Californians are well aware of the rising cost of living. Housing, energy food, and taxes dominate kitchen-table conversations across the state. But there is another cost burden most families never see on a bill or ballot — a hidden “tort tax” that quietly drains our economy, raises prices, and undermines job growth.
A 2025 economic impact report by The Perryman Group, one of the nation’s most respected economic modeling firms, puts a sharp point on the problem. According to the study, excessive litigation costs function like a tax on economic activity, reducing investment, slowing growth and shrinking paychecks. In California, that burden is among the highest in the nation.
The Perryman Group estimates that California’s “tort tax” now exceeds $2,500 per person every year — placing our state in the top tier nationwide, alongside New York and Washington. For a typical family, that translates into thousands of dollars annually in higher prices, fewer job opportunities and reduced wages. Unlike a legislatively enacted tax, however, this cost is imposed indirectly through an unpredictable and imbalanced civil justice system.
Statewide, the economic consequences are staggering. Excessive tort costs are responsible for tens of billions of dollars in lost economic output in California each year, along with hundreds of thousands of lost jobs. Retail, real estate, construction, health care and business services — industries that form the backbone of California’s middle class — are among the hardest hit.
These losses do not occur in the abstract. They show up when a small business delays hiring because insurance premiums spike. They appear when a medical provider limits services or leaves a community due to litigation risk. They surface when innovation stalls because entrepreneurs cannot afford the legal exposure associated with launching new products or services.
Importantly, this is not an argument against accountability or access to the courts. A fair and balanced civil justice system is essential. It compensates those who are legitimately harmed and deters genuinely dangerous behavior. But when the system becomes unpredictable, tilted toward jackpot verdicts, or exploited for abusive litigation, it stops serving the public interest.
The Perryman Group’s analysis makes another point that should matter to policymakers of all political stripes: excessive tort costs also reduce public revenue. In California alone, the study estimates billions of dollars in lost state and local tax receipts each year due to suppressed economic activity. That is money that could otherwise support schools, infrastructure, public safety or wildfire resilience — without raising taxes on working families.
Other states have shown there is a better way. Jurisdictions that have adopted reasonable, targeted reforms — such as stronger standards for expert testimony, limits on abusive lawsuits or clearer rules around non-economic damages — have seen improved judicial efficiency and stronger economic performance, while preserving access to justice for legitimate claims.
California prides itself on innovation, opportunity and economic leadership. Yet our current litigation climate undercuts those goals. At a time when businesses and workers can increasingly choose where to locate, maintaining one of the nation’s highest “tort taxes” is a competitive disadvantage we can no longer ignore.
Reforming the system does not mean closing courthouse doors. It means restoring balance, predictability and fairness — so the civil justice system works as intended, not as an economic drag. The data are clear: reducing excessive tort costs would help lower prices, support job creation and strengthen California’s long-term economic health.
In a state struggling with affordability and competitiveness, ignoring a hidden tax of this magnitude is no longer an option.
Victor Gómez is executive Director of California Citizens Against Lawsuit Abuse.
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