As National Small Business Week kicks off across the country, the usual celebration of local startups and family-owned shops is being met with a sobering warning about the rising costs of litigation.
While the U.S. Small Business Administration marks its 60th year of honoring these economic engines from May 3–9, advocates are pointing to a “hidden tax” that they say is stifling growth for the very businesses being celebrated.
Citizens Against Lawsuit Abuse (CALA) released data this week highlighting how excessive tort costs are putting a strain on small enterprises that lack the legal departments and deep pockets of major corporations. Unlike larger firms, a single legal battle can force a small business owner to choose between a costly settlement or closing their doors entirely.
“Small business owners are focused on serving their customers and communities, but too often they are burdened by the anxiety of being dragged into costly and unnecessary lawsuits,” said Victor Gomez, Executive Director of CALA. “When the system is taken advantage of, it’s small businesses and the communities they serve that end up paying the price.”
READ: Op-Ed: Florida’s Small Businesses Are Paying The Price For Lawsuit Abuse
The financial weight of these legal challenges is staggering, according to recent research from The Perryman Group. The analysis found that litigation-related costs drain roughly $397.2 billion in direct expenses from the U.S. economy annually. When factoring in lost economic output, that number jumps by an additional $602.3 billion, contributing to the loss of more than 5 million jobs nationwide.
For the average American, these figures translate into what CALA calls a “tort tax.” While not appearing on a receipt, these costs are baked into the price of goods and services to cover rising insurance premiums and supplies. The data suggests this burden costs individuals approximately $1,771 per year, or $5,579 for a typical family.
“These findings are a clear reminder that excessive litigation affects the entire economy,” Gomez said. “Lawsuit abuse threatens jobs, slows economic growth, and creates real challenges for small businesses trying to succeed.”
As festivities continue through the week, CALA is calling on policymakers to examine the impact of the legal system on economic stability. The organization argues that while a fair legal system is essential for justice, the current trend of excessive litigation is creating an environment where small businesses struggle to innovate or expand due to the constant threat of predatory legal action.
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