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Serious About Founders' Intent? Then Stop Business Giveaways

Richard Doak

Des Moines Register

March 12, 2006

[Note: This material is copyright by the Des Moines Register, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of the Des Moines Register.]

Justice Antonin Scalia was reported to be skeptical at a recent Supreme Court hearing on a case challenging the constitutionality of state tax incentives to lure businesses.

Too bad. The case is a perfect chance for Scalia to practice what he famously preaches — to interpret the Constitution according to the original intent of the founders.

The founders did not want the states to engage in economic warfare against one another. Yet states are doing just that, and the case before the Supreme Court (DaimlerChrysler vs. Cuno) might represent the last chance to halt it.

The Constitution is more than our basic governing document. It also established a single national economy. In fact, that was the primary motivation for writing the Constitution.

After winning independence, the 13 states suffered hard times. This was partly due to disruptions of commerce caused by states levying tariffs against goods from other states. The constitutional convention was called in large measure in an attempt to create better economic conditions.

The founders succeeded, not only by establishing a strong national government but also by writing the “commerce clause,” which made the regulation of interstate commerce the exclusive province of the national government.

Instead of 13 competing economies, the country became one national economy where goods flowed freely, eventually across an entire continent.

Fast-forward a couple of centuries. States no longer are levying tariffs against one another, but economic war between the states has broken out in a different form: tax giveaways and other inducements for companies to choose one state over another in which to locate operations.

Business interests urged the Supreme Court to allow the warfare to continue, arguing that the giveaways stimulate economic growth. Just the opposite is true.

Beggar-thy-neighbor giveaways might help a local economy, but at the expense of another. Luring businesses from one state to another is at best a zero-sum game nationally. At worst, it hurts the economy because public money given to companies is taken away from schools, public safety and other public investments that underpin economic growth.

(This is not part of the argument before the Supreme Court, but pouring public money into private businesses is also a gross perversion of capitalism. Private businesses should be financed with private money. When businesses come to rely on government handouts, you’re only a hair’s breadth from socialism.)

The case before the Supreme Court involves a deal cut by Ohio to get DaimlerChrysler to expand a Jeep plant in Toledo, instead of moving it to Michigan. The company was given a package worth about $300 million, including an investment tax credit that is the main focus of the case.

The Supreme Court heard the case on the same day as the politically charged Texas redistricting case involving Tom DeLay. It didn’t get much attention, but it is being closely watched in the business community and by economic-development officials.

A federal appeals court struck down the tax credit as a violation of the Constitution’s commerce clause. If the Supreme Court affirms that ruling, and if it is eventually applied to other types of tax giveaways, it could have wide implications for business incentives offered by almost all states, including Iowa.

Or the court could duck the issue by ruling that the Ohio taxpayers who challenged the giveaways have no standing to sue.

If that happens, the court will have passed up an opportunity to reaffirm one of the core principles of the Constitution. Worse, it would send the message that ordinary taxpayers have no right to challenge the constitutionality of bad tax laws.

Only the federal government can stop the war between the states. Most local public officials aren’t crazy about giveaways to business, but they feel they must offer them to compete with other states. That was the argument for creating Iowa’s controversial $500 million Grow Iowa Values fund.

Congress could stop the madness, but won’t, because it is owned by business interests.

That leaves the Supreme Court. It could stop the giveaways simply by keeping faith with the intent of the founders.

How about it, Mr. Original Intent?