Steve Wolff: The ‘tort tax’ is a burden consumers are left to bear

April 15, the day synonymous with taxes, has come and gone, but the conversation about taxes, fueled by election politics and affordability concerns, keeps the topic top of mind for legislators and constituents.

Taxes play an integral, often controversial, role in our society. Without them, the government could not function. And while we might debate the federal government’s proper size, we generally agree the services it provides — national defense, infrastructure, public safety — are essential.

But taxes come with a cost. They reduce the economic power of individuals and businesses, limiting purchasing power and the ability to reinvest, grow and create jobs. These costs are also embedded in the price of goods and services, further stretching household budgets.

Taxes are not voluntary. We pay income taxes on April 15, sales taxes at the register and gas taxes at the pump. Failure to pay carries legal consequences, from financial penalties to imprisonment.

Today, Hoosiers also pay a hidden tax: the “tort tax.” Like other taxes, it shows up in the cost of nearly everything from groceries to building materials. The tort system is designed to compensate victims, deter harmful behavior and shift costs to responsible parties. But tort costs — litigation, liability mitigation, compensation and insurance premiums — are ultimately passed on to consumers through higher prices.

Over time, the system has drifted from its core purpose. Instead of simply making victims whole, it can produce outsized payouts benefiting a small number of claimants and plaintiff attorneys. Even when businesses prevail, the cost of defense can be significant.

Data underscores the growing burden. The Institute for Legal Reform estimates that tort costs reached $529 billion nationwide in 2022, or 2.07% of U.S. gross domestic product. In Indiana, those costs totaled $7.76 billion (1.67% of state GDP) representing $2,962 per Hoosier household. Nationally, household tort costs grew 7.1% annually from 2016 to 2022, while business costs rose 8.7% per year. At that pace, costs could double by 2030.

This trend is unsustainable. Indiana has not meaningfully updated its tort laws since the mid-1990s, even as new challenges have emerged. The Indiana General Assembly can act to preserve access to justice while improving affordability by:

Limiting non-economic damages. Awards for pain and suffering and other intangible harms lack clear standards, often leading to inconsistent and excessive verdicts.

Limiting third-party premises liability. Property owners are increasingly held liable for harms caused by third parties, including criminal acts, creating unfair exposure.

Increasing transparency in legal advertising. Rapid growth in attorney advertising can create unrealistic expectations about settlements, while a significant share of awards is consumed by legal fees.

These are just a few practical steps toward restoring balance in our civil legal system that lawmakers could take. As we look for ways to address the affordability crisis, reforming the tort system should be part of the conversation to help reduce this hidden tax on Hoosier families.•

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Wolff is executive director of the Indiana Alliance for Legal Reform.