DISCRIMINATION AGAINST DAMAGES FOR UNLAWFUL DISCRIMINATION - THE SUPREME-COURT, CONGRESS, AND THE INCOME-TAX

Should damages for victims of unlawful discrimination be taxable incom e? For over seventy years, damages for lost earnings and for pain and suffering were excluded from taxation in all personal injury cases, in cluding discrimination claims. In 1992 and 1995, however the Supreme C ourt held in two employment discrimination cases that damages Sor lost earnings were taxable. In 1996, Congress went further amending the In ternal Revenue Code to tax pain and suffering damages, as well as lost earnings, in all nonphysical injury cases, while retaining the exclus ion for such damages resulting from physical injuries. This Article ar gues that the distinction between physical and nonphysical harm result s in invidious treatment of discrimination damages. The authors conten d that all personal injury awards should be governed by the ''in lieu of'' principle. Under this principle, damages for lost earnings should be taxed, because earnings are ordinarily taxable, and damages for pa in and suffering should be excluded, because they compensate for right s that are ordinarily enjoyed tax-free.