Tax Attacks… If I were a politician or candidate looking for an anti-corporate-welfare issue to champion, one that would resonate with ordinary voters and small business owners; that would increase government revenues progressively; that would win the support of most academic economists and newspaper editorial boards; and that would put my crony-capitalist political opponents in an immensely awkward position, I would figure out a way to champion a recent decision by the U.S. Court of Appeals for the Sixth Circuit in Cincinnati. The New Yorker’s incomparable James Surowiecki explains the decision here.
The case involves tax credits that the city of Toledo gave to Daimler-Chrysler, a major local employer, in order to lure the company into building a new plant there. Such sweetheart deals are, of course, extremely common. Giant manufacturers and big-box retailers routinely play cities and states off against each other in order to get their tax burdens lowered or lifted entirely tax. The governments play along because doing otherwise risks watching jobs go elsewhere. But as a general economic matter the incentives make no sense. They don’t increase the number of jobs or the amount of economic activity in the country overall. They deprive governments of needed tax revenue. And they put smaller firms at a disadvantage. Your average auto repair shop or florist or small software company doesn’t have the clout to get its taxes reduced by threatening to relocate.
These are all good arguments for disallowing such tax incentives. But the Sixth Circuit decision puts forth another one: they violate the Commerce Clause of the Constitution. I’m no lawyer, so I don’t know if this is a sensible or tortured interpretation of the Commerce Clause–read the decision yourself here. Certainly the ruling will be appealed. Still, as Surowiecki notes, “for the moment at least, much of what we know as corporate welfare may be technically illegal.”
But why leave it solely to the courts? Politicians ought to weigh in, too. Let’s see some smart Democrats–and maybe some honest Republicans–sponsor a bill to outlaw this kind of corporate blackmail.