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White House Council of Economic Advisors
April, 2002
Who Pays for Tort Liability Claims?
Executive Summary
With conservatively estimated annual direct costs
of $180 billion, or 1.8 percent of GDP, the United States tort system is the
most expensive in the world, more than double the average cost of other
industrialized nations. Whereas an efficient tort system has a potentially
important role to play in ensuring that firms have proper incentives to produce
safe products, poorly designed policies can mistakenly impose excessive costs on
society through forgone production of public and private goods and services. To
the extent that tort claims are economically excessive, they act like a tax on
individuals and firms. This paper pursues this analogy between inefficient tort
litigation and taxes, and examines the question of "who pays" for
excessive tort costs. It finds that the cost of excessive tort may be quite
substantial, with intermediate estimates equivalent to a 2 percent tax on
consumption, a 3 percent tax on wages, or a 5 percent tax on capital income. As
with any tax, the economic burden of the "tort tax" is ultimately
borne by individuals through higher prices, reduced wages, or decreased
investment returns. 1
Introduction
With estimated annual direct costs of nearly $180
billion, 1 or 1.8 percent of GDP, the U. S. tort liability system is the most
expensive in the world, more than double the average cost of other
industrialized nations that have been studied. 2 This cost has grown steadily
over time, up from only 1.3 percent of GDP in 1970, and only 0.6 percent in
1950. The current cost amounts to nearly $650 for every citizen of the United
States, and is one reason that many commentators have called for reform of the
tort liability system. The cost is especially troubling because only 20 percent
of these dollars actually go to claimants for economic damages, such as lost
wages or medical expenses.
Defenders of the status quo argue that the existing system protects consumers by making firms responsible for damages caused by their products and services. 3 Indeed, the underlying notion that firms are induced to recognize the full social cost of their products is one economic rationale for an efficient tort system. 4 That is, just as firms must pay compensation to employees and suppliers as part of the cost of producing output, ideally tort liability forces the firm to consider the potential for damage that the firm's products may cause. In this sense, it is analogous to "making polluters pay."
However, poorly designed policies can mistakenly
make polluters pay too much and impose excessive costs on society through
forgone production of public and private goods and services. Tort law alters
firm behavior in a socially desirable manner if tort liability claims are
optimal. If claims are excessive and fail to provide proper incentives, then
these claims are a drain on resources that can deter the production of desired
goods and services and reduce economic output. The United States bears the
burden of an expensive and inefficient liability system through higher prices,
lower wages, and decreased returns to investment, as well as lower levels of
innovation.
The similarity between inefficient tort
litigation and taxes suggests that the economic costs of the tort liability
system may be better understood by pursuing the analogy between the expected
costs arising from the tort system and taxes on firms. As with a tax, it is
possible to examine the question of who bears the incidence of – that is, who
pays for – excessive tort costs. An important lesson in the economics of
taxation is that people pay taxes; firms are legal entities that can bear no
real burden. Put differently, the burden of any tax depends not on who writes
the check (the legal liability), which may be the firm, but rather on the market
outcomes that shift the cost to workers, consumers or owners of capital.
What Are the Role and Limits of Liability Laws in a Market Economy?
The production and sale of nearly every economic
good or service entails a degree of risk, however small, that the product may
cause unintended harm. Children can be injured playing with toys, patients may
have adverse reactions to medications or medical procedures, and workers may
fall off ladders or be injured by machinery. Because consumers often have less
than perfect information about these risks and are generally unable to insure
against them, the government plays a potentially important role in promoting
health and safety.
Many policy tools are available to address such
risks, including a reliance on market forces, contracts, direct regulation,
social insurance, and the legal liability system. Each approach has its relative
strengths and weaknesses, and reliance on any single one may not be desirable. 5
In the United States, the tort system of legal liability is sometimes viewed as
contributing to overall social objectives by
nsuring that firms consider more fully the health and safety aspects of
their products.
A guiding insight is that competition in private
markets for goods and services pushes firms to produce the kinds of goods that
consumers prefer using the most efficient combination of labor, capital and
other inputs. If consumers and firms are already faced with incentives to weigh
the social costs and benefits of their respective consumption and production
decisions, the burden of government policy is to preserve economic efficiency by
avoiding intervention.
