Watchdog groups fear trial lawyer tax break will 'suck marrow out of economy'

David Yates and John O'Brien Jul. 15, 2010, 6:00am


Tort reform groups fear the Obama Administration and U.S. Department of Treasury are sidestepping Congress to give trial lawyers hearty tax breaks that will ultimately hurt the economy while benefitting the Democratic Party's donor base.

As reported by Legal Newsline, the American Association for Justice, the nation's leading coalition of trial lawyers, revealed Tuesday that it expects the Treasury Department to soon grant attorneys a tax break on contingency fee lawsuits, possibly lowering the cost of bringing litigation as much as 40 percent according to some critics.

The news was reported from the annual summer conference of the national trial lawyer's trade group, which is convening in Vancouver, British Columbia.

The looming tax break echoes legislation that died in Congress last year. That proposal, sponsored by U.S. Sen. Arlen Specter, D-Pa., would have allowed attorneys to deduct fees and expenses up-front for filing contingency fee lawsuits.

Since Sen. Specter's bill failed, one tort reform group believes the Obama Administration is bypassing Congress to have the Treasury Department issue the tax break.

"It's rather astounding that President Obama says he's focused on job creation and ... then turns around and sidesteps congress to have the Treasury Department create a tax break for trial lawyers," said Darren McKinney, communications director for the American Tort Reform Association.

In a July 14 telephone interview, McKinney told the Southeast Texas Record that the taxpayer will shoulder the financial burden if plaintiff's attorneys get to pay less for filing costly litigation, saying he fears the tax break will also encourage trial lawyers to file more frivolous lawsuits.

"We don't need more lawsuits sucking the marrow out of our economy," McKinney said. "You don't have to be a Harvard economist to understand we need fewer lawsuits. More litigation means less job creation."

Here in Texas, McKinney says U.S. Rep. Lamar Smith of Austin, has been a staunch opponent of Sen. Specter's bill in the past and is currently fighting to keep the senator's new trial lawyer tax break bill from escaping committee.

Congressman Smith, who served as Ranking Republican of the House Judiciary Committee, could not immediately be reached for comment.

Citizens Against Lawsuit Abuse of Central Texas thinks the move will only serve to enrich a large chunk of the Democratic base: trial lawyers.

"It is a shameless attempt to curry favor with their supporters at a time in which all of the talk from the administration and Congressional majority has been about the need to end unjust tax breaks for the wealthy," said Roger Borgelt, a partner with Potts & Reilly LLP and chairman of CALA Central Texas.

"This 'exception' is for the most high profile, high dollar Democrat party supporters, who can then use this benefit to support lawsuits that would otherwise not be filed, further enriching themselves."

Also reacting to news, American Tort Reform Association President Sherman "Tiger" Joyce said in a press release that "If it's true, and the Treasury Department administratively does create a new tax break for trial lawyers, we can expect to see more speculative lawsuits that limit economic growth and job creation."

He further stated that "such a Treasury Department fiat would be a boon to the lawsuit industry at a time when many other industries continue to suffer."

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American Association for Justice
777 6th Street Northwest
Washington, DC 20001

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