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In Economic War Between States, High Court Ducks, Taxpayers Lose

Richard Doak

Des Moines Register

May 21, 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.]

You might think that being a taxpayer would give you certain rights. Not so, says the highest court in the land.

Just being a taxpayer doesn't give you standing to challenge a bad tax law in federal court.

The Supreme Court made that stark ruling last week in a case that could have put a damper on giveaways of public money to private corporations - but unfortunately did not.

The 9-0 ruling written by Chief Justice John Roberts tossed out a case brought by taxpayers in Ohio who challenged the constitutionality of tax credits given to DaimlerChrysler. The credits induced the corporation to build a Jeep plant in Ohio instead of Michigan.

The taxpayers argued that giveaways meant to influence a company's decision to choose one state over another amount to unconstitutional interference with interstate commerce. A federal appeals court agreed and struck down the tax credits.

The appeals court ruling raised hopes that, at long last, a truce could be imposed in the economic warfare among states. If giveaways meant to influence location decisions are unconstitutional, the wasteful practice of states trying to out-bid one another could be curbed.

States could compete on the basis of which has the best roads or best schools or best workers, instead of which doled out the most public money to private concerns.

Those hopes were dashed by the Supreme Court, which didn't even bother to consider the merits of the case. It simply said the Ohio taxpayers had no right to sue in federal court. Poof, the case went away.

It might seem bizarre that taxpayers have no right to challenge bad tax law, but last week's ruling appears to be in line with longstanding precedent. Past rulings held that each taxpayer, being one among millions, has such a small, indeterminate and hypothetical stake as to make it impossible to prove injury.

Hence, if taxpayers don't like a law, they should take their complaints to the legislature, not the courts.

But ordinary taxpayers aren't likely to get much of a hearing in legislatures, which tend to be more attuned to corporate lobbyists than to ordinary citizens. Many lawmakers don't like corporate giveaways, but they feel they must compete with other states or lose out in economic development.

Unless some way can be found to get the courts or Congress to intervene, the war among the states will go on, to the detriment of ordinary taxpayers - and probably the economy as well. Giving tax money to corporations - bribing them to do what they would do anyway - takes money away from schools and other public investments that underpin economic growth.

Long term, Iowa's economy would surely be better off by investing the $500 million from the Iowa Values Fund in, say, improving the state universities.

Somehow we've got to shake the compulsion to finance private businesses with public money. It's not good for the public, and probably not for the businesses, either.

There's a history on this. Evidence can be found in the state constitution. Written in 1857, it forbids the state from becoming a stockholder in any corporation, and it prohibits the state from assuming the debts of any corporation.

Those provisions grew out of an era in which states often got mixed up with politically well-connected corporations involved in canal-building or other schemes - much to the regret of poor taxpayers who got stuck with the losses when the schemes collapsed.

The drafters of the state constitution had learned the lesson the hard way that public and private interests should be kept separate.

Today's economic-development promoters know nothing of the past. They get around the constitution easily because they don't make the state a shareholder in corporations. They simply give tax money to them.

The constitution's drafters didn't ban outright giveaways - probably because it never occurred to them that anyone would do such a thing.

Maybe it's time to complete the drafters' work by putting a giveaway ban in the constitution, too.