Democrats have tucked a lucrative $2.5 billion tax break inside President Biden’s multitrillion-dollar social welfare bill that would benefit the trial lawyers lobby, spurring GOP accusations of political backscratching.
The tax break allows trial lawyers working on a contingency basis, meaning they are only paid if a case is settled in their favor, to deduct expenses immediately. Such expenses include hourly labor fees and the expenses associated with waging a lawsuit, such as filing and deposition costs.
On average, according to the American Bar Association, the fixed rate for contingency cases is anywhere between 33% and 40% of the total settlement payout. In some instances, the contingency fee can range upwards of 50%.
Given that legal costs have skyrocketed in recent years, the Joint Committee on Taxation estimates the write-off will cost taxpayers $2.5 billion over the next decade.
Republican lawmakers argue the lucrative write-off is nothing more than a giveaway to the trial lawyers lobby, which heavily underwrote Mr. Biden’s White House bid.
According to the Center for Responsive Politics, donors from the legal center gave more than $274 million to Democrats in 2020.
“Trial lawyers donated tens of millions to Joe Biden’s campaign,” said Sen. Tom Cotton, an Arkansas Republican. “And now, Biden’s reckless spending plan includes a $2.5 billion tax break for trial lawyers, what a coincidence.”
Under the current tax code, trial lawyers are barred from writing off such expenses until the case is resolved. Mr. Biden’s big-spending social welfare bill, which passed the House along party lines last week, would upend the status quo.
Not only would trial lawyers be able to deduct expenses from contingency cases immediately, but they would be allowed to do so even if there is the “possibility that such amount[s] will be repaid” after trial.
More troubling is that Mr. Biden’s bill stipulates that income trial lawyers derive from contingency cases “shall not be reduced” by the write-off.
Currently, the Internal Revenue Service treats contingency expenses as non-deductible loans because of the likelihood they will be repaid if a case is won. In instances where a case is lost, the IRS allows trial lawyers to write off the expenses like a bad loan.
The American Association for Justice, the top lobbying organization for trial lawyers, argues the write-off is needed because it may take years for cases to be settled.
“Lawyers working on a contingency fee basis cannot deduct their expenses until the case resolves, which can be years after the expense is incurred,” said Carly Moore Sfregola, a spokeswoman for the association. “Contingency fee arrangements are the only way that regular people can afford to seek justice.”
The association raised and spent more than $2.2 million to elect Democrats in 2020. Overall, 97% of its donations went to left-leaning candidates and causes.
Of that sum, nearly $67,000 went directly to Mr. Biden’s campaign and a super PAC supporting his candidacy.
The White House did not return requests for comment on this story.