandemic panic with the promise that it would save small businesses in dire need of help, yet it failed so many family businesses. Both parties have let us down.

I am a Republican and hopeful that Republicans can take back Congress to provide some balance and to check the power of the Democrats who seem to lean more left every year. Democrats have lurched far left with policies to forgive trillions in student debt with no way to pay for it. Not to mention their idea to defund the police when crime is at all-time highs. Divided government tends to work out better for voters, and consumers, because when one party can’t control policy, the federal government regulates, taxes and spends less. More Republicans need to go to Washington to provide some balance.

That being said, there are opportunities for bipartisanship on a handful of issues that will make America great again. Moderate Democrats can work with rational Republicans on issues that will turn the economy around and make tax law fair. Right now, there are provisions in tax law that hit the little guy, like a large gas tax that could be suspended tomorrow to provide some relief to businesses and families. When Congress looks at issues, they need to set aside partisanship and push policies that makes sense.

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One issue that makes sense is in the area of the taxation of consumers who are injured then win lawsuits to recover damages. There is legislation in Congress right now titled the End Double Taxation of Successful Consumer Claims Act would provide some fairness to consumers who win lawsuits then get hit with double taxation. U.S. Senator Cortez Masto of Nevada is the chief sponsor of the bill and she describes the bill as removing a provision in tax law that “unfairly penalizes consumers who sue corporations or companies for abuse or fraud.” The supporters point out that when a consumer wins a case, they get compensation for damages, yet get hit with a tax bill on money they end up sending to lawyers who represented them in the case. 

Right now, tax law is written in a way that forces a consumer who wins a lawsuit to pay taxes on the full amount awarded by the court. The problem with this is that the consumer receives only the damages, then gets hit with a tax bill on money they don’t receive that goes to their lawyers. Leave it to the IRS to then hit the lawyers with income tax on that same pot of cash. It is theoretically possible that if a consumer wins a small amount and has large legal bills because of the length of the litigation, they could owe more to the IRS than they receive in the lawsuit. This punishes the consumer who was hurt for no good reason and needs to be changed. 

Some Republicans have resisted the urge to change this law because they dislike trial lawyers more than they dislike the Internal Revenue Service. Maybe they need to reassess in the wake of the Inflation Reduction Act that included a provision to bulk up the IRS with $46 million in extra cash. This is at a time when the federal government is taking in record amounts in revenues and does not need to find ways to further tax struggling American families. Brian Riedl of the Manhattan Institute wrote in the New York Post on August 12, 2022, “this year, Washington will collect $4.8 trillion in tax revenues — $1 trillion more than it collected in 2019. Within these past three years, annual tax revenues have leaped by $7,000 per household and individual income taxes are up 38%.” In short, the IRS does not need the cash.

It would be nice for the elites in faraway Washington, D.C. to do something for the little guy and end the double taxation on consumer protection awards. This may be a small issue to those in our Nation’s capital, but it is a big deal for those who end up getting hurt, receive compensation, then are hit with a giant tax bill.

Tags: 117th CongressBrian RiedlCortez MastoIRSManhattan Institutetax policy
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Steve C. Sherman

Steve C. Sherman

Steve C. Sherman lives in North Liberty, IA. He is a writer, radio commentator and a former Iowa House Republican candidate.

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