Opinion ID: 1445518
Heading Depth: 2
Heading Rank: 1

Heading: The Deduction of Federal and State Income Tax from Award of Damages for Loss of Probable Net Excess Earnings.

Text: At trial, the circuit court instructed the jury that future federal and state income tax payments should be deducted from the present value of the decedent's likely earnings in determining the loss to his estate of probable net excess earnings. This instruction reflected the obvious fact that, had the decedent lived, his future gross earnings would have been taxable. [1] In my opinion, the circuit court erred in so instructing the jury. I agree with the well-reasoned opinion of Chief Judge Friendly in McWeeney v. New York, New Haven & Hartford Railroad Company, 282 F.2d 34, 36-39 (2d Cir.1960), cert. denied, 364 U.S. 870, 81 S.Ct. 115, 5 L.Ed.2d 93 (1960), that the pitfalls of presenting the jury with a task of such delusive simplicity outweigh whatever utility there might be. Accord, Boston & Maine Railroad v. Talbert, 360 F.2d 286, 291 (1st Cir.1966); Girard Trust Corn Exchange Bank v. Philadelphia Transportation Company, 410 Pa. 530, 538, 190 A.2d 293, 297-298 (1963). Even assuming that the jury could estimate with any degree of accuracy the number of the decedent's probable exemptions, the dates when they would come into being, the rates to which the decedent would be subject, the deductions to which he would variously be entitled, and the particular state tax structures under which he would incur liability during his lifetime, the instruction fails to credit the decedent's estate with a number of offsetting factors. First, the theoretical measure of the loss of the plaintiff's earning capacity is that sum of money which if invested at a fair rate of return will yield annually the amount by which the plaintiff's earning capacity has been lessened and which will at the end of the plaintiff's life expectancy be reduced to zero. This takes account of the fact that money earns interest each year; and it should be remembered that this interest is taxable. Therefore, if a court is going to use income after taxes as a measure of plaintiff's loss, it must add back the taxes which would be due on the interest earned  else the award would not fully compensate for the loss. Morris and Nordstrom, Personal Injury Recoveries and the Federal Income Tax Law, 46 A.B.A.J. 274, 328 (1960). Second, such an instruction exacerbates the role of inflation and attorneys' contingency fees in diminishing the real recovery to a decedent's estate. A trial court should not permit the introduction of testimony relating to the likely incidence of tax liability which a decedent would have encountered but for his death or instruct the jury that such tax should be deducted from the measure of probable net excess earnings. [2]