This week, the U.S. Senate will vote on an amendment (#587, introduced by Senator Leahy) to the budget resolution. This amendment is a clear payoff to trial lawyers in the form of a brand new tax hike.
The measure would permanently deny employers the ability to deduct punitive damage assessments from lawsuits as a business expense.
It is not tax reform. It is a permanent new tax increase. Taking away this legitimate deduction results in higher taxes. If it’s not canceled out by equal or greater tax relief elsewhere, this income tax increase violates the Taxpayer Protection Pledge.
Businesses can deduct all “ordinary and necessary business expenses” under tax law. This has always included punitive damage costs. To deny this well-grounded deduction to employers is arbitrary and clearly intended to benefit a constituency.
Since settlements out of court are still deductible under this tax law change, trial lawyers will be empowered to file junk lawsuits (hoping that employers will choose to settle rather than risk a punitive damage award with no tax benefits). When a lawsuit is settled rather than challenged, the trial lawyer gets a guaranteed win.