N001998
Friday, January 18, 2002 2:21 PM
comment on Iterim Rules
18 January 2002
Kenneth L. Zwick, Director
Office of Management Programs
Civil Division
U.S. Department of Justice
Main Building, Room 3140
950 Pennsylvania Avenue
Washington, DC 20530
RE: Presumed Economic and Non-Economic Loss Tables
Dear Mr. Zwick:
I am writing to make two comments regarding the Presumed Economic and
Non-Economic Loss Tables and the Interim Final Rules.
1. Discount Rate
In calculating economic damages, a victim?s future earnings are reduced by
the income taxes that would have been payable on such earnings. When the
after-tax earnings are converted into a present value figure, the interest
rate used is 5.13 percent. The Presumed Economic and Non-Economic Loss
Tables explain that this rate is ?equivalent, given the other components of
the calculation, to a long-term, risk free interest rate.? See Step Four of
the Calculation of Economic Loss. There are three problems with this rate.
First, the rate of 5.13 percent is clearly not available on safe tax-free
instruments; it is a taxable rate. Thus, the present value of the damages
is calculated using a victim?s after-tax earnings and a fully taxable
discount interest rate. Because the replacement income stream generated by
a taxable instrument will be subject to income tax to the extent of interest
included, the victim?s family will not receive after-tax income equivalent
to the after tax earnings of the victim.
Second, the calculation of the victim?s future earnings presumes that the
victim would continue to work ?for a number of years equal to the average
expected work life as defined by the U.S. Department of Labor, Bureau of
Labor Statistics, ?Worklife Estimates.?? See Step Three of the Calculation
of Economic Loss. But the expected work life may be considerably shorter
than the ?long term? presumed when setting the discount rate. The expected
work life of a 65-year old man would probably be much shorter than the
30-year maturity of a long-term bond.
Third, a typical long-term bond pays out only interest until the bond?s
maturity, at which time the principal amount is returned On the other hand,
the victim?s earnings would have been received in a series of substantially
equal payments. Thus, the effective term of the victim?s earnings is
shorter than the effective term of a bond that matures at the end of the
victim?s expected work life.
The discount rate should be adjusted to the rate available on short-term,
tax-free investments, especially for those victims whose work life
expectation is relatively short.
2. Non-Economic Damages
Non-economic damages are presumed to be equal to $250,000 plus $50,000 for
each of the victim?s spouse and dependents. Thus, the family of a
financially dependent child merits the additional $50,000; the family of a
child who was not financially dependent on the victim does not merit the
additional amount. This is an astounding distinction when calculating
non-economic damages. The dependent child deserves every consideration,
certainly in excess of the parsimonious figures in the Presumed Economic and
Non-Economic Tables. But more to the point here, why economic dependency is
a factor in setting non-economic damages? It should not be.
I am not an orphaned child, but I was orphaned on September 11. I loved my
father no less after I stopped needing his financial support, and he loved
me the same way. The Tables? clear suggestion to the contrary is odious.
Sincerely,
Individual Comment
San Diego, CA