When Chrysler's Jeep Runs Over the Little Guy: by Amity Shlaes

March 1 (Bloomberg) — If you want to send your general counsel through the roof before his coffee, tell him you're on the Cuno side of DaimlerChrysler versus Cuno, a case the U.S. Supreme Court will hear today.

Provoking the lawyer's rage may not be worth it, since the Court may have decided to hear this case about corporate tax breaks just to shoot down the Cuno side. Besides, Ralph Nader is on the Cuno side, hardly an inspiring sign.

Cuno is important, and not only because it has the potential to affect many manufacturers. Federalism — the doctrine that emphasizes states rights — is a wonderful thing. But Cuno reveals federalism's sanctimonious side: the side that says "state's rights, always, above all else."

Consider the story: Back in the mid-1990s, Toledo, Ohio, decided it would do just about anything to stop Chrysler from moving production of its Jeep elsewhere. Chrysler stayed, but only after officials promised $280 million in breaks through the state's investment-tax credit and other vehicles.

Now Charlotte Cuno, a private citizen from West Toledo, has joined other taxpayers in arguing that Ohio didn't have the right to give those breaks. In 2004, a federal appeals court gave the lawyers their first shock when it said the taxpayers were right. The Commerce Clause of the U.S. Constitution says Congress has the power to "regulate Commerce, among the several states."

It's Basic

The judges said that Ohio was violating the clause by discriminating against out-of-state business activity when it favored Chrysler for staying in-state. Sustaining this finding would do violence to American law, Theodore Olson, the lawyer for Chrysler, will argue. After all, the right of states to decide how they tax is basic federalism.

Olson's brief quotes the late Supreme Court Justice Louis Brandeis, who three quarters of a century ago remarked that the variety of state laws areas was one of the "happy incidents of the federal system." Law professors sometimes use benign floral images when discussing this concept —"let 50 flowers bloom," as if the states were geraniums.

DaimlerChrysler's defenders also point out that this is a wild case. A finding for the taxpayers would be improbably tardy. After all, American manufacturing acts as if it lives and dies for these breaks.

Compelling Story

But the less-visible side of this story also is compelling. The Jeep factory didn't create as many jobs as expected. It led to the destruction or removal of 83 homes and 16 businesses, including Kim's Auto and Truck Service, owned by Herman and Kim Blankenship. "Our property was just a strawberry on the corner for them," Herman Blankenship said yesterday.

Last year, in another case, the Supreme Court ruled that New London, Connecticut, could seize private property for public use on the eminent domain principle even when that public use meant high-end condos. Later in 2005 the Supreme Court also refused to hear the Blankenships' plea for their right to retain their shop off Interstate 75.

This time Charlotte Cuno and the others have dropped eminent domain — the first principle at issue — and are making a different argument: that, as Ohio taxpayers, they have the right to ask whether the state may pick and choose whom to give tax benefits.

'Is It Fair?'

The lawyer arguing the Cuno side, Peter Enrich of Northeastern University, will say that taxpayers such as Cuno and the Blankenships wrongly lost out when Ohio sacrificed that tax revenue. Cuno, whose grandchildren have been in failing schools, put her case simply yesterday: "Is it fair the city is coming to us to subsidize DaimlerChrysler?"

The Cuno side will also note that such targeted tax deals usually don't create all the advertised benefits. They're right. When states fight over companies, it leads to a shifting of resources, but not always much economic growth.

This insight has had trouble making it into the courtroom. Part of the problem is money. After all, as Terry Lodge, who represents the Ohio taxpayers along with Enrich, points out, it is almost impossible for individual taxpayers to assemble the dollars that state lobbies can to mount legal fights. Today the states are more like 50 piranhas than 50 flowers. Add in the city lobbies, the corporations, and the others filing briefs against Cuno and you have a multibillion-dollar force.

But there is a second reason that getting the taxpayer into the federal courtroom is hard: historically, federal courts have not agreed that taxpayers have the right to bring such beefs to federal court.

Such imbalances would have displeased the old federalists. Brandeis felt so strongly about the size problem that he wrote a book titled "The Curse of Bigness."

There are two solutions here: the first is let an even bigger behemoth, the federal government, run it all. That's probably what those farthest on the left in this case want.

But there's also a federalist solution, as opponents of the abuse of eminent domain are now demonstrating. State by state, the opposition is sponsoring laws that limit government seizures of property to a reasonable standard of public use. This also is the way to challenge corporate tax breaks. The rest of us need to support the taxpayer leagues in towns to help them raise the funds to beat the corporate lobbies.

For now, what DaimlerChrysler versus Cuno reminds us is simply that federalism doesn't automatically stand for the little guy. And that self-important federalism is a problem worth acknowledging, even at the cost of a little spilled coffee.

(Amity Shlaes is a Bloomberg News columnist. The opinions expressed are her own.)

© Copyright 2006 Bloomberg

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