Tax Subsidies Piece in the P-G Goes Missing

Chris Briem has an excellent op-ed in today's Post-Gazette business section that hasn't shown up, yet at least, on the paper's website. A quick summary can't do it justice, but in short, Chris argues that an upcoming United States Supreme Court case -- Cuno v. DaimlerChrysler -- isn't getting the attention that it deserves. Cuno, which comes out of the Sixth Circuit Court of Appeals, analyzed income tax breaks (investment tax credits) that Ohio offered to DaimlerChrysler as incentives to get an auto factory built in Toledo. The Court of Appeals ruled that the credits were unconstitutional under the Commerce Clause.

Chris argues that these kinds of deals are both incredibly common and incredibly problematic as a policy matter precisely *because* of their one-off nature. Instead of figuring out what across-the-board state and local policies are good for economic development, state and local officials tax-break-and-wheel-and-deal their way to one good-looking project after another.
What would it mean if state and local governments could not offer such packages in the future?

Some say it will mean the end of tax reform as we know it. But if unable to offer firm-specific incentive packages, state tax laws may be forced to address broadly the question of what tax structures promote investment and growth.

No longer would there be the distortions that are generated by project specific incentives. There will even be less need for lobbyists whose sole job is to promote particular projects and gain government support. The savings from that alone could be incalculable.

Chris doesn't draw the connection between Cuno and a better-known (or infamous) recent case -- Kelo v. New London, the case that narrowly upheld local authorities' discretion to define circumstances under which condemnation of private property was appropriate. The cases arise under different parts of the Constitution, but they raise similar questions for local development authorities: Are there any legal limits on what tools those authorities can use to promote development? From that point of view, condemnation and tax credits are flip sides of the same coin. The Supreme Court may not look at the problem as an integrated one, but if it does, you might see Cuno decided like Kelo was -- and investment tax credits restored. On the other hand, if you didn't like Kelo, then -- maybe -- you should like the idea of banning one-off tax subsidies for specific projects.

Meanwhile, Chris couldn't have expected that the P-G would run his piece on the top half of a page that also carried this letter from local investor Robert Capretto, praising Rick Santorum for intervening with federal authorities to come up with a $4.8 million federal highway subsidy to make the Tech21 project -- Medrad's new corporate home -- a reality. So much for abandoning government subsidies that distort overall policy judgments about growth!

UPDATE (1/18): Chris Briem's piece is now online.


2 Responses to "Tax Subsidies Piece in the P-G Goes Missing"

Wishful Thinkin said... 1/18/2006 11:31 AM

Might someone be bold enough to stand up and test this one around here?

Amos_thePokerCat said... 1/21/2006 9:08 PM

Hmm, the link seems broken. Here is what I found.

The Private Sector: The end (or the beginning) of tax competition as we know it?

I had forgotten about VW. Classic PA. We bid up tax credits for one of the few foreign car makers that loses market share. (Other than Fiat, but Fiat was already gone by then. Otherwise we would have given them credits too.) Meanwhile in Marysville Ohio Honda chugs along.

Wow, I just noticed Cuno v. DaimlerChrysler was from Sept, 2004. Grinding slow, and fine. TaxProg blog (mis)links to a Tax Foundation publication, that Chris refs to as "some say". The Tax Foundations objects are not the most stright forward. I interpret it that they really do not want a one size fits all court mandated tax system.

First, the court's holding could be extended beyond targeted tax credits to more broad corporate tax reform or other efforts to increase state investment. ...

Second, the court attempts to limit its ruling to tax incentives and declare that direct state subsidies or grants made in an effort to increase in-state investment would not meet a similar fate as the investment tax credit. ...

The Cuno decision casts a dangerous shadow over the entire notion of tax competition among the states, and seems to point toward court-imposed tax uniformity in the future, a step the U.S. Supreme Court has explicitly refused to take in the past.(23)

To be sure, the current state system of tax incentives and subsidies creates dead-weight economic loss and violates the neutrality principle of sound tax policy. But, while it will undoubtedly put a damper on the states’ use of such incentives, the Cuno decision could have a chilling effect on tax competition between the states overall.

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Pittsblog 2.0 is written by Mike Madison, a law professor at the University of Pittsburgh. Send email to michael.j.madison[at] Mike also blogs at, on law and technology. Chris Briem of Null Space drops by from time to time.

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