Welfare for corporations

The Cincinnati Post
By Neal Peirce

For years, opponents of corporate welfare -- the tax breaks or outright subsidies that states and localities make to lure or hold footloose corporations -- have been waiting for a signal that some official body would act to curb giveaways of public wealth.

On Sept. 2, the first shoe dropped. In Cincinnati, a unanimous three-judge panel of the 6th U.S. Circuit Court of Appeals ruled that an investment tax credit that Ohio granted DaimlerChrysler in exchange for the automaker agreeing to build a Jeep assembly plant in Toledo violated the U.S. Constitution's interstate commerce clause.

The court's reasoning: Because Ohio wouldn't have granted DaimlerChrysler the same tax benefit if it chose to expand outside the state, the practice would "hinder free trade among the states."

The lawsuit had been brought by 12 Toledo residents and three businesses, including several displaced by the city to assemble land for the plant. They claimed the foregone tax revenues, part of an overall $280 million incentive package the state, city and two school districts offered DaimlerChrysler, would mean increases in tax burdens and diminished services for themselves and other citizens.

Northeastern University law professor Peter Enrich, counsel for the litigants and the key figure in preparing the suit, said the court decision not only closes down Ohio's $90 million-a-year program of corporate investment tax credits but "raises grave constitutional doubts about the closely similar programs that are in place in the vast majority of other states."

Consumer advocate (and now presidential candidate) Ralph Nader, who recruited Enrich to argue the case, declared it a "major blow" against "extortionate demands by large companies for subsidies from cowering cities and states, all desperate to attract or retain investment in troubled economic times."

The celebrating is not so loud among other opponents of government subsidies to industry, however. They note first that Ohio Gov. Bob Taft is determined to appeal before the 6th Circuit's entire 12-judge bench or the U.S. Supreme Court. A final decision could take years.

Second, the court didn't overturn another feature of the Toledo deal -- a 10-year abatement of property taxes on the plant's machinery and equipment. Property tax abatements are rife around the country.

Third, the decision doesn't reach the equally questionable practice of outright state and local government subsidies to industries (or sports teams) they want to lure or hold.

Arthur Rolnick, director of research for the Federal Reserve Bank of Minneapolis and longtime vocal opponent of tax breaks and government subsidies for corporations, suggests "courts are not the right place to make a decision" on the issue. Rolnick favors direct action by Congress to calm the billion-dollar industrial wars among the states.

So far, Congress has displayed massive disinterest in confronting the phalanxes of state and local officials who claim they need the incentives to lure firms, even if common sense says the subsidies are a zero-sum game creating no net new jobs for the nation at large.

However reform finally gains traction, Greg LeRoy of Good Jobs First in Washington, D.C., believes the 6th Circuit decision is an important landmark. "Judicial opinions don't occur in public opinion vacuums," LeRoy observes. "Judges read the newspapers too. As a lot more people become aware how ruinously expensive these subsidies have become, they become vulnerable, including judicially."

Plus, says LeRoy, a big range of constituencies -- school districts, tax and budget watchdogs, the smart growth camp, and proponents of local living wage rules -- are getting aroused, "figuring they have a dog in this fight." Small businesses, routinely left holding the tax bag when big corporations benefit, are the only relevant players left to join in, notes LeRoy.

The profound and continuing irony is that while the states spend billions on tax incentives of dubious merit, they are struggling to pay bills for the very services that will strengthen them, and indeed all of America's businesses, for the long haul -- education, libraries, public safety, water quality systems, roads, transit systems, parks and more.

Meanwhile, some corporations are apparently laughing all the way to the bank. Dozens of corporate government-relations executives were actually treated to a seminar on how to "Turn Your State Government Relations Department from a Money Pit into a Cash Cow" at the annual meeting of the State Government Affairs Council in Savannah, Ga., last spring. Ways to wring concessions from states without raising political hackles were reviewed for such corporations as Wal-Mart, Procter & Gamble and Microsoft, according to the Carolina Journal, a publication of the libertarian-oriented John Locke Foundation, which obtained a PowerPoint of the presentation.

This should be whistle-blowing time. With luck, the new court decision will trigger the hard debate the floodtide of corporate incentives merit.

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