I previously blogged the National Law Journal op-ed by Vivian Berger (Columbia) in support of the Civil Rights Tax Relief Act of 2007 (H.R. 1540; S. 1689).  The ACt would, among other things, make the tax code more favorable to employment-law plaintiffs by extending the § 104 exclusion to cover damages for emotional distress in job-bias cases.  Walter Olson takes issue with the Act at Point of Law:

The argument is that plaintiffs in conventional tort cases can already exclude such damages from taxable income, and so employment-law plaintiffs should get to do so too. (The possibility of bringing uniformity to the scene by subjecting the conventional tort claimants to taxation is, of course, unthinkable). Note Prof. Berger’s perfectly cool-headed invitation for plaintiff and defense interests to collude against the interests of the public fisc: plaintiffs and their lawyers are of course supposed to favor the tax break for the obvious reasons, while defendants are urged to favor it because it would "encourag[e] lower (because less taxable) settlements". Can you spot a possible flaw in that logic from the defendant’s point of view? Maybe the possibility that by making employment lawsuits more lucrative it will encourage more of them to be filed in the first place?