NCPA - National Center for Policy Analysis

Texas Tort Reform Improves Economy, Judicial System

August 15, 2000

Historically Texas' civil justice system has been unpredictable and risky. The increasing cost to businesses of defending against civil lawsuits for alleged harms and the excessive punitive damages awarded, raised the cost of living and doing business there.

However in 1995 Texas began tort reform by enacting caps on awards for punitive damages, revising defendant liability rules, specifying venue for legal actions, modifying a number of specific causes of action and strengthening penalties for frivolous or meritless cases. Due to these reforms, the civil justice system underwent a dramatic metamorphosis resulting in significant economic gains, concludes an analysis by the Perryman Group for Citizens for a Sound Economy.

The reforms have resulted in reduction of the "tort tax" -- additional costs due to inefficient and poorly functioning civil justice -- equivalent to $1,074 per household in 2000. These savings are expected to grow in future years. Specifically, in the year 2000:

  • The total cost of the tort system in Texas in 2000 is an estimated $15.5 billion -- whereas in the absence of recent changes in federal and state law, the costs would have been about $25.9 billion.
  • Of the $10.4 billion in estimated savings for the year, state tort reforms and related factors were responsible for saving Texas consumers and industry $7.63 billion.
  • About $2.542 billion of those savings directly benefited Texas consumers, including reduced prices for goods and services.
  • Each Texas household annually gained $216 from reduced inflation, $862 in increased personal income and $517 in enhanced consumer spending.

Tort reform also had a positive impact on the overall economy and substantially improved job prospects. For instance, tort reform led to the creation of 195,727 permanent jobs. And tort reform was a factor in the general business climate that led to the creation of another 295,151 permanent jobs.

Source: Ray Perryman (The Perryman Group), "The Impact of Judicial Reforms on Economic Activity in Texas," Backgrounder 867, August 2000, Citizens for a Sound Economy, 1250 H Street, N.W., Suite 700, Washington, D.C. 20005, (202) 783-3870.


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