Obama’s Unethical Gift to the Trial Lawyers

After January 1, 2011, when you begin to process all the new taxes coming your way and all the deductions you can no longer take, think about this:

The nation’s largest trial lawyer trade group, the American Association for Justice, has announced it was informed by Obama Administration officials that the U.S. Department of Treasury will give its members (and all tort lawyers) a tax break on contingency fee lawsuits. The new provision is expected to mirror proposed legislation by Sen. Arlen Specter, himself a lawyer, that was previously rejected by Congress last year. That bill would have allowed attorneys to deduct up-front costs in contingency fee lawsuits.

Contingency fee lawsuits are the controversial American invention that allows lawyers to represent indigent (and not so indigent) clients in personal injury, medical malpractice and other tort damages suits for a share of the jury award or settlement, usually 30-40%, plus expenses. If the case is lost, however, the attorney gets nothing. Advocates of the system insist that it furthers the interest of justice by allowing poor victims of large corporations, doctors and hospitals to seek fair compensation through litigation that would be impossibly risky and expensive if they had to commit their own resources. Critics counter that the system turns the civil justice process into a gambling game that encourages spurious lawsuits by unscrupulous lawyers and clients seeking huge awards by sympathetic juries, thus clogging the courts, raising the costs of goods, services and insurance  (especially for doctors and hospitals), and placing an unfair burden on defendants, who unlike plaintiffs cannot defer their litigation costs.

Both are right. Without the contingency fee system, genuine victims of wrongdoing would often receive inadequate compensation or none at all, and would never be able to afford top legal talent. But the system also encourages unjust lawsuits, and provides a tremendous incentive to lawyers to bring them. And it does make lawyers rich, frequently richer than the plaintiffs. The most egregious examples of this are in the class action area, where a lawyer can accept at least 30% of the total damage awards spread over thousands of plaintiffs. A mass suit for money back on a defective gadget—say $50 each for 10,000 class members—will result in the lawyer getting a third of $500,000 for his work while nobody else gets more that the fifty bucks.

We can count on the Obama Administration arguing that the tax break will simply encourage lawyers to represent the needy poor, but that will be deceit. Trial lawyers need no further encouragement to take contingent fee cases. No potential plaintiff who has even a slightly legitimate case can find competent representation, and the bigger the potential award, the easier it is to find a lawyer willing to gamble up-front money for a big chunk of it. The reason for the break, and there really is no other fair explanation for it, is to scratch the back of one of the most influential and generous of Democratic Party contributors. Trial lawyers and their associations PAC give millions to Democratic candidates, and merit has little to do with it. (After all, the Association for Justice members were big supporters of that paragon og honesty and integrity, John Edwards.) The new tax break is nothing more or less that the Obama Administration transferring taxpayer money to some of the richest Americans, to ensure that those rich Americans send some of that money to desperate Democratic candidates trying to avoid losing their jobs.

This is a cynical, unethical and irresponsible measure. While most Americans will be told that it’s time to tighten their belts and accept more financial responsibility for two wars, financial sector bailouts, a giant stimulus spending bill, an expensive and budget-busting health care bill, and a dangerous deficit, a group of elite, rich, Democratic Party supporters are getting a tax deduction they don’t need, so they will have even more discretionary funds to put into the campaign coffers of Democratic candidates.

The tax break also encourages the very lawsuits that increase medical costs to all Americans by making medical malpractice insurance obscenely high. Despite all objective observers agreeing that some form of tort litigation reform needed to be part of Obama’s health care bill, it wasn’t. You get three guesses why, and the first two don’t count.

The trial lawyers, naturally. Now the administration is making it even more lucrative for them to keep suing doctors and hospitals. The media can be counted upon not to explain the ramifications of this indefensible tax break, which..

  • Takes away tax income when the country desperately needs more of it…
  • Gives a tax benefit to a rich group while preparing  to levy “unavoidable” new taxes on small businesses and ordinary citizens…
  • In effect, launders public funds through outlays to Democratic supporters, with the funds being transferred to private Democratic campaign accounts…
  • Violates President Obama’s pledge of fairness, transparency, and the rejection of “politics as usual.”

In short, it is a very unethical measure.

[Full Disclosure: For seven years, I worked for the Association for Justice, back when they weren’t hiding their identity and called themselves the American Trial Lawyers Association. I admire a lot of what they do, and some of their members are as dedicated, ethical and public-spirited Americans as you will ever meet. Others are greedy and unethical. I left in the wake of a new management direction that eliminated much of the member services department, which I ran, but I was preparing to go elsewhere anyway: I’m not crazy about some of the individuals who engineered my departure, but my affection for the organization remains unmarred. I also oversaw a tort reform study when I worked for the U.S. Chamber of Commerce. None of this affects my views on the tax break. Honest.]

10 thoughts on “Obama’s Unethical Gift to the Trial Lawyers

  1. Pingback: Tweets that mention Obama’s Unethical Gift to the Trial Lawyers « Ethics Alarms -- Topsy.com

  2. No shock here with tort reform AWOL. It’s not just the $ from the trial lawyers to the Dems. They actually believe that the current medical liability system is fair and just. They accuse physicians of being the villain here. The fact that nearly 100% loathe the system convinces them of nothing. Wouldn’t this be ‘beyond a reasonable doubt’? See http://www.MDWhistleblower.blogspot.com under Legal Quality

  3. I hate meritless contingency suits as much as the next person, but aren’t up-front expenses expenses? Seems right to let professionals (ugh) who have expenses deduct them. What am I missing here?

  4. Dear Jack: The sum total is that the American justice system has been more or less turned into a massive racketeering syndicate. And a politically well connected one at that. Al Capone would have burbled with admiration.

  5. @MK–I just meant that the tax code allows for deducting business expenses, and it would be unfair to prevent the trial lawyers to deduct theirs–just like I can deduct my expenses before I receive income that results from the expenses.

    • I don’t think it’s really an expense—it’s an investment/wager. The amount of the expense is extremely discretionary, and it is made on the assumption of a huge return. Tax deductions exist to encourage certain activities, and this activity requires no further encouragement, or to allow necessary business activities that would otherwise be prohibitively expensive. This particular activity flourishes, perhaps too well—it needs no further protection or incentive. We don’t give deductions for day traders playing the stock market or Hold-Em players at the World Series of Poker. But they don’t give millions to the Democrats, or we probably would…

  6. Pingback: Rebuttal on the Trial Lawyer Deduction « Ethics Alarms

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