For some transactions, however, it may be
infeasible to account fully for all of the relevant benefits and costs. A
consumer purchasing a new car, for example, may have neither the technical
expertise nor the information necessary to fully evaluate the risk of injury
posed by a particular design feature. It could also be costly to obtain complete
information on every key aspect. Alternatively, a patient purchasing a medical
procedure, for example, may be unlikely to fully understand the complex risks,
costs and benefits of that procedure relative to others. Such a patient must
turn to a physician who serves as a "learned intermediary," though
there remains the problem that the patient may also not be able to judge the
skill of the physician from whom the procedure is "purchased." In such
a case, the ability of the individual to pursue a liability lawsuit in the event
of an improper treatment, for example, provides an additional incentive for the
physician to follow good medical practice. Indeed, from a broad social
perspective, this may be the least costly way to proceed – less costly than
trying to educate every consumer fully. In a textbook example, recognition of
the expected costs from the liability system causes the provider to
undertake the extra effort or care that matches the customer's desire to
avoid the risk of harm. This process is what economists refer to as
"internalizing externalities." In other words, the liability system
makes persons who injure others aware of their actions, and provides incentives
for them to act appropriately.
Central to this view, however, is the notion that
the exposure of firms to potential tort liability costs provides proper
incentives. In the specific context of punitive damages, Professor W. Kip
Viscusi of Harvard University makes the point that "the linchpin of
any law and economics argument in favor of punitive damages is that these
awards alter incentives." 6 In his research on corporate decisions
regarding environmental and safety torts, Viscusi evaluates the effect of
punitive damages "by examining the risk performance in the four states that
do not permit punitive damages as compared with other states that do." He
finds that "this detailed effort to detect a deterrent effect yielded no
evidence of any safety incentive role. This lack of evidence is consistent with
the proposition that punitive damages are random." If punitive damages are
essentially random, then they will not provide proper incentives for risk
mitigation. Instead, they will operate purely as a "tax" on firms --a
cost with no corresponding benefit.
Some scholars disagree with Viscusi's conclusion.
For example, Professor David Luban of Georgetown University argues that one
should consider the "retributive aims of punishment" as well as the
deterrent aims. 7 However, tort liability only achieves a goal of retribution if
the economic burden of the punishment is borne by the responsible party, which
may not be the case if the costs are ultimately passed through to investors,
workers or consumers, or if punitive damages are essentially random, as Viscusi
argues. Professor Theodore Eisenberg of Cornell Law School and several
co-authors take an alternate view, claiming that tort liability is largely
predictable and is therefore capable of providing proper incentives to firms. 8
However, while both authors question Viscusi's findings, neither provides direct
empirical evidence to indicate that
punitive damages actually have a deterrent effect. In fact, the empirical
evidence that Eisenberg and co-authors do offer is consistent with the
possibility that punitive damages are awarded on a random basis, as noted by
Professor A. Mitchell Polinsky of Stanford University. 9
Other research has examined the effect of
expected tort liability costs on innovation and investments in safety. At lower
levels of expected liability costs, Viscusi and Professor Michael Moore of Duke
University 10 find that firms have incentives to invest in product safety
research in an effort to reduce liability costs while still bringing a
particular product to market. At higher levels of expected liability costs,
however, firms will choose to forgo innovation or to withhold a product from the
market, resulting in a net negative effect of expected liability costs on
innovation. Based on their estimates, Viscusi and Moore identify many industry
groups for which high liability costs exert a net negative effect on innovation.
Industry-specific studies by other authors have
generally supported the results of Viscusi and Moore, documenting negative
effects of liability on innovation in many areas, such as general aviation,
chemicals, pharmaceuticals, and medical practice. The evidence of direct
linkages between liability and safety in industry-specific analyses has been
weak. Other factors, such as regulation and the fear of bad publicity, may
provide stronger incentives to improve safety features than does legal
liability, though liability may play an indirect role by encouraging the spread
of safety-related information and by bringing potential hazards to the attention
of regulators 11 .
