The cost of doing business in the U.S. is on the rise, and it’s not just due to inflation. A growing, largely unregulated industry is quietly distorting the civil justice system, driving up costs for consumers. The practice of third-party litigation funding, now a $16 billion sector, has fueled this issue, allowing outside investors and even foreign governments to secretly bankroll lawsuits in exchange for a cut of the settlement. Thankfully, Congress is now taking steps to address this growing problem.

In early May, Senator Thom Tillis introduced the Tackling Predatory Litigation Funding Act, a bill aimed at closing a significant loophole in the tax code. The bill simply ensures that those who profit from funding lawsuits, typically powerful investors, pay the same taxes as the plaintiffs they support. Today, plaintiffs pay taxes on their lawsuit awards, while those who fund these lawsuits often walk away with millions in untaxed profits, fueling a multi-billion-dollar industry that lacks transparency and accountability.

This imbalance is not only unfair but also dangerous. Third-party funders are essentially operating in the shadows, using the legal system to enrich themselves at the expense of plaintiffs and consumers. Even when plaintiffs win, they often receive a fraction of the settlement after repaying these investors. The result is a legal system that becomes a tool for private profit rather than justice.

The resulting economic toll is staggering. Excessive litigation costs the U.S. economy $529 billion annually, which translates to a tax of about $4,200 per American household. Small businesses and consumers ultimately bear the brunt of these costs, as companies are forced to settle meritless claims just to avoid lengthy legal battles. 

Senator Tillis’ bill doesn’t aim to ban lawsuits or impose new regulations on the courts. Rather, it introduces a straightforward concept: tax fairness. It ensures that those profiting from litigation, including Wall Street backers, are held to the same tax standards as the plaintiffs they support. This bill is a necessary first step in restoring integrity and balance to our civil justice system.