New Study Shows How Damaging Excessive Tort Costs are to Missouri’s Economy
Small business owners across the state of Missouri are thanking the senate for passing legislation that would make Missouri a more friendly place to own and run a small business. The bill, SB 591, passed out of the senate 21-9 and now heads to the house. SB 591 provides small business owners more protections against frivolous lawsuits. A new report from the Perryman Group shows just how damaging lawsuit abuse is to Missouri’s economy. You can read it here.
- $2.0 billion in annual direct costs,
- $3.1 billion in annual output (gross product) and 32,205 jobs
- $158.5 million in annual state revenues and $135.1 million in annual local government revenues.
Excess torts result in a “tort tax” of $505.21 per person. (See details below)
SB 591 would protect small businesses from frivolous lawsuits that could destroy a business that took decades to build. Right now, in Missouri employers can be held liable for the actions of their employees simply because they were working for that employer when they harmed someone else. This legislation changes that standard to something much more fair: employers may only be found liable for the acts of their employee if they ordered the employee to act in a manner that caused harm, if they knew about the act, or if the employer knew that their employee was unfit to do their job.
“For small business owners, the threat of being sued and losing their business is not a fictitious concern. Even when a small business wins the case, they lose because of the high court costs,” says NFIB State Director in Missouri Brad Jones. “The Perryman Group study puts a shocking price tag on how damaging lawsuit abuse is to not only small business owners – but every person who lives in Missouri – who are shelling out more than $500 of their own money to pay for Missouri’s broken civil justice system.”
Small business owners are especially at risk for punitive damages. Most punitive damage payments are not covered by insurance policies. SB 591 would change the standard, offering more protection for small business and making sure punitive damage lawsuits are not about hitting the jackpot.
Civil justice reform in Missouri is critical. SB 591 would improve Missouri’s economy because tort reform enhances the efficiency, fairness and predictability of the civil justice system. Legal reform that decreases exposure to liability lawsuits has enhanced innovation and increased productivity and employment. Through its tort reform, SB 591 could help Missouri win competition for desirable corporate locations and expansions.
2019 Report on Economic Benefits of Tort Reform in Missouri
Conducted by The Perryman Group for Citizens Against Lawsuit Abuse
Key Report Findings:
- Loss of $6.1 billion per year in expenditures
- The $6.1 billion per year in expenditures is found in the table on page 12. Expenditures is another measure of economic activity we use; for more information see the page 18 of the Appendix.
- Loss of $2.0 billion in annual direct costs
- Direct costs were calculated using a regression model which relates US litigation costs to other variables which are both (1) highly correlated with the costs of US litigation and (2) available at the national and state levels. We looked at various categories of income, employment, and gross product and the model has strong statistical properties and other desirable characteristics. We then used the model and state level information for Ohio and Louisiana to determine litigation costs within each state. We could then look at Missouri’s costs compared to Ohio’s (adjusted for size and other variations across the states) to quantify the “excess” tort costs in Missouri which were used as the “direct costs.” There is additional discussion on page 15 of the report.
- Loss of $3.1 billion per year in gross product
- Gross product (or output) is production of goods and services that will come about in each area as a result of the activity. This measure is parallel to the gross domestic product numbers commonly reported by various media outlets and is a subset of total expenditures. This indicator represents the regional equivalent of Gross Domestic Product, the most commonly reported statistic regarding national economic performance. In other words, the Gross Product of Missouri is the amount of US output that is produced in that state; it is defined as the value of all final goods produced in a given region for a specific period of time.
- Loss of $158.5 million in state government revenues
- Any stimulus to the economy has an effect on taxes. In this case, where you have a reduction in economic activity due to excessive tort costs, there is a related reduction in tax receipts. For example, business activity generates retail sales as businesses buy things and employees spend their salaries, and a portion of those sales are taxable. A strong economy also contributes to property values and, hence, property taxes. Excessive tort costs reduce economic activity, and the outcome is lower tax receipts.
- Loss of $135.1 million to local governments
- Any stimulus to the economy has an effect on taxes. In this case, where you have a reduction in economic activity due to excessive tort costs, there is a related reduction in tax receipts. For example, business activity generates retail sales as businesses buy things and employees spend their salaries, and a portion of those sales are taxable. A strong economy also contributes to property values and, hence, property taxes. Excessive tort costs reduce economic activity, and the outcome is lower tax receipts.
- Loss of nearly 32,205 jobs
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- Loss of $1.2 billion per year in personal income
- Personal income is dollars that end up in the hands of people in the area; the vast majority of this aggregate derives from the earnings of employees, but payments such as interest and rents are also included.
- Hidden “tort tax” of $505.21 per person
- The reduction in business activity due to excessive tort costs leads to lower than expected gross product in the area.
- This per capita loss in gross product results in a “tort tax” (of $505.21) per person due to tort issues in the state’s civil justice system.
About the report/The Perryman Group:
2019-20 Report:
- This assessment of excessive tort costs and potential economic benefits of reform was conducted by The Perryman Group. Based in Waco, Texas, The Perryman Group is a focused team of analysts who perform through research on how to address any economic information task, such as tort costs, and present findings.
- The Perryman Group analyzed outcomes in the state using Ohio, which has engaged in notable tort reform in the recent past, as a benchmark.
- Tort reform (also referred to as civil justice reform) generally refers to making changes to the civil justice system to limit either the ability to file a lawsuit or the amount of damages that can be received.
- The Perryman Group has extensive experience in the area of economic development and has studied the relationship between the judicial system and economic growth. Ray Perryman, President and CEO, and main researcher of this report has 40 years of experience in developing systems, analyzing complex problems, and communicating effectively.
- Website: https://www.perrymangroup.com/