Reconciling these alternative views is beyond the
scope of this paper. Instead, recognizing the controversy that exists about the
incentive effects of tort liability in general, and punitive damages in
particular, this paper will consider several scenarios. For our most cautious
estimates of the size of the "litigation tax," we make the very strong
assumption that both economic (e. g., loss of wages, medical expenses) and
non-economic (e. g., pain and suffering, loss of consortium, punitive) damages
are currently set at an optimal level. We then consider an intermediate case
that treats non-economic damages as essentially random and therefore part of the
litigation tax.
Finally, we consider the case in which all of the
costs of the U. S. tort system are treated as economically excessive, which
would result if both economic and non-economic damages were largely random and
failed to provide proper incentives.
What Are the Direct Costs of the U. S. Tort
Liability System?
In the year 2000, according to a study by
Tillinghast-Towers Perrin, the U. S. tort system cost $179 billion. This
includes $128 billion of "insured" costs derived from financial data
for the U. S. insurance industry. These data "are considered highly
reliable in that they are subject to audit and reviewed by state regulatory
agencies." 12
The costs include benefits paid to third parties
or their attorneys, claim handling, legal defense costs and insurance company
administrative costs. Tillinghast estimates that $30 billion in costs is paid by
firms that insure themselves. Finally, they estimate that an additional $21
billion is due to medical malpractice. We will make use of these Tillinghast
estimates for illustrative purposes in this paper, although the main conceptual
contribution of this paper – that excessive tort claims act as a tax paid by
individuals – would hold with equal force with any alternative measure of
direct costs.
The estimate of nearly $180 billion in direct
costs of the U. S. tort system is likely to understate substantially the actual
costs of the tort system for several reasons. First, the $180 billion estimate
pre-dates September 11. The terrorist attacks have increased the uncertainty
surrounding legal liability claims. Insurance companies, uncertain how to assess
new liability risks, are raising premiums and capping or denying coverage. As
such, the cost of the tort system in the future will likely be even greater than
the year 2000 estimates employed herein. Second, this estimate ignores the many
economic distortions that arise as a result of individuals and firms trying to
avoid lawsuits. These costs, which will be discussed in more detail below, can
include distortions to labor markets (e. g., doctors deciding not to practice
certain specialties or in particular communities for fear of being sued), the
practice of "defensive medicine," or the
decision by manufacturers to keep products off the market. 13 Third, this
estimate also ignores the potential deleterious effect of excessive tort claims
on innovation. In product areas where litigation is frequent and costly, the
prospect of high liability claims may be enough to ward off any potential new
entrants.
Lacking a more comprehensive estimate of total
costs, however, we will use the $180 billion as an initial conservative estimate
of total tort costs. An even more difficult issue is deciding how much of this
$180 billion is economically "excessive." There is no easy or widely
accepted empirical answer to this question. To the extent that awards are
largely "random" and fail to provide incentives to firms, most, or
even all, of the tort expenses are excessive. Alternatively, to the extent that
damages awarded to claimants are a good proxy for the actual damages caused, the
fraction of tort costs that go to claimants to compensate for damages, plus
reasonable "transactions costs," could be loosely viewed as the
"right" level, and costs above this amount as being excessive.
To pursue this line of reasoning, recall that
more than half of the total annual cost of tort is due to administrative
expenses and legal fees. As observed, "viewed as a mechanism for
compensating victims for their economic losses, the tort system is extremely
inefficient, returning only 20 cents of the tort cost dollar for that
purpose." 14 This share of total tort costs that go to direct compensation
for victims is lower than in the past. In the late 1980s and early 1990s,
economic damages accounted for 22-25 percent of total tort system costs. 15
As indicated in Figure 1, an additional 22 cents goes to claimants for
non-economic damages, such as pain and suffering, loss of consortium and
punitive damages. The remaining 58 percent of tort costs go to pay for
administration, claimants' attorney fees, and defense costs. However, one should
not necessarily view the entire 58 percent as "excessive," because
some level of "transactions costs" is required in order to administer
any system. As a guide for what is a reasonable level of costs, we use the
experience of the Workers' Compensation system in the United States, which is
designed to deliver compensation efficiently to workers who are injured
on the job. Workers' compensation is a no-fault system, and thus litigation
costs will be lower. According to the National Academy of Social Insurance, for
every dollar paid to workers' compensation claimants, approximately 23 cents is
paid in administrative costs. 16 Using this assumption that "fair"
administrative costs should be roughly equal lto 23 percent of damages paid to
claimants, one can begin to estimate the "excessive" costs inherent in
the U. S. tort system.
