An extra $100 per month or $1,200 per year for a poor family or a
young person under 25, or $12,000 in 10 years (the way Washington
counts budgets). Now that’s a real tax cut! And it won’t cost
Washington a cent.
Talk about “compassionate conservatism”? Nothing could put more
money quicker in the pockets of the young, the poor and lower middle
classes than automobile tort reform. And it would help the young to
understand that voting does matter, that politics determines policy.
This is an argument to get young people to vote. An extra hundred a
month could double the disposable income after rent and necessities for
millions of Americans. In Texas, Gov. Bush put through a multi-million
dollar tort savings law. Why doesn’t he proudly proclaim it as a
crowning achievement, which would help the young and the poor most of
all? Surprisingly, he has put little stress upon a single issue of more
significance to most Americans than any tax cut. But they need to be
told about it and understand it.
Europeans are out in the streets rioting because of gas taxes, but
the tort tax is the most monstrous tax of all for the young and as a
percentage of income for the poor. Typical rates in Camden, N.J., for a
couple with a 17-year-old daughter and no accidents — $2,000; In
Pasadena, Calif., a couple, each with one speeding ticket and a
17-year-old occasional driver — $4,700. Savings would be up to 50
percent of premiums with tort reform. In Baltimore, for example, a
20-year-old’s insurance premium would drop from $3,200 to $2,000 per
year.
Also, there is now a very significant change among poor and
minorities. Before, many didn’t care about liability insurance for
themselves as they had few assets, but rather looked at insurance
claims like the lottery, the easy way of becoming rich. But now the
penalties for being uninsured are fines of a thousand dollars or more
and even confiscation of their cars. An example of the misery inflicted
by high insurance rates is in Maricopa County, Ariz. Households below
50 percent of the poverty line must spend over 30 percent of their
income on car insurance or go without.
In Philadelphia the African-American Philadelphia Tribune wrote,
“There is one issue that impacts more Philadelphians than all the crimes
committed in any given month and that is the (criminal) auto insurance
rates. … (C)uriously , none of these tough on crime candidates is
addressing the issue of usurious auto insurance rates which has turned
thousand of otherwise law abiding citizens into criminals (for driving
without insurance).”
The system breeds tremendous corruption in Washington (witness the
vice president calling trial lawyers for donations in return for a
presidential veto of tort reform) and disrespect for law and insurance
fraud everywhere. All young Americans can understand the tort tax if its
reasons are explained to them. With the tort lawyers now getting
billions of dollars more from the tobacco suits, many reformers worry
that this election is the last chance for reform. In the future they
will be able to put even more millions into the political arena to
prevent any changes in the law.
Here are the problems, which cause the astronomical insurance costs
for most Americans.
- Only one-third of insurance payouts go for economic loss
(lost income and medical expenses). Sixty-eight percent goes for legal
costs and for pain and suffering. - Even that economic loss is very exaggerated because pain and
suffering claims are often based upon multiplying economic loss by
three. This makes incentive to maximize economic loss so as to claim
more pain and suffering. - Millions go uninsured because of the costs. This creates more
tax burden, especially on cities, to pay medical expenses for them.
Under the current system, they get nothing if they caused the accident
or are hit by another uninsured motorist, which is often the case. In
California, for example 28 percent of motorists are uninsured. - Claims (and subsequently insurance premiums) are inflated by the
system. Often the fake no-fault reforms have such low limits that
accident victims can easily inflate their claims to pass the suit
threshold. For example, when Massachusetts raised its threshold from
$500 to $2,000 in 1988, the median number of doctor visits rose from 13
to 30 per auto injury claim. - The system also is very unfair in compensating real accident
victims. A study by the Rand Institute showed that victims with
relatively minor injuries, below $5,000, generally receive compensation
worth two to three times the size of their damages, but victims with
losses between 25,000 and 50,000 receive about one half of their losses
and over $100,000, only 9 percent. Writer Andrew Tobias compares it to
a homeowner’s insurance that would pay triple the value for a stolen
stereo, but only 9 percent if his house burned down. Also, 30 percent of
injured drivers get no recovery if they are at fault or hit by uninsured
motorists. - The earlier wave of “no-fault” reforms in many states were
cleverly manipulated to have low thresholds for lawsuits, thus
encouraging claimants to inflate their claims. Real “no-fault” has not
been legislated. - Minority political leaders, who should be leading the way for
tort reform, often benefit financially from the current legal system.
The other major group which would benefit, the young, are totally
unorganized. - Big cities pay out billions in losses from accidents with their
vehicles, which are charged to city taxpayers. They are often the “deep
pocket” for pain and suffering lawsuits. Civil servants have no personal
interest in fighting claims. A Justice Department study showed that
governments were the defendants in 29 percent of all jury awards in
excess of $1 million.
The Solution
For starters, each insured motorist’s policy would cover his or her
own economic damages and there would be no more right to sue except as
below. This would bring from 25 to 50 percent cut, at least, in
premium costs. Auto Choice, according to another Rand study would save
consumers over $35 billion per year in premium costs. A specific
example shown is that of a 20-year-old male in Brooklyn. His premium
savings would be 48 percent, or $1,100; for a 38-year-old female in Los
Angeles, $1,180. Pure “no fault” insurance would save even more.
Further, the Auto Choice plan would still allow suits in egregious
circumstances, such as intentional injuries or as the result of drug or
alcohol use. Also policyholders could sue for economic damages above
their own policy limits, but not for pain and suffering. Policyholders
who prefer to stay with today’s high cost insurances would have
uninsured motorist coverage (which already exists today) to cover their
damages from accidents with Auto Choice insurees.
These measures were proposed by a bipartisan group of congressional
leaders, Sens. Grams, Lieberman, McConnell and Moynihan, two Democrats
and two Republicans and by two House leaders, Dick Armey and Jim Moran.
But the program has been paralyzed for several years, blocked by vested
interests. Now with the election, it should be put out in the open for
public debate. Unfortunately, law professor Jeffrey O’Connell of the
University of Virginia, one of the authors of the Auto Choice plan, says
he finds scant interest in the issue from politicians running for
office. Isn’t it time to change that?
The information and statistics in this column are sourced from the
Congressional Joint Economic Committee report,
Auto Choice: Impact on
Cities and the Poor. Other detailed information is available from Citizens for a Sound Economy,
“Auto Insurance and the Urban
Poor.”
Where’s the money go?
This helpful graph from the Congressional
Economic Committee shows the distribution of the bodily injury premium.
Jon Basil Utley is the Robert A. Taft Fellow at the
Ludwig von Mises Institute.
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