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Never Make the Mistake of Believing Your Own Metaphors:

A commenter on my Income Tax and the Sanctity of Property in Our Constitutional System writes:

You are ALL missing the point. Compensation for a tortious wrong is not income. If it were taxed, then you would not be made whole. Let's say someone negligently chops off your arm and then pays you a settlement that perfectly compensates you for the loss of your arm. There is no income. There is no gain. The money is just compensation for the loss of your arm. That money = your arm. Because the government cannot take a random piece of your arm, the government cannot tax your compensatory judgment. No level of American government has the right to just hack off a little piece of your arm. All of you on this thread are absolutely wrong and you should be ashamed. This decision is absolutely right.

Let's follow the flow of the argument. The argument begins with a sensible claim about the tort system: If compensation for a tortious wrong were taxed, then you wouldn't be made whole. To give a concrete example, say I have $100,000 in assets; I pay no income tax on that capital. Say then that someone steals the $100,000, and I get it back from him, whether through litigation or otherwise -- I'm no better off than I was before the theft, so it's hard to see why I should end up just with just $60,000, after the state and federal governments get their income tax cut. If we treat personal injury causing $100,000 in pain and suffering as similar to the theft of the $100,000, the principle of tort law is to try to put me back as much as possible into my pre-injury condition, by awarding me $100,000 in damages. Taxing those $100,000 would leave me worse off than I would have been but for the injury (assuming that $100,000 is indeed the compensation that leaves me as well off as before, and thus accepting the theory that the money compensates me for pain). Allowing this money to be taxed would thus undermine the goals of tax law.

Then the argument continues, appealing to the logic of income tax law and not just tort law: "There is no income. There is no gain. The money is just compensation for the loss of your arm." Because the income tax generally taxes income, the argument goes -- stuff you get on top of what you had before -- and because the compensation doesn't really give you more than you had before, taxing the compensation is inconsistent with the underlying principles of income tax law as well as of tort law. So far so good.

And then the argument abruptly plummets from sensible, albeit necessarily cursory, policy argument into sheer formalistic zaniness: "That money = your arm. Because the government cannot take a random piece of your arm, the government cannot tax your compensatory judgment. No level of American government has the right to just hack off a little piece of your arm. All of you on this thread are absolutely wrong and you should be ashamed. This decision is absolutely right."

"That money = your arm"?! Equals? Not just that money compensates you for the loss of your arm, but actually equals it?

That statement is simply and obviously false. It may represent a metaphor at the heart of tort law, but metaphors aren't reality. They may help us understand reality, because in some ways they represent reality. But in other ways they depart from reality (that's why they're metaphors).

"That money = your arm" may make sense for the purposes of understanding how tort law (or even tax law) often treats compensation for personal injuries. But you can't use it with arguments about the law or morality of dismemberment, because those arguments work only with actual arms, not just with metaphorical equivalents of arms. After all, if "that money = your arm," does it mean that if you get the money and then go bankrupt, your creditors can't recover part of that money, given that creditors can't physically dismember you? If "that money = your arm," and then you buy a house with that money, does it mean that "that house = that money = your arm," and you can't be required to pay property taxes on that house? I'd say "that way lies madness," but the madness actually lies at the very first step, which is treating "that money = your arm" as reality rather than metaphor.

Now this is an extreme sort of error; hardly anyone goes quite this far in believing his own metaphors. But I do think it's a helpful illustration of a general problem.

I'm often a formalist in the sense that I generally think that formal legal characterizations are often worth using. That something is called "speech" should influence the way we treat it, and even if we call other things than speech (e.g., waving a flag, wearing a cross, using sign language) "speech," once this characterization is accepted it may make sense to use it in a broad range of cases. But we should never forget that these labels are metaphorical, otherwise figurative, or just generally imprecise. We should never forget that in law, "X = Y" is often just a shorthand for "X is like Y in certain important ways" or "X should be treated like Y in certain important way," that in certain other ways X and Y can remain quite different, and that therefore treating them as genuinely equal is a recipe for massive error.

A classic legal fiction is said to be that for certain old English legal purposes the island of Minorca was treated as being "located within the parish of Mary-le-Bow in the ward of Cheap in the city of London." Yet even if that, within the English legal system, was a perfectly sensible way of dealing with certain kinds of procedural matters, you shouldn't try to walk there from the Houses of Parliament. "Think things not words," as Justice Oliver Wendell Holmes admonished, "or at least ... constantly translate [y]our words into the facts for which they stand, if [you] are to keep to the real and the true."

Sasha Volokh (mail) (www):
The article you linked to also gave an example of a case where Calais was stipulated to be in Kent, and another where Paris was in London. I also recall a case where Flanders was in London.
8.23.2006 3:58pm
Nick (www):
Of course, if you take the analogy to a fuller extent regarding tax law, you could use it to say that all income taxes are thus wrong. After all, when you work, you are paid to compensate for your knowlege and time, which the government can't tax itself.