Even if we start with the extremely cautious
assumption that both economic ($ 36 billion) and non-economic damages ($ 40
billion) are set at an economically efficient level, and that an additional 23
percent should be spent on administration, an efficient tort system would result
in transfers of only $93 billion per year. 17 By this cautious calculation, the
current U. S. tort system includes "excessive" tort costs of $87
billion per year. 18 Were one to adapt the assumption that non-economic damages
are random, the "litigation tax" would rise to $136 billion per year,
even after accounting for reasonable administrative expenses. 19 To the extent
that the economic damages awarded by the tort system are not well targeted and
therefore fail to provide proper incentives to firms, the entire $180 billion in
direct costs is economically excessive.
Another useful perspective is provided by
comparing the cost of tort liability in the United States to that of other
developed countries. While it is difficult to make cross-national comparisons
because of data limitations, estimates by Tillinghast-Towers Perrin suggest that
the U. S. tort system is substantially more costly than that of other countries.
As shown in figure 2, U. S. tort costs in 1998 were 1.9 percent of GDP,
approximately double the average cost of the other nations studied. Only Italy,
with costs of 1.7 percent of GDP, rivaled the U. S. in total direct costs. Tort
costs in Denmark, the United Kingdom, France, Japan, Canada and Switzerland are
all estimated to be less than 1 percent of GDP.
How Large is the Burden of the Litigation Tax?
Regardless of which estimate of the direct cost
presented above is closest to the truth, it is likely to substantially
underestimate the total economic cost of the U. S. tort system. In the analysis
of taxation, economists recognize that the total burden of a tax exceeds the
revenue it collects. The excess burden or "deadweight loss" of
taxation arises because taxes distort production and consumption decisions. In
the current setting, an example of this phenomenon is that physicians may
prescribe unnecessary precautionary treatments, often referred to as
"defensive medicine," in order to avoid non-financial litigation
penalties such as harm to their reputations and the time and stress associated
with a malpractice suit. 20 Some socially desirable products and services are
likely never produced due to excessive tort liability claims.
Anecdotal evidence suggests that some products
that may have a net benefit to society as a whole are withheld from the
marketplace due to excessive concerns of liability from the tort system. For
example, concerns over liability have resulted in withdrawals of certain
medicines, and halted the production of vaccines such as smallpox and DPT. In
trying to gauge the size of these costs, the appropriate measure of loss is the
difference between the value of the good that is not produced and the value of
the next best alternative. Because only one of these goods is produced in the
market, it is difficult to assess this loss. The net economic cost of these
types of actions is difficult to quantify, and is not included in the $180
billion estimate.
Despite these difficulties, one can approximate
the magnitude of the deadweight loss through the literature on taxation. Recent
research by Professor Dale Jorgenson of Harvard University estimates that the
marginal deadweight loss per dollar of revenue raised by the corporate income
tax in the United States is 27.9 cents. 21 If all tort claims have a comparable
deleterious effect on the economy, the deadweight loss resulting from the $180
billion in direct costs would be an additional $50 billion. Even using the most
cautious estimate that excessive direct costs total $87 billion, an additional
27. 9 percent deadweight loss would bring the total cost of the litigation tax
to $111 billion. In the intermediate case with direct costs of $136 billion, the
total economic burden would be $174 billion annually.
Who Pays for Excessive Liability Claims?
Who pays the litigation tax? While a tax may be
collected from a firm, its burden must ultimately be borne by individuals
through job loss or a reduction in wages (workers), an increase in consumer
prices (consumers), a decline in property values (landowners), or a reduction in
profits and thus share prices (owners of capital). Of course, these categories
are not mutually exclusive. The same person could suffer from lower wages, face
higher prices for products, and have lower returns on his pension assets.
Determining the true economic burden, or economic
incidence, of a tax is a complex undertaking, as it requires that one consider
how wages and prices have adjusted throughout the economy as a result of the
tax. If wages fall as the result of a tax, economists say that the tax has been
shifted backward onto labor. If prices rise, economists say that the tax has
been shifted forward to consumers. 22 Alternatively, firm profitability could be
reduced, in which case the tax burden is borne by participants in private
pension plans and owners of stocks and mutual funds.
