“TORT TAX” – A MADE UP PERIL

  Claims that a so-called “tort tax” harms the American economy have proliferated on the Internet and in ideologically motivated journalism in recent years.  While the numbers claimed in these reports and websites are easy to advance, they have little basis.  "Tort tax" studies, suffer from poor methodology, exaggerated addition, a studied indifference to the system's benefits, and most importantly, a fundamental misunderstanding of the insurance costs that they equate with tort costs.

Peter Huber's $300 Billion Figure

The "scholarship" of Peter Huber, a leading tort tax proponent who claimed the tort system cost America $300 billion per year, has been thoroughly discredited by reputable scholars, who have derided it as misleading, shaky, and riddled with errors.

Judge Roger Miner of the U.S. Court of Appeals for the Second Circuit, a conservative Reagan appointee, said that the "$300 billion figure has been demonstrated to be a product of casual speculation and not derived in any sense from investigative or statistical analysis." Similarly, The Economist has scored the figure as having "no discernable connection to reality" and for being "impossible to justify."

Beacon Hill Institute Study

This study, the source for the figure of a Florida tort tax of $655 per person, has never appeared in a peer-reviewed journal. To achieve the shocking $655 figure, the Beacon Hill toters throw every and all insurance premiums paid into their calculation -- homeowners, crop and farm insurance, and other multi-perils. In other words, Beacon Hill charges the tort system with responsibility for hurricane, fire, flood and other damages that are often regarded as an act of God and unlikely to be the objects of tort liability.   A survey cited by the Beacon Hill study, purportedly to show that taxes are a significant factor in a company's decision to relocate, also happens to show that liability concerns that liability or tort system concerns were never mentioned as one of these factors.

National Bureau for Economic Research (NBER) Report

The NBER report, which purports to show that tort "reforms" have a positive impact on a state's economy, has never appeared in a peer-reviewed journal. Even so, the report found that "tort reform" produced no increases in productivity or employment in either manufacturing or health care, the two areas that "tort reformers" claim are the most hurt by the liability system.   The NBER researchers could not rule other possible alternative reasons for the increased output they claim to have found in states that enacted "tort reform," such as tax cuts or demographic shifts. In fact, the authors themselves recognize this flaw. Without accounting for these other effects, the authors cannot authoritatively claim that liability "reform" leads to increased economic output.

For a scholarly evaluation, see the Florida State University Law Review:

http://www.law.fsu.edu/journals/lawreview/downloads/272/Peck.pdf