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Corporate Tax Subsidies and Taxpayer Standing
Matt Singer on May 15, 2006 - 6:18pm
Some court decisions come to the right result for the wrong reasons. Today's Supreme Court decision in DaimlerChrysler v. Cuno is a perfect example. The case involved whether states could offer certain corporate subsidies to entice businesses to open plants. The corporate subsidies involved are terrible policy, but it's just as well that the Supreme Court, especially this increasingly rightwing one, isn't taking on the job of second-guessing economic decisions by state leaders. Unfortunately, though, the decision was made on a technicality -- whether citizens even have standing to sue -- and the Court's narrow reading of the right of citizens to hold their governments accountable is terrible doctrine. The Standing Question The written decision is narrowly decided, coming down to Chief Justice Roberts' assertion that "State taxpayers have no standing" to challenge tax or appropriations decisions. As commenters at Daily Kos are remarking in a thread on the subject, this decision is basically in line with a number of precedents on the subject. But it also raises a difficult question: With a large issue like whether corporate subsidies abuse the public interest -- or similar issues where the impact is broad and deep but not specific -- is there no recourse in the courts? Interestingly, Chief Justice Roberts' own opinion indicates a way that such recourse is possible:
State policymakers, no less than their federal counterparts, retain broad discretion to make ï¿½policy decisionsï¿½...While Roberts writes about spending discretion, the fact that legislatures have broad discretion holds true in other areas. And one thing that legislators are specifically empowered to do is to authorize private attorneys general -- citizens able to bring private suit to enforce the laws of the state. What Cuno emphasizes is that Ohio and other states should, in the name of government accountability, specifically include authorization by private individuals to bring suit to enforce key laws and constitutional rights. Otherwise, most laws are too easily ignored by government officials. Giveaways Posing as Economic Development But even with clear "standing" -- how clear is the issue of corporate subsidies? The heart of Cuno is essentially whether states can use tax money to use incentives to try to steal business development from other states. These tax incentives -- often involving huge price tags -- allow politicians to cut ribbons in front of factories while extolling the virtues of "economic development." What is really occuring is anything but. In most cases, for the big corporations that receive the handouts, the question is not whether to develop, but where to develop. The various low-cost loans, tax subsidies, and other incentives merely provide various benefits to a business that are weighed along side other factors like workforce quality, community quality-of-life, public infrastructure, and geographic location (sometimes relevant for transportation costs, etc.). In many cases, the subsidies have little effect on where the business locates, but the bidding between states is used to extract tax giveaways from whatever state probably would have landed the plant site in any case due to other factors. The incentives also provide an unfortunate path for communities and states to go down. While long-term economic growth for the U.S. depends on a well-educated workforce, developed infrastructure, and shared prosperity, incentivized poaching of plants and factories creates a zero-sum game that devotes public assets to private benefit -- with a net loss for state budgets collectively. Federal Preemption And while many of our friends (like Chris Kromm at Facing South) are upset that the Court is allowing states to continue to engage in such heinous activity, there's an important larger legal principle to keep in mind. Federal preemption of state economic policy -- especially by courts -- is an extremely troubling precedent. Finding that one or another economic theory is endorsed by the Constitution over its alternatives is a struggle unlikely to bode well either for legislative power, progressives, or for Americans who depend on positive economic policies to build an economy that works. Corporate giveways may be bad policy, but they need to be defeated by grassroots mobilization, not Antonin Scalia and company deciding to further erode state economic powers.