Americans Pay $1,300 ‘Tort Tax,’ Fixing Legal System Would Grow Economy by 2 Percent

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Americans pay a “tort tax” of $1,300 per person thanks to lawsuit abuse, and reforming the legal system could boost the U.S. economy by 2 percent over time, finds a new study released today by California-based, nonpartisan, free-market think tank, the Pacific Research Institute.

“Frivolous lawsuits reduce economic opportunities, jobs, and tax revenues while increasing costs for all Americans,” said the study’s co-authors Dr. Wayne Winegarden and Kerry Jackson.  “As our study shows, policymakers can help grow the economy, reduce inflation, and boost tax revenue by embracing reforms to end lawsuit abuse.”

Click here to read “Enriching Lawyers, Not Helping Victims”

The PRI study cites 2021 research from the Perryman Group estimating that the full costs to the U.S. economy from lawsuit abuse is 4.24 million lost jobs, $429.35 billion in lost economic output, and more than $110 billion annually in lost federal, state, and local tax revenue.  Winegarden and Jackson calculate that this is a “tort tax” of $1,300 per person.

As Congress has debated various economic “stimulus” measures in recent months, the PRI study shows that tort reform can over time help mitigate the risks of an economic slowdown by reducing costs to businesses, lowering prices for consumers, and incentivizing economic activity.

Tort reform would also generate new tax revenue to fund important priorities without the harmful effects of raising taxes or dramatically increasing the burden of federal spending that drives up inflation. Most importantly, it would bring Americans relief from the current affordability crisis.

Winegarden and Jackson note that tort reform does not prevent people who suffer injuries from attempting to receive just compensation through the court system.

“Abusive lawsuits exploit the courts for personal gain but impose widespread losses that have contributed to the long-term decline in U.S. economic growth,” the authors conclude.  “Effective tort reforms safeguard access to the court system while minimizing frivolous and meritless litigation.”

The PRI study makes the case for reforms that would curb the ability for the legal system to be a financial jackpot for attorneys cashing in on meritless claims, including:

  • Prohibiting state attorneys general from hiring private lawyers using contingency arrangements, which would close a growing loophole where private litigators use the power of AGs offices to enrich themselves;
  • Increasing penalties for filing clearly frivolous cases and capping fees litigators can receive from judgments and settlements in the plaintiffs’ favor; and
  • Reducing the costs for defendants fighting meritless claims by requiring plaintiffs’ attorneys to compensate defendants for their legal costs.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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