For example, in the United States, the Social
Security system collects 12.4 percent of a worker's wages 23 to support
retirement and disability benefit payments. Half of this, or 6.2 percent, is
levied on the worker. The remaining 6. 2 percent is levied on the employer.
However, most of the employer-paid portion of the social security tax is shifted
backward so that the employer portion of the payroll tax has the same effect on
a worker as does the portion levied directly on the worker. Thus, even though
employees legally bear only half of the payroll tax, they bear the full – or
almost full – economic burden of the tax through lower wages. 24
The legal incidence of the costs of the U. S.
tort system falls on firms engaged in the production and sale of goods and
services. Moreover, to the extent that the distribution of tort costs is largely
random, tort costs only increase a firm's costs and decrease profits in a manner
similar to the corporate income tax. Thus, to a first approximation, one can
view the economic incidence of excessive tort costs as being similar to the
corporate income tax in the United States.
The incidence of the corporate income tax is the
subject of considerable debate among tax economists. Most economists believe
that a substantial portion of the corporate tax is shifted to consumers through
higher prices, or to workers if wages decline due to a decreased demand for the
taxed good. The remainder falls on investors. Importantly, to the extent that it
falls on capital, it is on owners of all capital, not just those firms most
likely to fall subject to tort litigation. To see this, suppose that some
industries or sectors are more likely to be subject to liability losses. If the
high cost of liability makes investing in these sectors less attractive, capital
will move out of the higher cost sector, driving down the rate of return to
capital in other sectors. The lower return reflects the cost of the litigation
tax. Thus part of the burden of these tort claims can be borne by all owners of
capital not just those in the sector with higher tort claims.
Traditionally, three governmental agencies have
engaged in the distributional analysis of tax policy: the Joint Committee on
Taxation (JCT), the Office of Tax Analysis (OTA) at the Department of Treasury,
and the Congressional Budget Office (CBO). During the 1980s and early 1990s,
"JCT did not distribute corporate income tax changes at all, on the ground
that the ncidence of the tax was
too uncertain." 25 Beginning in 1992, JCT allocated the corporate income
tax to owners of capital generally, and for the past several years, the JCT has
not conducted distributional analysis at all. OTA makes the assumption that the
tax is borne by owners of capital. Traditionally, the CBO has used three
different variations: 100 percent by capital, 100
percent by labor, and half by each. The inconsistent set of assumptions and
methodologies across agencies highlights the uncertainty about the economic
incidence of the corporate income tax. In fact, a recent survey of economists
who specialize in public finance found that virtually all of these economists
believe that the burden of the corporate income tax is shared by both capital
and labor generally, but "there is significant disagreement about the
precise division." 26
To the extent that capital markets are globally
linked, allowing capital to flow freely across borders, the after-tax rate of
return to capital must be equated across countries. One implication is that if
tort liability raises the cost of capital in the United States, mobile capital
will seek the relatively higher return available elsewhere, until rates of
return are again equalized. The result is that the capital stock in the United
States may be smaller with high tort costs than with low tort costs. A smaller
capital stock means there is less capital per worker, thus lowering productivity
and wages. In this way, the costs of tort may fall on the less mobile factors of
production, namely labor. If global capital markets were fully integrated and
capital freely mobile, then the entire burden of the costs of excessive tort in
the United States could be shifted to labor through reduced real wages and
consumers through higher prices.
The relative magnitude of the burden of excessive
tort costs in the U. S. is quite substantial. For perspective, in the year 2000,
total wage and salary disbursements to private industries (i. e., excluding
government workers) totaled just over $4 trillion. 27 Taking the extremely
conservative excessive cost estimate of $87 billion – an estimate that treats
the current level of economic and non-economic damages as appropriate, allows
for a reasonable administrative charge of 23 percent of the award, and ignores
the deadweight burden – the litigation tax is equivalent to a 2.1 percent wage
and salary tax shifted onto private sector workers. Alternatively, if this $87
billion were shifted forward to consumers through higher prices, this would be
equivalent to a 1.3 percent tax on personal consumption. 28 If the excess burden
were not passed through to labor or consumers, and instead was borne entirely by
capital, then it would be equivalent to a tax on capital income of 3.1 percent.
