The “hidden” lawsuit tax that all Americans pay because we live in the most lawsuit-happy society on earth isn’t hiding in Detroit anymore. Beware - it may come out of hiding soon in your city, too.
Because of mounting lawsuits against public schools in the Motor City, taxpayers there have been forced to pay a new special levy over and above the other taxes. It’s an alarming development and should be a warning sign to residents of other cities across the nation of what will happen if courts and policymakers fail to address the growing problem of excessive litigation in our country.
In July, the Detroit Free Press reported that property owners there are getting socked with a new markup on their summer property tax bills to pay off lawsuits against the schools. Like most school districts and cities in the United States, the Detroit Public School District is facing a financial emergency brought on by, among other things, the struggling national economy.
Rather than roll the costs of the lawsuits into the general-fund budget as they try to pay other bills, officials chose to use a little-known law that allows them to charge a “judgment tax levy.” Worse yet, this lawsuit tax doesn’t require voter approval.
For years, consumer advocates like myself have been sounding an alarm about the hidden lawsuit tax built into everything we buy. All of the lawsuits against doctors, job providers and even charities add a staggering amount to the cost of the things we buy every day - not to mention the quality of life in our communities.
According to the most thorough analysis of the total legal costs in America conducted to date, an American family of four pays an “excessive tort tax” of about $7,800 a year in higher prices, fewer new products and reduced access to health care. This study was conducted by the Pacific Research Institute and is the most realistic look at how much we pay for excessive litigation.
Although the lawsuit tax hasn’t appeared on the receipts we get when we buy a car or go to the doctor, the costs are there nonetheless. Now, with Detroit’s schools adding a special levy for the lawsuits, one portion of the tax is out in the open.
With other cities and school districts facing financial crises of their own, how much longer will you be able to avoid a special levy on your tax bill? Just this week, an advocacy group in California called Citizens Against Lawsuit Abuse released a study revealing that 12 school districts in the Golden State have had to pay $98.7 million in litigation costs over the past three fiscal years. That’s troubling, for sure, but it’s only a fraction of the total cost of lawsuits because there are nearly 1,000 school districts in California.
School districts aren’t the only governmental units being crippled by the cost of litigation. In 2008, it cost New York City $554 million to pay off lawsuits. Mayor Michael R. Bloomberg was quoted as saying, “Court settlements are killing us,” and one major newspaper said the city should be known as “Sue York.”
Taxpayers should wake up to the hidden - and not-so-hidden-anymore - tax that’s piling up because of the proliferation of lawsuits. Because we’re in election season, voters should ask candidates where they stand on this issue. It’s time for policymakers to tackle the problem of lawsuit abuse because the true costs are coming out of hiding. Your city might be next.
Bob Dorigo Jones is senior fellow at Foundation for Fair Civil Justice.