Facing South

Stakes are High as Supremes Take Corporate Subsidies Case

Yesterday's news that the Supreme Court will be hearing DaimlerChrysler Corp. v. Cuno -- the landmark case out of Ohio about corporate subsidies -- was big news about one of the biggest issues facing state and local governments today.

Every year, cash-strapped states, counties and towns spend over $50 billion in giveaways to corporations to lure them to set up shop or expand in their area. Tax breaks, cheap land, low-interest bonds, cash grants -- these are all part of arsenal of "incentives" -- really give-aways -- that corporations receive to ostensibly create jobs, but what author Greg LeRoy calls the "Great American Jobs Scam." The deals are usually made in secret, often don't create many jobs, and rarely protect wage and environmental standards -- all while busting local government budgets.

Southern states are among the most notorious subsidy-givers, with states like Alabama, Mississippi, and North Carolina recently shoveling deals over $200 million to lure footloose factories.

The Cuno case could change all that. A group of Ohio taxpayers challenged a multi-million deal to lure DaimlerChysler, who promised to build a Jeep plant in Toledo. The plaintiffs challenged that the subsidies were a violation of Commerce Clause, which protects "free trade between the states" (since the goal of incentive deals is to keep plants from opening elsewhere). The lower court shot down the challenge, but on appeal the 6th U.S. Circuit Court ruled against DaimlerChrysler and the subsidies last October.

Powerful business interests quickly sprung into action, with the U.S. Chamber of Commerce and several leading corporations filing supportive briefs for DaimlerChrysler's request that the Supreme Court overturn the 6th Circuit Court's decision. The Supremes agreed, taking on Cuno as one of just 11 cases they'll consider in their new term starting Monday.

Corporations that have been milking corporate subsidies for decades are right to be concerned. As their brief argues, the decision "calls into question the constitutionality of all state income tax and related business incentives." The plaintiffs also sense the national significance of their case, arguing that their goal is to "free all the state from the necessity of engaging in an escalating competition over incentives that deprives them of needed revenues."

Cuno isn't the only challenge to runaway corporate giveaways. Robert Orr, a conservative former North Carolina Supreme Court justice, filed a suit this summer challenging a $280 million handout to Dell Corp. Orr's suit argues that the subsidies to Dell violates state constitutional prohibitions against the use of public resources for private benefit and fail to treat taxpayers equally.

Momentum is building across the political spectrum to stop the corporate giveaway game. However the Supreme Court rules in Cuno, the case is giving a vital issue much-needed exposure.

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