Knowledge + time = pay check

If the two are exactly equal, then you also didn't really gain anything either in the trade, and thus the gov't can't tax you for it. Of course we know this not to be true.
8.23.2006 4:09pm
Dick King:
I will remind people that a component of the judgement is the money you would have earned if it hadn't been for the injury, and that is normally taxable [and the case in question doesn't dispute that].

-dk
8.23.2006 4:14pm
Gorjus (mail) (www):
This post ignores two facets of civil litigation: first, the existence of worker's compensation laws or guidelines that try to provide an exact compensatory value for harm, whether "injured lower back," "sprained ankle," or "missing two digits on left hand," down to even valuing certain digits over others.

It also ignores extensive spreadsheets kept by insurance companies which mirror these tables and govern the "go to trial/settle" mechanisms used in-house.
8.23.2006 4:27pm
Duncan Frissell (mail):
This is great.

Income isn't income either since it's just a replacement for my time and work ((mass x distance) + thought, I guess). I give up time, energy, and thought and get cash but on an efficient market I've just broken even. I haven't gained anything.

Since the government can't enslave me and use my labor (save as punishment for a crime whereof the party shall have been duly convicted) it can't tax my earning either. Sounds correct to me.
8.23.2006 4:28pm
Navin R. Johnson (mail):
Oh c'mon! 'for all practical purposes' is implied in the formulation 'that money=your arm'.
8.23.2006 4:33pm
Luke:
Is the commenter's formulation really that unreasonable in a legal system in which money (and other "bad things")can be prosecuted to avoid due process requirements?
8.23.2006 4:43pm
ElizabethN (mail):
Interesting - this actually reminds me of an argument my E&M professor made 20 or so years ago, about the question of whether an electron is a particle or a wave. "It's not a particle or a wave. It's an electron. Sometimes it behaves like a particle, enough that we can use those equations to describe it. Sometimes it behaves like a wave, enough that we can use those equations to describe it. But to ask whether it is a particle or a wave is meaningless - it's neither."
8.23.2006 4:47pm
JohnO (mail):
I was just going to write what Nick said. Wages presumably compensate you for the value of the services provided at your job, so you are breaking even.
8.23.2006 4:49pm
Mahlon:
"[M]ethaphors are't reality."

EV - I agree with your statement. But not too long ago, you advocated quite vehemently that we shouldn't be so concerned about such verbal accuracy. Yes, I refer to the now infamous "ten times less" debate. Just be consistent, man!
8.23.2006 4:54pm
Oris (mail) (www):
Mahlon,

It's not the lack of precise language that seems to bother Eugene, it's taking the metaphor a step too far. Money = Arm. The government would be wrong to exact a pound of flesh. Thus, the government would be wrong to exact a tax on money that is equivalent to your arm.

This argument fails because there is no circumstance in which any more or less sane person would concede that the government would have the authority to require my hand as a tax. Money is not flesh, and the commenter bases the end part of his argument on a moral equivalency between the two. Had he stopped at "Money = Arm and thus it is inappropriate to tax someone on the retrieval of that which was lost," he would have been fine.
8.23.2006 5:10pm
K Ashford (mail):
We should never forget that in law, "X = Y" is often just a shorthand for "X is like Y in certain important ways" or "X should be treated like Y in certain important way," that in certain other ways X and Y can remain quite different, and that therefore treating them as genuinely equal is a recipe for massive error.

Agreed. Money really isn't speech, and abortion really isn't murder, and people who rely solely on such overly simplistic equations to explain their positions are, in my experience, intellectually lazy.
8.23.2006 5:10pm
Simon (391563) (mail) (www):
This argument fails because there is no circumstance in which any more or less sane person would concede that the government would have the authority to require my hand as a tax.

Really? What about the draft?
8.23.2006 5:19pm
Master Shake:
The commenter is also incorrect insofar as compensatory awards are taxable and the jury knows they are taxable; they would take that into consideration in determining the amount and gross up the award. Therefore, depending on your tax rate, you'd get almost two arms' worth of money for your arm.
8.23.2006 5:23pm
Seamus (mail):

The article you linked to also gave an example of a case where Calais was stipulated to be in Kent, and another where Paris was in London. I also recall a case where Flanders was in London.



On the basis of these precedents, Guantanamo Naval Base and Abu Ghraib prison ought to be deemed to be within the District of Columbia, and thus within the jurisdiction of the federal courts therein.
8.23.2006 5:26pm
SeaDrive (mail):
The base arguement is also unpersuasive. Why is a person providing compensation protected from having to pay various transaction costs? If a defendent is required to pay court costs as well as damages, he can't leave the plaintiff partially compensated because his costs rise above the level of damage. He could be required to increase his payment to cover the anticpated tax.

Being a defendent is a bummer.
8.23.2006 5:27pm
Cheburashka (mail):
This is really very silly. The metaphor fails ab initio because "lost profits" is a measure of damages for many business torts. (E.g., unfair competition, intellectual property infringement, tortious interference, various shareholder and fiduciary duty torts.) Even where that is not the immediate measure of compensation, in the commercial context it is the effect of other forms of measurement such as the classic expectation damages. (Are contract damages taxed differently?)

