Don’t Tilt the Playing Field: A Response to Polsky and Markel

From modest beginnings in eighteenth-century England, punitive damages have developed into a potent legal weapon. Professors Polsky and Markel would now make that weapon even more powerful by allowing expert testimony concerning the deductibility of punitive damages from taxable income. The Professors envision an expert explaining to the jury the rule regarding deductibility and explaining how the jury could increase the amount of a punitive damages award to offset the effect of the deduction. Their principal rationale is that, otherwise, the defendant’s true cost will be less than the jury intended and less than it deemed necessary for punishment.

This is a solution in search of a problem. As the Professors acknowledge, plaintiffs “have not been seeking to introduce tax evidence against defendants when seeking punitive damages.” The probable explanation is that plaintiffs’ attorneys would prefer to appeal to jurors’ anger rather than their intellect. That preference is not likely to disappear.

But even if some plaintiffs were to offer expert testimony of the kind that the Professors contemplate, such testimony should be excluded. First, receiving testimony about deductibility would tilt the playing field in favor of plaintiffs, since juries usually are not informed either (a) that compensatory damages based on lost wages are not included in determining plaintiffs’ taxable income, even though the wages they replace would have been taxed, or (b) of collateral sources of compensation such as health insurance and disability benefits. Second, admitting expert testimony about the deductibility of punitive awards would exacerbate the distorting effects of admitting evidence of the wealth of corporate defendants. Third, giving effect to the jury’s intent is less significant with respect to the amount of punitive damages than with respect to most other issues submitted to the jury.