WASHINGTON (Legal Newsline) - Tucked into the 2,100-page House Democratic budget bill is a generous gift for the plaintiffs’ bar, notes Victor Schwartz, co-chair of Shook, Hardy & Bacon’s Public Policy Practice Group.
A provision in the bill would alter IRS rules allowing trial lawyers to deduct the expense of expert witnesses, discovery and depositions up front in contingency fee cases. They are now permitted to write off those costs if and when they lose a case.
Schwartz calls prospective change in the tax rules “big” for the trial bar.
“Allowing them to deduct the costs up front means that taxpayers will be funding a massive increase in litigation,” he said.
In a commentary on the proposed change, the Wall Street Journal (WSJ) Editorial Board cites a Joint Committee on Taxation estimation that the deduction would cost $2.5 billion over a decade.
The big savings for the trial bar will be in the cost of expert witnesses, a cost that Schwartz say has far outpaced inflation in recent years. The lawyers are now reimbursed for that cost as part of the settlement or award in a case, which is typically 30 percent to 40 percent of the payout.
The rule change would have big political ramifications as well.
“Lawyers will be more likely to file dubious lawsuits and drag out cases if they can immediately deduct their expenses,” the WSJ editors write. “This is a direct income transfer to plaintiffs' lawyers, who will turn around and finance Democratic election campaigns. It’s the definition of a corrupt political bargain.”
Schwartz said that a Biden presidency offers the trial lawyers their best shot in getting the change, one they have been working on for years.
“Biden has been a great friend to the trial bar since the start of his political career,” he said. “If they don’t get it in the budget bill, they’ll try to get Treasury to make the change.”
He said that the Treasury Department under the Clinton Administration planned to make the change, but failed to follow through when the proposal became public.
In 2008, the Senate derailed a similar proposal as what's in the massive reconciliation bill currently under consideration. Legal reformers at the time argued the tax break would act as an incentive for lawyers to file more class action lawsuits.
In 2009, American Association for Justice VP Linda Lipsen argued in support for the tax break at the trial lawyer group's annual meeting, but said a "tax vehicle" was not yet available.
"You cannot have a stand alone bill to help lawyers ... so we have to tuck it into something," she said.