Originally created 01/30/05

It's time Georgians got a "litigation tax cut"



As Republicans steer the ship in the Georgia House for the first time in 134 years, one of our four guiding principles is to try to reduce the tax burden on our citizens.

Georgians will get a tax cut this year, and it will come through an unexpected channel - the passage of civil justice reform.

We will adopt meaningful civil justice reform, and it will provide a "litigation tax cut" that will put more money in Georgians' pockets. It will ease the burden of skyrocketing liability costs on all businesses - ranging from the family-owned hardware store to the community physician.

That can only help Georgia consumers.

The "litigation tax" cost each American $845 in 2003, or $35 more per person than in 2002, according to leading actuaries. Estimates are the average family pays about $2,000 a year in "litigation taxes" - enough to buy an entire set of household appliances.

In comparison, excessive litigation cost each American about $12 in 1950.

THE COST of protecting against liability claims, and the resulting skyrocketing insurance premiums, are expenses passed along to the consumer. No area of our economy is untouched. Hospitals and drug companies must charge more to stay in business; manufacturers are forced to charge more for everything from new cars to playground equipment to ladders. It is not that these services and products are more dangerous; they are safer than ever. It's just that the threat of lawsuits tilts the system.

According to actuaries Towers Perrin Tillinghast, growth in litigation exceeded the nation's growth in gross domestic product or GDP in 2003. The "litigation tax" hit a high of $246 billion - equivalent to the combined budgets of many Southeastern states.

This overlitigious society is the result of trial lawyers who operate under a philosophy that any conceivable problem can be remedied in the courts. Often, the smallest accident or bad outcome is not acceptable. In their world, someone has to pay.

TOWERS PERRIN Tillinghast estimates the American tort system is the equivalent of a 5 percent tax on wages. Imagine all the extra money in our pockets if we could reduce the number of lawsuits. And the ensuing "tax cut" wouldn't cost the state budget a dime.

This is a pocketbook issue for all Georgians. It is not just the media-created battle between doctors and lawyers. For example, when physicians order more tests than necessary to protect themselves from litigation, they are playing defensive medicine. Defensive medicine costs all of us money, either through increased premiums for health insurance or rising Medicaid and Medicare costs - paid with federal and state taxes.

In December, President Bush held an economic summit in Washington to focus on the problem of frivolous litigation and excessive tort cases. Bob Nardelli, the CEO of Atlanta's own Home Depot, testified. Nardelli said that the tort climate forces companies to raise the price of goods, suppresses the expansion of business and makes it harder for American companies to compete in the international market.

BUT THE National Bureau of Economic Research says that when liability risks are reduced, productivity increases in 17 different industries. Businesses are willing to expand when not burdened by increasing liability costs. Expanding business means more jobs.

A survey by the U.S. Chamber of Commerce ranked Georgia 29th out of 50 states on how well it is doing to create a "fair and reasonable litigation climate." That survey, however, was conducted before several states such as Ohio recently adopted civil justice reform.

There are a host of other reasons why we need civil justice reform, including improving access to health care. But the "litigation tax" is a burden President Bush and the nation's leading economists recognize is a drag on our economy. It is a tax that must be repealed immediately.

(Editor's note: The writer, R-St. Simons Island, is the majority leader in the Georgia House of Representatives.)