29 It should be noted that nearly 80 million Americans own corporate stock,
either individually or through their pension funds. 30 In fact, over 20 percent
of corporate stock in the U. S. is held by public and private pension funds –
suggesting that if this litigation tax is not passed through to workers via wage
reductions or price increases, workers are still harmed through reduced returns
on their retirement saving.
Table 1 below illustrates the "tax
equivalence" of tort litigation costs under various assumptions about the
incidence of the tax, and the size of the excessive tort costs. As a lower bound
on the size of the litigation tax, we treat all economic and non-economic
damages as economically appropriate, allow for 23 percent administrative costs,
and ignore the deadweight burden. This translates to a litigation tax of
approximately $87 billion per year. For an intermediate estimate, we include
non-economic damages in the excess cost of tort, following the work of Viscusi.
This implies a litigation tax of $136 billion per year, ignoring the deadweight
loss. For an upper-bound
estimate, we treat all tort costs as economically excessive, and also include an
estimated $50 billion in deadweight loss. As illustrated in Table 1, under the
assumption that the tax is fully shifted forward through prices, the annual
excessive tort costs are equivalent to a tax on consumption ranging from 1.3
percent to 3.4 percent. Alternatively, if shifted backwards onto labor, the
"litigation tax" is equivalent to a tax on wages from 2.1 percent to
as high as 5.7 percent. If the incidence of the tax falls on investors, it is
equivalent to a tax on capital ranging from 3. 1 percent to 8. 2 percent. The
final row of Table 1 illustrates the case in which the burden of the litigation
tax is shared by consumers, workers and investors. 31
Whether it falls entirely on labor, or whether
some portion of it also falls on capital owners in the U. S., the cost to the U.
S. economy is substantial. For example, in the year 2000, the
intermediate cost estimate of $136 billion is more than the Federal
government spent on all of the following programs combined: Education, training,
and employment; general science; space and technology; conservation and land
management; pollution control and abatement; disaster relief and insurance;
community development; Federal law enforcement and administration of justice;
and unemployment compensation. 32 Alternatively, $136 billion is two-thirds the
amount of revenue collected from the corporate income tax 33 or nearly half (46
percent) of the amount spent on national defense. 34 Viewed differently, at more
than 3 percent of wages per year, the cost of the litigation tax is also far
more than enough money to solve Social Security's long-term financing crisis. To
a family of average income, three percent of wages is also the cost of more than
three months of groceries, six months of utility payments, or eight months of
health care costs 35 . That is, $136 billion represents a large drain on the
productive resources of the United States.
Summary
The cost of the U. S. legal liability system has
increased substantially over the past several decades. While economic theory
suggests a potentially useful role for a tort system in providing proper
incentives, excessive tort costs are akin to a tax on firms. Like any tax, this
"litigation tax" imposes deadweight losses on the economy in the form
of products and services that are never produced as a result of the fear of
litigation. Both the direct and indirect costs of excessive tort must ultimately
be borne by individuals in the economy through some combination of higher
prices, lower wages, and reduced returns to investments. 19
Notes
1 Direct costs include awards for economic and
non-economic damages, administration, laimants' attorney fees and the costs of
defense.
2 Tillinghast-Towers Perrin, "U. S. Tort
Costs: 2000, Trends and Findings on the Costs of the U. S. Tort System,"
February 2002.
3 Throughout this paper, we use the term
"firm" to refer to any producer of goods and services.
4 Another economic argument
sometimes used to support tort liability is that the right to sue provides
consumers with "insurance" in the event of an accident. For a
discussion of the imitations of this view, see Paul Rubin, Tort Reform by
Contract, Washington, D. C.: The AEI Press, 1993. For purposes of this paper, it
should be noted that regardless of the rationale for the system, the cost is
still borne by individual consumers, workers, or investors.
5 For broader discussion of the
role of each of these approaches, see W. Kip Viscusi, "Toward a
Diminished Role for Tort Liability: Social Insurance, Government
Regulation, and Contemporary Risks to Health and
Safety," Yale Journal on Regulation, Winter 1989.
