Taxing Anxiety

Abstract

A truism of tax policy is that a good taxing regime treats similarly situated taxpayers similarly. This truism, which I concede that I have espoused in class a time or two, really does not tell us much, though. Consider the taxation of damages. Under the current statute, many taxpayers do not pay taxes on the damages they receive either through jury awards or settlements. Other taxpayers, however, do pay taxes on such damages. The dividing line, right now, is whether the damages were received “on account of physical injury.” If so, no taxes; if not, taxes.