Supreme Court sides with big business

Scott Tong May 15, 2006

KAI RYSSDAL: The Supreme Court came down on the side of big business today. Tax policy was the issue at hand. The big breaks states use to get companies to open factories or build headquarters. All nine justices voted to throw out a challenge to those subsidies. The ruling was mostly on legal technicalities. So it leaves some policy questions hanging. Marketplace’s Scott Tong reports.

SCOTT TONG: A group of taxpayers in Ohio brought the case. They argued the state violated the Constitution by giving Chrysler $300 million in tax breaks to stay in Ohio. The justices didn’t get to the merits of the case — they ruled the plaintiffs had no right to sue in the first place. That means aggressive states like Alabama can keep dangling tax incentives to draw business.

BRUCE ELY: They call us the Detroit of the South now.

Bruce Ely is with the Business Council of Alabama. Thirteen years ago, the state provided $253 million to lure a Mercedes factory. Deals with Hyundai and Honda followed, and Ely says there’s more coming.

ELY: Our industrial recruiters are always on the lookout for other manufacturers, other white-collar, high-tech types of industries. And we have several in the works now, I believe.

So, build the incentives and they will come. Right? . . . Faulty assumption, says Peter Fisher of the University of Iowa. He says economists have looked hard at this.

PETER FISHER: The overwhelming conclusion is that in most cases it was not the incentives that were responsible when a firm did choose to locate in state X or city Y.

Factors like highways and schools are way more important than tax breaks. Still, Greg Leroy of the nonprofit Good Jobs First, notes lawmakers just can’t help themselves. They keep giving out subsidies — which result in photo ops and groundbreaking ceremonies.

GREG LEROY: If the economy’s slack, the justification is that, Well, we’ve got to stimulate jobs and stimulate the economy. If the economy’s flush, we’ve got more money to give away.

That’s why companies play hard to get with these politicians — to attract maximum subsidies.

In Washington, I’m Scott Tong for Marketplace.

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