Court Opinion

ID: 9550085
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:29:08.86437+00
Date Added: 2024-06-11T15:09:52.515243
License: Public Domain

Neill, J.
(special concurrence)—As the question of whether income taxes should be deducted in the computation of lost earning capacity is one of first impression in this state, we are free to adopt the most rational and workable solution presented.
Few aspects of American life are more certain than taxes. An injured plaintiff who is unable to work does not lose his gross earnings. Indeed, under our system of withholding taxes, a salaried employee never receives his gross earnings. For all practical purposes, the only usable earn*337ings are net earnings after taxes. Thus, the estate which a decedent would have accumulated, but for a fatal accident, is directly affected by taxes.
The major objective of our tort law is to compensate a wrongfully injured person and thereby place him in the position in which he would have been but for the wrong. A monetary award in a personal injury action is intended to compensate the plaintiff, not to punish the defendant. As a respected commentator has noted, “If plaintiff gets, in tax-free damages, an amount on which he would have had to pay taxes if he had gotten it as wages, then plaintiff is getting more than he lost.” 2 F. Harper and F. James, The Law of Torts § 25.12, at 1326 (1956).1 In the absence of a countervailing consideration, then, our compensatory theory of damages requires that the measure of recovery for lost earnings be the estimated net income after taxes.
Three justifications are offered to support the view held by many jurisdictions that income taxes should not be considered in determining lost earning capacity. First, it is suggested that income tax liability is a matter not pertinent to the damage issue, being a matter between the plaintiff and the taxing authority and of no legal concern to the defendant. This statement begs the question by assuming that the award in theory correctly measures plaintiff’s loss. If the award correctly measures the loss, then what plaintiff does with the amount he receives is of no concern to the defendant or the court. But, whether the method of computing that award does correctly measure plaintiff’s loss is a matter of concern for both court and defendant.
A second argument for excluding income taxes from consideration is that the amount of income tax which might *338become due on one’s prospective earnings in future years is too conjectural. Certainly there are speculative elements inherent in the estimation of future taxes.2 The question here is1 not whether these matters are speculative, but whether they are so speculative that the defendant will not be permitted to try to show them.
The assurance of some future taxes is practically certain; and, any award for future earnings lost through wrongful death is necessarily based on guesswork, from the prognosis of life expectancy to the prediction of gross future income. Estimating future income taxes would hardly be more conjectural in the present case than predicting the future gross earnings of a 7-year-old girl during exactly the same period. While income taxes cannot be determined with mathematical certainty, the consideration of taxes would bring the measure of compensation more closely into line with the purpose of recovery—to compensate plaintiff for the loss actually suffered.
The final argument in support of the view that income taxes should be ignored is that to introduce the element into a lawsuit for damages would be unduly complicating and confusing. I do not underestimate the difficulties a jury might encounter in determining future taxes.3 However, *339weighing the fundamental responsibility of the courts to make the closest feasible determination of the amount that will properly compensate a plaintiff against the difficulties inherent in computing taxes on lost future earnings, I would follow the rule set forth in McWeeney v. New York, N.H. & H.R.R., 282 F.2d 34 (2d Cir. 1960), cert. denied, 364 U.S. 870 (1960).
In McWeeney, the Court of Appeals for the Second Circuit held that the deduction for income taxes should not be made in:
[T]he great mass of litigation at the lower or middle reach of the income scale, where future income is fairly predictable, added exemptions or deductions drastically affect the tax and . . . the plaintiff is almost certain to be undercompensated for loss of earning power in any event [through continuing inflation and high contingent attorneys’ fees].
McWeeney v. New York, N.H. & H.R.R., supra at 39. The court recognized, however, that in cases at the opposite end of the income spectrum, failure to deduct taxes would result in an award that would be plainly excessive even after taking full account of the countervailing factors. Thus, each case must be examined on its merits, and, where anticipated earnings are low, the problems inherent in computing future taxes might outweigh injustice to the defendant resulting from inclusion of taxes in the award. This solution presents a compromise I find more desirable than either of the extreme positions: i.e., requiring the tax deduction in all cases or refusing such an instruction in any case.
In McWeeney, the court found McWeeney’s yearly earnings of $4,800 to be on the lower end of the spectrum. Later decisions applying the McWeeney rule have held annual *340earnings of $9,300 to $11,500 to fall below the level at which a deduction could be made, but treated an anticipated annual income of $16,000 to $25,000 as sufficiently large to permit the trial court to deduct income taxes. Petition of Marina Mercante Nicaraguense, S.A., 364 F.2d 118 (2d Cir. 1966), cert. denied, 385 U.S. 1005 (1967). LeRoy v. Sabena Belgian World Airlines, 344 F.2d 266 (2d Cir. 1965), cert. denied, 382 U.S. 878 (1965).
In following the McWeeney rule, the Court of Appeals for the Seventh Circuit has further defined the point at which a reduction for income tax is required as an income level “where the impact of income tax has a significant and substantial effect in the computation of probable future contributions and may not be ignored.” Cox v. Northwest Airlines, Inc., 379 F.2d 893 (7th Cir. 1967), cert. denied, 389 U.S. 1044 (1968).
Applying these guidelines to the facts before us, I agree that the trial court did not abuse its discretion in refusing to instruct the jury to deduct income taxes from gross earnings in arriving at the amount to which the estate was entitled. The decedent’s prospective earnings clearly fall at the lower end of the income spectrum, as evidenced by the jury award of $8,400. It should be noted, though, that the majority opinion expressly leaves open the question of a deduction for income taxes where prospective income is high. Where anticipated income is high, and thus corresponding income taxes would be high, I would deduct income taxes in computing lost earning capacity.
Hamilton, C. J., and Wright, J., concur with Neill, J.

The question under discussion is not to be confused with the exempt status of the award itself. The Internal Revenue Code of .1954, § 104(a)(2), exempts from gross income “the amount of any damages received (whether by suit or agreement) on account of personal injuries or sickness . . .”. Thus, the damage award to an injured person or his estate is not subject to taxation, even though it may include compensation for loss of estimated future earnings which would have been taxable but for the accident.

 As pointed out by Proiessor Nordstrom: “This conjecture and speculation could be found in such things as: (1) the family status of the injured party in the years to come; (2) possible changes in the exemption and deduction provisions of the tax law; (3) possible changes in the rates of taxation; and (4) possible changes in the cost of living, thus reflecting itself on the income of the plaintiff.” R. Nordstrom, Income Taxes and Personal Injury Awards, 19 Ohio St. R.J. 212, 227 (1958).

The computation of the tax which would have become payable on income which would have been earned but for the injury or death requires prediction, or speculation, concerning future tax rates, future income from other sources, the number of dependents and the duration of their status as dependents, the number of deductions, such as charitable contributions, which might have been made, and all the other variables considered in determining the tax due on income.
C. Peck & W. Hopkins, Economics and Impaired Earning Capacity in Personal Injury Cases, 44 Wash. R. Rev. 351, 371-72 (1969).
The jury is faced with an even more complex problem if an *339allowance is made for the tax which will have to be paid on the income received from the investment made with the award. See McWeeney v. New York, N.H. & H.R.R., 282 F.2d 34, 37 (2d Cir. 1960), cert. denied, 364 U.S. 870 (1960). Still another complication is added if plaintiff has outside income which continues in spite of the injury. Nordstrom, Income Taxes and Personal Injury Awards, 19 Ohio St. L.J. 212, at 230.