Hall Institute of Public Policy, (NJ), August 23, 2007

Voters will soon shape their economic future when they go to the polls in quickly approaching primaries. On civil justice, candidates fall into one of two camps: either they believe the legal climate is an integral part of the business climate and lawsuit abuse must be eliminated to be globally competitive; or, they side with personal injury lawyers and deny any problem exists.

Now new data is out, and it shows that states with better tort climates are not only more financially sound and economically stronger, but they are also draining residents away from states with poorer tort systems. The Pacific Research Institute has crunched the numbers in all 50 states and published the "U.S. Tort Liability Index" ranking all states according to tort burdens and reform mindedness through 2005 - the most recent year that comparative data is available for each state. It's clear that tort climates in 2005 determined where each state fell in the rankings and shaped their economic performance in 2006.

It isn't just fun to pinpoint which states are getting it wrong. Where a state falls on the U.S. Tort Liability Index also indicates how likely it is to experience real economic growth over the long term. Individuals looking to open a new business, expand operations, or market new products weigh the comparative costs and benefits of different locations. They evaluate local universities, transportation networks, labor skills, market size, and even the weather. They also assess the policy climate. A healthy tort system, with relatively low damage payouts and comprehensive reforms that curb excessive litigation, attracts entrepreneurs and capital, thereby increasing jobs and new businesses.

In 2006, job growth was 57 percent greater in the 10 states with the best tort systems than in the 10 states at the bottom of the list. Labor earnings growth was more than 5 percent greater in the best states. And gross state product, a comprehensive measure of state economic activity, grew 25 percent faster in the 10 best tort states compared to the 10 worst.

A healthy tort climate also improves a state's fiscal health. In 2006, the top 10 tort states had an average growth rate of state tax revenues that was 24 percent greater than the bottom 10 states. The greater infusion of tax revenue was due to higher economic growth, not higher tax rates. In fact, taxpayers paid 8 percent less in "effective tax rates" in 2006 in the top tort states than did taxpayers in the worst states. Effective tax rates are based on what people actually pay after deductions, exemptions, and credits.

Though tax cuts are typically opposed with the argument that slashing rates will force state revenue to fall, the data shatter that myth. Instead of blowing a hole in state budgets, lower tax rates rewarded productivity and risk-taking and allowed the economy to grow. As the economy expanded, it generated more revenue for the state treasury as capital and people flowed in. When considered along with the legal climate, this helps explain why entrepreneurs are attracted to the top states and why jobs and businesses there are growing so much faster. Lower taxes make these states even more attractive for jobs and high-skilled workers.

Census data confirm this, showing an astounding 232 percent difference in net state-to-state migration rates in 2006 between the states with the top legal climates (net inflow of people) and worst legal climates (net outflow). "Live Free or Move"  is fast becoming the national motto as people flee predatory legal environments in the worst states and move to less threatening locations.

Voters might want to keep some of these facts in mind when they head to the polls to choose the next president, governor, state attorney general, state Supreme Court justice, or legislator. Supporting candidates and policies that promote the rule oflaw and a balanced civil-justice system is an important way to fiscal health for both taxpayers and states. A sensible civil-justice system rejuvenates economies and fattens state revenues.

Lawrence J. McQuillan, Ph.D., is director of business and economic studies at the California­ based Pacific  Research Institute where Hovannes Abramyan is a public policy fellow. They are authors of the U.S. Tort Liability Index and can be contacted at LMcQuillan@pacificresearch.org.