Consumers
In Depth
The Consumer Lawsuit Tax – Slicing Our Economy into Settlements and Awards
Plaintiffs’ lawyers advertise their services as being in the interests of consumers. That is not always the case. Every person in this country, whether they are aware of it or not, pays a tort tax because of the excessive litigation produce by those attorneys. Jackpot Justice, a study conducted by the Pacific Research Institute, estimates the total cost of litigating civil cases is $865 billion a year. America’s out-of-control legal system makes a $2.36 billion hit on the economy each day.
- The top jury award in 2008 was $388 million, more than three times 2007’s top award of $109 million, Lawyers USA reports. The average award was $112 million, more than twice the average award ($51 million) of 2007.
- Consulting firm Tillinghast-Tower Perrin reported that as of December 2008, the tort tax for a family of four is $3,340 a year.
- Including both direct costs and forgone benefits, the annual tort tax reaches $9,827, according to the Pacific Research Institute.
- Ted Frank, director of the American Enterprise Institute’s Legal Center for the Public Interest, testified in Congress in March 2009 that the total loss for an average family of four due to tort costs could be as much as $12,000 a year.
- Tillinghast-Tower Perrin also found that litigation costs the country nearly 2% of gross domestic product each year.
- The cost of excessive tort litigation is the equivalent of an 8 percent tax on consumption or a 13-percent tax on wages, “the combined annual output of all six New England states (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont), or the total annual sales of the U.S. restaurant industry,” the Pacific Research Institute reports.
- PRI noted in its 2008 U.S. Tort Liability Index that over the previous 50 years, direct U.S. tort costs have increased more than 100-fold while over the same period, the population has not doubled and economic output has risen by only 37-fold.
- More money comes out of Americans’ pockets each year to pay for our tort system than is spent on new cars.
- Foundation for Fair Civil Justice chairman Steve Hantler says that “For an American family of average income, tort costs could pay for more than three months of groceries, six months of utility payments, or eight months of health care costs.”
Higher Prices, No Improved Quality – Thank a Plaintiffs’ Lawyer
When corporations have to pay for abusive and frivolous lawsuits, both through defense expenses and jury awards, the costs are passed on to the consumer. A good portion of the tort tax is paid in higher retail costs.
- “Every product we sold – for example, lawn mowers, ladders, hammers – there’s a dollar amount built into those products from the manufacturers” to pay for their liability and legal costs, says Bernie Marcus, co-founder of The Home Depot.
- A Chrysler executive has said that product liability costs add $1,000 to every car that’s built in America.
American Innovation Scuttled By Lawsuit Abuse
Higher costs are not the only way in which consumers are negatively impacted by our litigious society. The flood of lawsuits has put a damper on innovation. The threat of a lawsuit can kill the incentive a company has to invent a new product.
According to Jackpot Justice, “when businesses operate in a high-liability-risk environment, they respond to increased liability burdens by eliminating investments in product novelty because novel products have more uncertain safety characteristics.”
Sometimes, the threat of being sued is enough for companies to keep their products off the market.
