Supreme Court case could block states' corporate tax giveaways

on March 1, lawyers for some of America's biggest corporations — and many of the politicos big corporate money supports — will be glued to arguments in Cuno vs. DaimlerChrysler, a case most people have never heard of.

Also watching will be representatives of an unusual left-right, Democrat-Republican coalition that is fighting the enormous tax giveaways given to big businesses to lure them into — or keep them from leaving — specific jurisdictions.

"Cuno could be a watershed, tectonic moment in the history of job subsidies and interstate relations," says Greg LeRoy, the founder and executive director of Good Jobs First . . .

Corporate tax breaks started a half-century ago when Mississippi and Alabama got into a contest over which could offer the most lucrative deals to lure corporations.

Every state and larger city has now joined this race to the bottom that is costing them more than $50 billion annually. Today, states average 30 different ways to give away tax money, including Texas' unusual practice of writing favored corporations huge checks.

The Cuno case was filed over a 1998 deal Ohio and Toledo made with DaimlerChrysler for $281 million in personal tax exemptions and investment tax credits to keep the transnational from moving its Jeep-making facility to Michigan.

Lower courts have agreed that these "incentives" violate the U.S. Constitution's "commerce clause" that empowered Congress to "regulate commerce with foreign nations, and among the various states."

The Constitution's framers, the plaintiffs argue, intended it to be a an economic treaty among states that would limit their competition to overall tax rates, and to the quality of their public services, such as schools and infrastructure.

They didn't intend for states to compete in offering preferential treatment to specific firms.

Whichever side you fall on, useful information from the Fiscal Policy Institute:

Charlotte Cuno et al., v. DaimlerChrysler et al. (PDF). In a landmark decision issued on September 2, 2004, the US Court of Appeals for the Sixth Circuit ruled that the State of Ohio's investment tax credit violated the Commerce Clause of the US Constitution. Rather than immediately appealing this decision to the US Supreme Court, DaimlerChrysler asked the Sixth Circuit to take the unusual step of rehearing the the case en banc. Click here for Appellants' Memorandum in Opposition to Petitions for Rehearing En Banc in the Case of Charlotte Cuno et al., v. DaimlerChrysler et al. (PDF) The Sixth Circuit subsequently declined this request and DaimlerChrysler has now asked the Supreme Court to hear its appeal. That request was granted and DaimlerChrysler et al. filed their briefs with the Supreme Court on December 5, 2005. The plaintiffs/respondents are required to file their briefs by January 23, 2006. If the Sixth Circuit's decision is upheld by the US Supreme Court it would serve to substantially de-escalate the current economic war among the states; in effect, serving to save the states from themselves. For a general discussion of this issue see Ideas for Ending (or, At Least, De-escalating) the Economic War Among the States (PDF), a paper presented by FPI Executive Director Frank Mauro at symposium on the Economic War Among the States co-sponsored by FPI and Good Jobs First at Georgetown Law Center, June 26, 2003.

Nothing like buying something with someone elses tax money. Why not just try to create a good business environment? Oh, that would require work and ideas. It's easier to buy friends and re-election with tax dollars. If you want to see some out of left field numbers, look at the numbers the pols say the new businesses will bring in.

Prediction: the Supreme Court will find that the Federal Government can regulate this sort of shenanigans, under the Commerce Clause. This is one of those cases directly on point under the Commerce Clause.

Particularly odious is this idea: We, the state of X, hereby vote that the CEO and Board of Directors of Company Y will not have to pay personal income tax to our state if they move their company here.

That's effectively the granting of a patent of nobility in everything but name. It needs to be nipped in the bud, and I predict that the Supreme Court will do just that.

I hope SCOTUS overturns. The courts have no business interfering with states' completely internal tax policies. It would be one thing if a state tax law discriminated against corporations and other business property owned by out-of-staters. But that's clearly not what's happening here. This has been an integral aspect of state sovereignty since the founding.

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