PrintJune 8, 2008
The Democrats' frivolous lawsuit tax break (updated)
According to the Washington Examiner, Democrats in Congress are bypassing normal procedures for approving new tax legislation in order to give class action plaintiffs' attorney a $1.575 billion tax break.
The bill previously passed the House without the usual notice to the Treasury Department for an official analysis of its provisions. The rush to judgment in both chambers of Congress, otherwise known as cramming it down opponents' throats, is objectionable. The trial-lawyer tax break is appalling. Together, they are an outrage
The new provision is being given political cover by being added on to legislation that extends several popular current tax laws such as the research and development tax credit and the ability of individual taxpayers to claim an itemized deduction for sales taxes in lieu of a deduction for state income taxes.
Under current law the expenses connected with a contingent fee lawsuit must be treated as a loan to the client. If the case is decided in the client's favor, the expenses are repaid out of the proceeds. If the client loses, the lawyer deducts the costs at that time. Because such lawsuits can remain pending for more than a decade, law firms specializing in such litigation need to have access to significant financial resources. By allowing the expenses to be deducted up front, the cost of capital to these law firms will be greatly reduced. A lower cost of capital means they will be able to pursue lawsuits that have a lower chance of an outcome in their clients' favor, i.e. "creative causes of action" a/k/a the frivolous lawsuit.
The plaintiff's bar contributes millions of dollars to the Democratic Party. The plaintiffs' bar is also under increasing scrutiny for both the corruption of some of its members and the economic coast of abusive lawsuits. In 2006 many Democrat candidates for Congress ran as reformers. If this is what they meant by reform, contemplate change we can believe in.
Update: Only one of the class of 2006 "Blue Dog" Democrats who ran on a platform of reform voted against this bill in the house. That was Nick Lampson TX-22. Vote is here I hope the GOP challengers pound on this issue.
Update: Only one of the class of 2006 "Blue Dog" Democrats who ran on a platform of reform voted against this bill in the house. That was Nick Lampson TX-22. Vote is here I hope the GOP challengers pound on this issue.
