Mr. Chairman and Members of the Committee:

      Thank you for today's opportunity to discuss the auto choice reform introduced in the 104th Congress by Senators Dole, McConnell, Lieberman and Moynihan, and soon to be introduced in revised form in the 105th Congress.

      I believe that auto choice can serve as a key signature issue of the 105th Congress, and for two reasons:

• its extraordinary fiscal and policy significance; and

• its extraordinary capacity to generate bipartisan cooperation.

      The JEC report issued by you last year, Mr. Chairman, is the best description of the auto choice reform and need not be repeated here. I hope it will be of value to the Committee, however, to summarize some of the reform's key features:

Auto choice should be seen as the largest tax cut remotely capable of enactment by the 105th Congress.

      As your revised report points out, projected savings from the reform, based on staff and Rand Corporation numbers, comes to nearly $42 billion for 1997 alone. Over a five year period, your revised report projects five-year savings to consumers and the business community in excess of $235 billion. These are stunningly large numbers, and there is no imaginable prospect that the 105th Congress will enact remotely comparable tax cuts. In short, auto choice represents the principal vehicle by which the 105th Congress can put significant sums of money into the pockets of American voters before the 1998 elections.

      It is entirely proper to think of auto choice as a tax cut and not even because it will put a massive amount of disposable income in consumers' pockets. Auto choice should be seen as a tax cut because its main operating feature is to eliminate the "tort tax" now paid by businesses and consumers required to purchase costly "pain and suffering" coverage, like it or not. Few consumers would elect to purchase such coverage if given the choice not to do so, but the function of such coverage as a not-very-subtle "tort tax" can best be understood by the description of pain and suffering damages in Professor Charles Wolfram's leading ethics casebook. Wolfram accurately describes those damages as an "inflated element of damages tolerated by the courts as a rough measure of the plaintiffs' attorney fees." Consumer activists Andrew Tobias and Robert Hunter write in a similar vein: "Today, most serious auto accident victims are terribly under compensated for their actual medical expenses and lost wages. The dream of a huge award for 'pain and suffering' meanwhile is, for almost all, only a dream. And whatever large sums are awarded are heavily taxed by the lawyers." In other words, 1997 consumers are scheduled to be taxed, against their wills, to purchase a $42 billion product whose prime purpose is to provide cash for attorneys. The auto choice reform permits consumers and the American business community to decide whether or not they wish to spend massive sums for a "dream" which, even under the best of circumstances, is "heavily taxed by the lawyers."

      That auto choice can provide multi-billion dollar savings to hard-pressed consumers without any deficit impact makes it all the more remarkable. It also makes clear why auto choice can and should be enacted by a 105th Congress that will otherwise be unable to offer major disposable income relief to voters.

Auto choice savings are fabulously progressive.

      As the JEC report indicates, auto choice is a highly progressive reform that offers its highest proportionate savings to low income drivers. This should not be surprising as the auto tort system is among the most highly regressive social mechanisms in place today -- obliging low income drivers to pay high and increasingly unaffordable premiums in order to provide higher damage awards to the high income drivers they injure than they are awarded when they are injured. As the JEC report notes, the high cost and unaffordability of auto insurance under the present system forces mounting numbers of low income drivers to become uninsured and lawless. As the JEC report also notes, low income drivers who actually purchase auto insurance are compelled to pay obscenely regressive proportions of their income for it.

      In addition, the rapid payment that the reform provides to injured drivers is in and of itself highly progressive. Under today's system, low income drivers are often forced to settle for far less than the value of their claims because the system provides means and incentives to defendants to delay payment of claims. (Injured low income parties are generally desperate for immediate cash to pay for basic necessities, thus making low income people particular victims of a litigation-oriented system.) In short, as the JEC report makes clear, auto choice is the most progressive legislation that the 105th Congress is likely to have any reasonable prospect of enacting.

Auto choice is a uniquely pro-urban reform.

