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High court hears business tax breaks case
Scripps Howard News Service


March 01, 2006

WASHINGTON - Tax breaks the 50 states use to woo and win business amount to unconstitutional tariffs that burden interstate commerce, a lawyer for taxpayers fighting a tax credit Ohio gave DaimlerChrysler for a $1.2 billion Jeep plant told the Supreme Court Wednesday.

Attorney Peter Enrich told the justices in oral arguments that Ohio was free to give $281 million in cash to DaimlerChrysler to update its Toledo Jeep plant without violating the Constitution, but not the same amount in investment tax breaks.

Cash is OK but tax breaks aren't permissible when they seek to accomplish the same thing? asked Justice John Paul Stevens.




Taxes are a "primeval government activity that brings states under the Commerce Clause" and grants to Congress alone the power to regulate commerce "among the several states," Enrich replied. Cash is different, he said, since it makes states "direct participants in the marketplace" who are free to "deploy their own resources."

But DaimlerChrysler lawyer Theodore Olson countered that Enrich's theory "would nationalize state tax systems" if Ohio and the other 49 states cannot use permit requirements and environmental rules as well as tax codes to attract investment. To do otherwise, Olson said, would require the United States "to have unified state regulations and unified tax codes that are the very antithesis of federalism."

Much of the hour-long argument was spent debating the threshold question of whether the Ohio and Michigan taxpayers who are Enrich's clients suffered a concrete injury sufficient to let them pursue a federal lawsuit.

Ohio State Solicitor Douglas Cole argued they merely claim an abstract harm and generalized complaint that unspecified state revenues Ohio might otherwise collect weren't available to spend on programs and policies these taxpayers might prefer.

Bur Enrich countered that Toledo taxpayer Charlotte Cuno and his other clients made their threshold showing because the potential tax loss threatened public education, roads and other infrastructure investment they consider important.

Northeastern University law professor Enrich was recruited by corporate welfare critic Ralph Nader after Nader read an Enrich law review article in which he theorized that Commerce Clause limits could "save the states from themselves" in the tax-break bidding war to lure corporate investment.

The two initially supported Massachusetts taxpayers fighting Connecticut tax breaks aimed at getting the New England Patriots to move, but that case fell through when the team opted to stay in Foxboro, Mass. So Nader and Enrich took on Ohio's DaimlerChrysler tax break instead.

Cole and Olson spent most of their time in close questioning on the technical issue of whether the taxpayers had standing to sue in federal court, but it was Enrich who came under the justices' constant peppering.

Justice David Souter asked if "the mere fact of providing a tax subsidy" could unconstitutionally burden interstate commerce when investment tax credits offered by Ohio and other states "offer an opportunity to invest there that is open to all comers."

If a company decides not to take advantage of the credit and expands elsewhere, Souter said, "That's not discrimination. That's a free choice."

Enrich disagreed, equating Ohio's investment credit to Hawaii tax breaks for pineapple wine the Supreme Court struck down for discriminating against out-of-state wine and liquor.

Chief Justice John Roberts wanted to know if a state can offer "homestead" tax breaks to people who make it their principle residence under the Commerce Clause when "states want people to move there just like Ohio wants business to move there."

"That raises a very different set of questions," Enrich replied.

Justice Antonin Scalia said tax breaks to businesses often are controversial in states. But resolving the dispute is best left to "the political arena," he said. "Let the people fight it out. Why should that be an issue that the court should decide?"

The 6th U.S. Circuit Court of Appeals in Cincinnati sided with Enrich and his clients in holding that Ohio's investment tax credit statute violates the Commerce Clause.

That decision applied only to Kentucky, Michigan and Tennessee as well as Ohio, which are covered by the 6th Circuit. But the case caused such a stir across corporate America for disrupting investment decisions in the United States and abroad that the justices took the case even though no other court had rendered a similar or conflicting decision.

Attorney Michael Stewart, who filed a friend-of-the-court brief for the U.S. Chamber of Commerce and its state affiliates, attacked the lawsuit for advancing "an anti-incentive political agenda that is based on an ill-formed and outdated understanding of the global economic forces central to investment decisions today."

But Greg LeRoy, founder of the Washington think tank Good Jobs First, estimates the $50 billion a year in investment tax breaks that states grant results in "a race to the bottom" that provides little or no benefit to state taxpayers or the states themselves.

A decision in DaimlerChrysler v. Cuno is expected by summer.


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