The commenter is also incorrect insofar as compensatory awards are taxable and the jury knows they are taxable; they would take that into consideration in determining the amount and gross up the award.

Why wouldn't the jury be instructed not to take that into consideration, like contingency fees and the availability of insurance (if someone asks for such an instruction)?

Why is a person providing compensation protected from having to pay various transaction costs? . . . He could be required to increase his payment to cover the anticpated tax.

Among other reasons, because that would doubly tax the same income in many cases. The tortfeasor, after all, is taxed on the income generated by, say, a conversion tort, or on the money saved by, say, failing to comply with a duty of care. Of course, the benefit obtained by the tortfeasor will rarely equal the loss to the victim.

But that only underscores the point that the tax system is a set of bright-line rules which necessarily do rough tax "justice."
8.23.2006 5:38pm
Dick King:
Trade does not merely break even. It normally benefits both parties.

Actually, in perfect markets there is normally a "consumer surplus". The amount you are worth to your best fit employer exceeds the minimum amount you would accept, except for that last marginal hire. How this surplus is divided between each employee and hir employer is determined by a lot of complex factors including the relative elasticities of supply and demand.

-dk
8.23.2006 5:51pm
Sasha Volokh (mail) (www):
Seamus -- Note that Paris being in London was by stipulation: both parties agreed (because that relieved them of having to go to Paris to get a jury). If the U.S. government agreed that Guantanamo were in D.C., the course of those litigations would be much different.
8.23.2006 5:54pm
Eugene Volokh (www):
Navin R. Johnson: But surely if "'for all practical purposes' is implied in the formulation 'that money=your arm,'" that's just as bad. If someone steals that money, he'll be punished for theft, not for mayhem or inflicting serious bodily injury. That money may be seized to pay a judgment against you, but your arm may not be. The list could go on.

Of course, if the commenter had just meant "for some practical purposes, that money=your arm," that would have been fine -- in fact, my post more or less endorses that position. But the trouble is that the commenter wasn't saying that, because if he was, he'd have realized that he'd have to explain why judgments about the impropriety of government-ordered physical dismemberment fall within those "practical purposes" (and I don't think they do fall within the practical purposes). That was the whole problem with the commenter's argument: He really did think of "=" as "=," or at least "for all practical purposes, =," rather than just "similar in some ways."
8.23.2006 6:09pm
Dave Hardy (mail) (www):
If arm=money argument were valid, then how would my selling a parcel of real estate for a million profit be income? I change a parcel worth a million, for a million in cash, and have the same net value.
8.23.2006 7:51pm
Ron Hardin (mail) (www):
But ``money = arm'' is not a metaphor. Which is the tenor, and which the vehicle?

And there's no pregnancy in the vehicle, whichever it is.

What it wants to say, literally, is that the value of the arm is expressed in money, _for the purposes of the law_.

You can disagree with it easily, by pointing out other purposes, or where the idea is limited or wrong.

False identity is like that.
8.23.2006 8:23pm
James Ellis (mail):
Thought experiment: I invent some balm that allows me to regrow extremities that are cut off. I rub it on the stub, and after several months, the limb grows back.

So I start selling my body parts. I sell my fingers, toes, arms, legs, and who knows what else to hospitals, etc. Arms generally get $100,000.

Now some joker negligently cuts off my arm, just a day or two before it is ready for market. I sue and recover $100,000.

Income?
8.23.2006 8:28pm
gerg:
You are ALL missing the point. Compensation for a tortious wrong is not income. If it were taxed, then you would not be made whole.


Well the natural conclusion in that case is that tort penalties would have to take into account the tax status of the awards. If you steal 100k from me and I win a lawsuit then I should be awarded compensation calculated to leave me with 100k after tax.
8.23.2006 9:35pm
Tom952 (mail):
The "=" symbol, originally called the equivalence symbol, has different meanings when used in different contexts.

In math, "x = y" is an assertion of the fact that x and y represent identical quantities, or the fact that x and y represent the exact same thing.

In computer programs, "x = y" is a command to the computer to take the value stored in location y and move it into location x. The command may imply that the representation method of the value of y be changed to the representation method defined by x to enable the value to be stored in x, and during the conversion it is possible that the value will be modified, e.g. a certain amount of precision will be lost or the value shortened, and this is understood by both the computer and the author.

The "=" written with a "~" floating over it, or written with two "~" one above the other means "approximately equal to", and the exact interpretation of this is not definate unless otherwise qualified. However, since most keyboards do not include these symbols, people sometimes use the "=" when they mean approximately equal to, although the usage of "~=" or "=~" is preferred for clarity.

So, when the poster writes That money = your arm., it is ambiguous, and the reader must parse the statement to derive the true meaning.
8.24.2006 9:26am