don't call it a comeback

I anticipated having plenty of time to devote to this blog during this final year of law school. Alas, things have not progressed as planned, as I underestimated the efforts it would take to find a job and to effectively serve as president of a student group. Not to mention that I am by no means planning to slack off in any of my course work.

That being said, this blog has been neglected I am not going to let it die. Up to now the majority of this forum has used to discuss news blurbs concerning state tax breaks and incentives and policy ramifications. I am going to keep to that format, but I will also look more closely at the legal background of tax breaks. I will do this by looking at case law that I come across and scholarly articles. By no means, however, will I be able to cover everything I should or want to.

I just took at look at an article published last winter by the Georgetown Journal of Law & Public Policy. The article was published in conjunction with a symposium they held entitled "DaimlerChrysler v. Cuno and the Constitutionality of State Tax Incentives for Economic Development." The title of UCLA law professor Kirk J. Stark's and Federal Reserve Bank of San Francisco economist Daniel J. Wilson's article was "What Do We Know About the Interstate Economic Effects?" (available at 4 Geo. J.L. & Pub. Pol'y 133).

The authors show that while there has been quite a bit of economic research on the intrastate effects of state tax breaks and incentives, little has been done on the interstate effects. For instance, the economic studies reviewed by the authors "say nothing about either the out-of-state or nationwide effects of any one state's investment tax incentives." The authors cite only one study that lends "support for the view that a state's adoption of R&D tax credits has adverse practical effects on the level of R&D undertaken within other states."

In short, as to the question posed in the title of their article, Stark and Wilson conclude that "research in this are rarely provides unqualified guidance regardin the economic effects of state incentive programs. . . . [E]ven the most sophisticated econometric studies should be interpreted with caution. Incomplete data, contestable assumptions, and other limitations of econometric modeling limit our ability to derive strong conclusions from existing research."

According to the authors, this conclusion is important because the Supreme Court "may be looking for concerete empircal verification of the interstate economic effects of state laws challenged under the dormant Commerce Clause. Indeed, the general trend in the Court's dorman Commerce Clause jurisprudence seems to be in the direction of taking account of the practical economic effects of challenged state laws in order to determine their constitutionality." The idea of "concrete empiral verification" is taken from the recent Supreme Court case of American Trucking Associations, Inc. v. Michigan Public Service Commission, 125 S. Ct. 2419, (2005), which reviewed a $100 fee imposed by the Michigan state government on "vehicles that engage in intrastate commercial operations." Stark and Wilson find it important that the Court discussed "the importance of evaluating the practical economic effect of the challenged law. For example, the Court observed that 'the record contains little, if any, evidence that the $100 fee imposes any significant practical burden upon interstate trade.'" (emphasis added by Stark and Wilson).

And so, in spite of the dearth of research on the interstate effects on state tax breaks and incentivces,

the Supreme Court's increased emphasis on "practical economic effects" in its dormant Commerce Clause jurisprudence brings econometric research to the center of constitutional analysis. This gulf between what is knowable and what the Court wants to know raises concerns of institutional competence, calling into question the Court's role as the chief protector of the "free trade zone" among the several states. We offer no solutions to this dilemma here; however, we emphasize that judicial caution should not necessarily translate into a reluctance to declare state tax incentives unconstitutional. Striking down state laws may appear to be the more activist course, yet letting them stand is an equally consequential decision.

Overall, the article presents a nice consideration of the above issues as well as a summary of Supreme Court dormant commerce clause jurisprudence. The articles thoughts were really never put into play, as the Supreme Court decided Cuno on a standing techicality.

However, there is one troubling aspect of the article, which comes at its conclusion. The authors suggest that "[p]erhaps the best outcome for the Cuno controversy would be a decision that prompts Congress to undertake a careful and thorough evaluation of the nationwide effects of state tax incentives." This is a bad idea, as Congress is reasonbly competent at few things, let alone at engaging in a "careful and thorough" economic evaluation. Economic expertise is lacking in Congress, but partiality is not. Rather than reviewing the effects of state tax breaks from the perspective of a whole nation, those in Congress would find data that would support their constituents' view on the subject.