6 W. Kip Viscusi, "Why
There is No Defense of Punitive Damages," Georgetown Law Journal, November
1998.
7 David Luban, "A Flawed
Case Against Punitive Damages," Georgetown Law Journal, November 1998.
8 Theodore Eisenberg, John
Goerdt, Brian Ostrom, David Rottman, and Martin Wells, "The Predictability
of Punitive Damages," The Journal of Legal Studies, June 1997.
9 A. Mitchell Polinsky,
"Are Punitive Damages Really Insignificant, Predictable, and Rational? A
Comment on Eisenberg, et al.," The Journal of Legal Studies, June 1997.
10 W. Kip Viscusi and Michael
Moore, "Product Liability, Research and Development, and Innovation,"
Journal of Political Economy, 1993.
11 Peter Huber and Robert Litan,
eds., The Liability Maze: The Impact of Liability Law on Safety and Innovation,
Washington, D. C.: The Brookings Institution, 1991.
12 Tillinghast-Towers Perrin,
"U. S. Tort Costs: 2000, Trends and Findings on the Costs of the U. S. Tort
System," February 2002, page 8.
13 Some anecdotal evidence of
these costs can be found in Michael Freedman's "The Tort Mess," Forbes.
com, May 13, 2002.
14 Ibid,, page 12.
15 According to previous
studies by Tillinghast-Towers Perrin published in 1995, 1992 and 1989.
16 National Academy of Social
Insurance, "Workers' Compensation: Benefits, Coverage and Costs, 1999 New
Estimates and 1996-1998 Revisions," May 2001.
17 (Economic damages ($ 36 b.) + Non-Economic
damages ($ 40 b.)) * Administrative cost factor (1.23) = Non-excessive
tort costs ($ 93 b.)
18 Total tort costs ($ 180 b.) – Non-excessive
tort costs ($ 93 b.) = Excessive tort costs ($ 87 b.)
19 Total ($ 180 b.) – (Economic($ 36 b.) *Admin
cost factor( 1.23)) = Excessive tort costs ($ 136 b.)
20 Daniel Kessler and Mark
McClellan, "Do Doctors Practice Defensive Medicine?" The Quarterly
Journal of Economics, May 1996.
21 Dale Jorgenson and Kun-Young Yun, Investment,
Volume 3, Lifting the Burden: Tax Reform, the Cost of Capital, and U. S.
Economic Growth, 2001, Table 7.10, page 287.
22 Joseph E. Stiglitz, Economics of the Public
Sector, Third Edition, New York: W. W. Norton, 2000, page 483.
23 Up to a maximum taxable
amount of $84,900 in 2002.
24 Joseph E. Stiglitz, Economics of the Public Sector, Third Edition, New York:
W. W. Norton, 2000, page 483.
25 Michael J. Graetz, "Distributional
Tables, Tax Legislation, and the Illusion of Precision," in David F.
Bradford, Ed., Distributional Analysis of Tax Policy, 1995, page 47.
26 Victor R. Fuchs, Alan B. Krueger, and James M.
Poterba, "Why Do Economists Disagree about Policy? The Roles of Beliefs
about Parameters and Values," National Bureau of Economic Research Working
Paper No. 6151, August 1997, page 12.
27 Economic Report of the President, February
2002, Table B-29.
28 Economic Report of the President, February 2002, Table B-1.
29 According to unpublished
data from the Productivity and Technology Division of the Bureau of Labor
Statistics, the capital (non-labor) share of nonfarm business output was $2,762
billion in 2001.
30 Investment Company
Institute, Equity Ownership in America, 1999.
31 The assumed division is 25 percent through prices, 25 percent through wages, and 50 percent through reduced investment returns. This incidence assumption is based on one of the corporate tax incidence scenarios used by Joseph A. Pechman in Who Paid the Taxes, 1966-85, Washington, D. C., The Brookings Institution, 1985, p. 35.
32 Budget of the United States Government, Fiscal Year 2003, Historical Tables, Table 3.2, pages 54-69.
33 Ibid, Table 2.1 page 30.
34 Ibid, Table 3.1, page 51.
35 Bureau of Labor Statistics, "Consumer Expenditures in 1999," May 2001.
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