      As Wolfram and others point out pain and suffering damages are calculated as multiples of incurred medical expenses. Thus, as the Rand Corporation and others have made clear, a pain and suffering damages regime is one that generates large-scale medical overutilization and fraud. The easy translation of large numbers of chiropractor visits into cash bonus payouts sadly takes place in greatest excess in America's major urban centers. The following "whiplash to fender bender" ratios make the point dramatically:

• While California drivers made 45.2 bodily injury claims per 100 property damage claims, the PD-BI (property damage-bodily injury) ratio for Metropolitan Los Angeles was 98.8 per 100;

• While Connecticut drivers made 25.1 bodily injury claims per 100 property damage claims, the PD-BI ratio for New Haven was 50.4 per 100;

• While Florida drivers made 18.7 bodily injury claims per 100 property damage claims, the PD-BI ratio for Miami was 29.4 per 100;

• While Illinois drivers made 36.6 bodily injury claims per 100 property damage claims, the PD-BI ratio for Chicago was 45.7 per 100;

• While New York drivers made 15.4 bodily injury claim per 100 property damage claims, the PD-BI injury ratio for New Fork City was 27.6 per 100;

• While Ohio drivers made 28.6, bodily injury claims per 100 property damage claims, the PD-BI for Cleveland was 40.8 per 100;

• While Pennsylvania drivers made 23.3 bodily injury claims per 100 property damage claims, the PD-BI ratio for Philadelphia was 78.5 per 100.

      The above numbers indicate why there are few major American cities whose residents cannot put from $300 to more than $1,000 in their pockets for every car they own by moving to an adjacent suburb. Auto choice will have a profound, rate-flattening effect on city and suburban rates. While auto choice will serve as a tax cut for all drivers, hard-pressed urban drivers will, as Mayor Guiliani has testified, be among its biggest winners. (I understand that Committee staff is preparing a supplemental report that will actually calculate dollar and proportionate savings the reform will provide to urban residents.)

      Much more can be said of auto choice reform, including:

• its affirmative impact on auto safety;

  its affirmative impact on the American public's view of the rule of law itself -- this in light of the cynicism and corruption triggered by the present system's hit-me-I-need-the-money character;

• its refusal to disturb state substantive negligence law, and its singular focus on unbundling pain and suffering coverage from economic damage coverage;

• its protection of the right of willing consumers to maintain the coverages and protections now in effect under state law, at present cost;

• its ultimate rejection of "no fault" policy by always allowing injured parties to sue negligent drivers under undisturbed state law doctrines and procedures whenever the policy coverages of injured parties run out;

• its targeted focus on drunk and drugged drivers by always allowing suits for pain and suffering against the personal assets of such drivers, and such drivers alone under undisturbed doctrines and procedures;

• its remarkable pro-federalism feature that makes federal law the first rather than the last word on the subject -- this by permitting states to repeal or modify any or all elements of the federal bill and to do so at any time;

• its further, remarkable pro-federalism feature that allows state administrative law proceedings to bar the federal bill from even becoming effective if its choice feature is either substantially misleading to state drivers or does not provide them with substantial savings.

      Mr. Chairman, tort reform need not be broccoli. It need not simply take away rights from consumers as the conventional tort reform agenda has largely sought to do over the past years. The auto choice reform does not diminish, but rather enhances the rights of consumers. It offers American drivers the choice of whether to spend $335 billion during the next five years for pain and suffering insurance, or for food, education, life insurance, retirement savings, or any other expenditures they deem to be of greater value to themselves and their families. It does this while still maintaining the primacy of state law, and while subordinating federal policy to the ultimate determinations of the states. It gives the 105th Congress the opportunity to offer voters dramatic increases in their disposable income, and does so without enhancing the deficit by a penny. It offers the 105th Congress an opportunity to enact historic, bipartisan legislation.

      I am grateful to the Committee for today's hearing, and for any opportunity I may have to be of assistance to it.

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