Cutting Paperwork for Taxpayers Act
Summary
The "Cutting Paperwork for Taxpayers Act" aims to amend the Internal Revenue Code of 1986 by excluding interest paid on tax overpayments from gross income for individuals and eligible small businesses. This exclusion would apply to taxable years beginning after the enactment date of the bill.
The bill seeks to reduce the tax burden on individuals and small businesses who have overpaid their taxes and subsequently receive interest on those overpayments. This is achieved by altering how such interest is treated for income tax purposes.
The proposed change is reflected in amendments to Part III of subchapter B of chapter 1 of the Internal Revenue Code, specifically by inserting a new section 139J addressing interest received on tax overpayments.
Expected Effects
If enacted, the "Cutting Paperwork for Taxpayers Act" would change the tax code to exclude interest earned on tax overpayments from being counted as gross income for individuals and eligible small businesses. This would effectively reduce the tax liability for those who receive such interest payments.
The change would simplify tax filing for affected individuals and small businesses, as they would no longer need to report this interest as income. This could lead to a small reduction in paperwork and compliance costs.
Potential Benefits
- Reduced Tax Burden: Individuals and small businesses receiving interest on tax overpayments will not have to pay income tax on that interest.
- Simplified Tax Filing: Excluding this interest from gross income simplifies tax preparation and reduces paperwork.
- Increased Disposable Income: Taxpayers will have more disposable income as they retain the full amount of interest earned on overpayments.
- Potential for Increased Compliance: Simplified tax processes may encourage greater compliance.
- Fairness: Addresses the issue of taxing interest which is essentially a refund of overpaid taxes.
Potential Disadvantages
- Potential Revenue Loss: The government may experience a slight decrease in tax revenue due to this exclusion.
- Complexity in Implementation: Defining and identifying eligible small businesses as described in section 44(b)(1) may introduce some complexity.
- Limited Impact: The benefit is limited to those who overpay their taxes and receive interest, so it may not affect a large portion of the population.
- Potential for Abuse: Although unlikely, there is a small potential for taxpayers to intentionally overpay to receive tax-free interest (though penalties for underpayment would likely disincentivize this).
- Disproportionate Benefit: Those who overpay more (likely higher income individuals and businesses) will receive a greater benefit.
Constitutional Alignment
The proposed bill appears to align with the general welfare clause of the Constitution, as it aims to provide financial relief and reduce the tax burden on individuals and small businesses. Article I, Section 8 grants Congress the power to lay and collect taxes, duties, imposts, and excises, implying the power to also legislate on tax exemptions and deductions.
The bill does not appear to infringe upon any specific constitutional rights or limitations. It falls within the scope of Congress's authority to create and modify tax laws.
Furthermore, the bill adheres to the principle of equal protection under the law, as it provides a tax benefit to a specific group (individuals and small businesses) based on a reasonable classification (those who have overpaid their taxes).
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).