Imagine if you earned $1000 from activity X, paying $200 tax on it. Later X is found to be illegitimate and you have to pay $1000 damages and $500 punitive dama

Imagine if you earned $1000 from activity X, paying $200 tax on it. Later X is found to be illegitimate and you have to pay $1000 damages and $500 punitive damages. Except because of the tax you have net lost $700 rather than the $500 punitive damages. Put in another term, it would be like paying tax on money you never had.