Litigious Tax

Image by Sang Hyun Cho

Here’s an idea to improve the legal system, introduce a litigious, consumption tax. More specifically, a punitive tax for litigious behavior that results in unsuccessful lawsuits. 


How it would work. Every person, or legal entity, would have win/loss records as a plaintiff and a defendant in the justice system. A decision in your favor (be it a settlement or verdict) counts as a win, otherwise it counts as a loss. The tax is proportional to the number of unfavorable decisions, so the more losses you accrue, the higher tax you pay for the next lawsuit. The tax is non-refundable. A plaintiff must pay the tax before their case can proceed in court.


The tax is meant to deter frivolous and abusive legal behavior. Having separate plaintiff and defendant records disincentivizes the person that sues to intimidate (plaintiff) and makes it costly for mega corporations to be negligent (defendant). 


To prevent legal disenfranchisement, the tax rate would target heavy legal consumers as shown below (99% of people fall into the first two buckets):


Number of Unfavorable Legal Decisions

Tax Rate (per lawsuit)

<10

$0

<50

$1,000

<100

$10,000

<1000

$100,000

>=1000

$1,000,000


The tax could dissuade the likes of Donald Trump or this couple from using the legal system as a bullying tactic. And on the corporate side, the tax could make patent trolling and Deutsche Bank money laundering cost-prohibitive.

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