Wooing cities with tax incentives
Fascinating: Kevin Drum links to a short New Yorker article about using tax incentives to woo businesses to your city. Apparently the Sixth Circuit recently ruled these sorts of deals illegal, since the deals affect interstate commerce — something that only Congress may do.
I support the decision in this case, because there seems to be the potential for a “race to the bottom.” The classic race to the bottom is what the U.S. would be without a minimum wage: states would compete to offer the lowest wages, and companies — with increasingly mobile capital — would move to the state with the lowest wages. Voilà: awful conditions for workers. Though in practice, I wonder how close to the bottom this race would actually go: there comes a point where wages are so low that states are getting virtually no economic benefit from the increased labor in their states. . . . But the point is that there’s a Prisoner’s Dilemma here: states have almost no incentive to unilaterally stop the race to the bottom; as long as other states might defect and lower their wages, no state has any reason to stop the descent. The idea is similar with the corporate giveaways discussed in that New Yorker article (and the Cuno v. Daimler-Chrysler Inc. case that it refers to): unless someone forces all states to abandon these tactics, the U.S. as a whole will suffer. If every company that’s choosing amongst American states would stay in the country, and the only choice is amongst states, then any money used to lure a company into one state is a dead-weight loss to the American economy.
I’m concerned about this use of the interstate commerce clause, however. I guess I don’t really understand what the boundaries on that clause are. The relevant clause tells us that “The Congress shall have Power To . . . regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” This clause has been used to justify laws punishing violence against women:
Pursuant to its powers under the Commerce Clause, Congress enacted the civil rights remedy after four years of congressional hearings and findings regarding the effect that violence against women has on interstate commerce. Testimony at congressional hearings demonstrated the substantial costs of gender motivated violence on the nation’s economy and the staggering number of women who have and will be victimized by an act of violence at some point in their lives. Additionally, the hearings demonstrated states’ inability to sufficiently deal with gender motivated violence as evidenced by the fact that attorneys general from 38 states supported the law.
But the Supreme Court struck down this use of the commerce clause because — as seems fairly obvious — it’s overbroad, and there’s almost no limit to what Congress could regulate if that legislation were allowed to stand. We may oppose violence against women, and we may wish to punish it more heavily, but that doesn’t justify a line of legal reasoning that weakens the Constitution.
So, legal folks: help a guy out. Is there a good reason to believe that the Cuno decision will be upheld? Or is this another case where the commerce clause is being applied where it shouldn’t be?
There are two major types of Commerce Clause cases in the courts: commerce clause and dormant commerce clause. The Dormant Commerce Clause is a doctrine that came about when the Court said “Hell, If Congress has the authority to regulate commerce then that power is plenary! So, even if Congress has done nothing, we can’t have States regulating or affecting commerce because that is exceeding their power.” Regular Commerce Clause cases challenge a federal law for exceeding Congress’ authority to enact it. Kassel v. Consolidated Freightways is the paradigmatic case for this. NB: The Commerce Clause doesn’t justify anything. It provides the authority to act.
So, what does this case mean? Who knows. Commerce Clause jurisprudence is in a serious state of confusion ever since Lopez and Morrisson. I think you have to look at Rehnquist et al.’s somewhat convoluted examination of the commerce clause and their notions of “Federalism” to get a sense of what’s happening. It also resonates with their jurisprudence around congressional abridgment of state sovereign immunity under the 14th amendment. See Garrett.
It seems the Courts are having trouble with aggregation and the tension between the population and the individual. Ultimately, I think the problem is being stuck with an 18th century notion of commerce and federalism when confronted with a complex interdependent national and global economy. I have read a few articles taking issue with these local tax credits under the WTO framework as well.
Wickard, at 317 U.S. 111 (1942) is a nice counter-example of what commerce clause jurisprudence used to be.
Comment by Mr. Smith — January 1, 1970 @ 8:00 am
Oops.. Kassell is the paradigmatic case for Dormant Commerce Clause cases.
Comment by Mr. Smith — January 1, 1970 @ 8:00 am
This seems to impinge on interstate commerce in that companies may move from state to state. So the federal government should have some say in regulating this activity.
Though, I have to agree: what activity doesn’t have some effect on interstate commerce in some tiny way? It would seem to me that the government needs good leeway to actually enable/regulate commerce but at the same time they might need better limits set on what “commerce” actually is.
I seem to recall some case about people growing tomatoes in their own back yard for their own consumption as falling under the commerce clause. Frankly, I think that’s taking things a little too far but how can such silly cases be separated from “good” applications of the power to regulate interstate commerce? Are we running into the wall of “for any set of laws there will be some unavoidable rediculous cases” that you have mentioned to me before?
Comment by mrz — January 1, 1970 @ 8:00 am
I believe the current judicial standard for Congressional authority is “substantial effect” although J. Breyer et al. prefer “significant effect” as the apporpriate test. MRZ refers to Wickard where Mr. Filburn was growing winter wheat and ran afoul of FDR’s Sec. of Agriculture and the New Deal.
Comment by Mr.Smith — January 1, 1970 @ 8:00 am