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News of the Day ... In Perspective

4/7/2007

America’s tort tax: 77,000 lives, plus $865 billion per year

If comprehensive tort reform had been adopted in the states, more than 77,000 additional people would be alive and contributing to the work force, conclude researchers Lawrence J. McQuillan and Hovannes Abramyan, in a study released by the Pacific Research Institute.

This is because an overly expensive liability system increases the cost of risk-reducing good and services.

The static cost of litigation—damage awards, plaintiffs’ and defendants’ lawyers fees, and administrative costs—amount to $328 billion per year, an estimate much higher than previous estimates from a Tillinghast-Towers Perrin study. But this is only the beginning.

Litigation changes behavior, and these dynamic costs amount to some $537 billion per year, researchers conclude. These include: defensive medicine ($124 billion), productivity losses from reduced access to medical care ($39 billion), the impact of forgone research and development, and lost sales of new products.

The loss to the U.S. economy of $865 billion per year constitutes an annual “tort tax” of $9,827 on the average family of four (Wall Street Journal 3/27/07). The tort tax is 27 times more than the federal government spends on homeland security and 30 times what the National Institutes of Health dedicate to research on deadly diseases. America’s tort costs amount to 2.2 percent of the GDP, compared to 0.7 percent for the UK, 0.8 percent for Japan, and 1.1 percent for Germany.

Lawsuits against American corporations generate an annual loss of $684 billion in shareholder value. Half of all U.S. shareholders are individuals of modest means.

More than 51,000 U.S. jobs have been lost because of asbestos litigation-related bankruptcies alone. Employees at these bankrupted companies lost $559 million in pension benefits.

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