Professor leads small group in battle with legal giants By Sacha Pfeiffer, Globe Staff | March 2, 2006 WASHINGTON -- You might call it Peter vs. Goliath. Peter D. Enrich, a mild-mannered, 55-year-old philosophy teacher-turned-law professor, did yesterday morning what for many lawyers marks the pinnacle of their careers: He argued his first case before the US Supreme Court. Besides his academic salary, Enrich, who teaches law at Northeastern University, was not paid for his services. For legal assistance, he relied on the volunteer work of about 50 Northeastern law students, many of whom spent nights and weekends preparing the case, sometimes at Internet cafes. He estimates that his out-of-pocket costs, mainly for filing fees, photocopying, and travel expenses, have hit barely five figures over the past decade. His appearance before the Supreme Court was only the second oral argument he had made in a courtroom in his life. He faced a mighty legal machine. The defendants in the case, a challenge to the constitutionality of tax breaks used by states to lure and retain businesses, include DaimlerChrysler Corp., which used three private law firms to represent it; the State of Ohio, represented by its attorney general's office; the City of Toledo, backed by its law department; and, at an earlier stage, two Ohio school districts, which also hired a private firm. The attorneys for DaimlerChrysler included former US solicitor general Theodore B. Olson, now a private practitioner, who may be best known as the lawyer for George W. Bush in Bush vs. Gore, the epic legal battle over the disputed 2000 presidential election. Olson, who argued against Enrich yesterday, has made 43 Supreme Court appearances. ''We're litigating against the Ohio attorney general's office and DaimlerChrysler, which has tens of millions of dollars at stake here and has hired some of the best and largest law firms in the country," Enrich said. ''On our side are three lawyers, none of whom has a firm behind them, and as many law students as we can recruit." Enrich's journey to the Supreme Court began 10 years ago, when he published a 1996 Harvard Law Review article arguing that state corporate tax breaks violate the US Constitution's Commerce Clause. The article triggered an out-of-the-blue phone call from consumer advocate Ralph Nader, who recruited Enrich to use that legal theory to file a lawsuit challenging Ohio's investment tax credit. ''I came back from teaching a class, and there was a message on my voice mail saying, 'This is Ralph Nader. Would you give me a call?' " recalled Enrich, who had never met Nader. ''I saved it as long as I could save it." Enrich was joined by Terry Lodge, a Toledo solo practitioner who represented several Toledo taxpayers and small businesses. They filed suit challenging a $280 million tax incentive package used by Ohio in 1998 to persuade DaimlerChrysler to build a $1.2 billion auto plant in Toledo rather than in neighboring Michigan. Alan B. Morrison, a Stanford law professor, rounded out their legal trio. As expected by both sides, Enrich's moment in the Supreme Court sun yesterday was less Hollywood, more like tax court. Much of the debate focused on legal matters surrounding the case, such as whether the taxpayers who brought the suit have standing to do so, rather than the policy issue at its core: whether corporate tax breaks stimulate economic development or, as Enrich argues, are lavish giveaways with little or no economic benefit. But Enrich did face several skeptical policy-related questions from Justices Antonin Scalia, who asked whether taxes are political issues that should be decided by legislators, not courts, and David Souter, who questioned whether tax incentives such as Ohio's are truly discriminatory. The drier aspects of the case didn't deter the contingent of Northeastern students who did much of the case work, extensive research on a vast array of legal issues, including the history of the Commerce Clause and the intricacies of tax law. Students also helped write, edit, and review briefs; check citations and sources; and study the records of the individual justices to determine how they had decided past Commerce Clause cases. Many of them balanced the case work with normal coursework and co-op projects. All worked as volunteers, and some received independent-study credit. One third-year student, Catherine Bednar, co-oped full time on the case last quarter after working for Enrich as a part-time research assistant in the fall. In effect, they played the same role as associates at a private law firm. Aided by funding from the law school's Graduate and Professional Student Association, about a dozen of those students -- self-described ''con law junkies" -- traveled to Washington yesterday to hear Enrich argue the case, which fell during their spring vacation. ''Some people go to Cancun for spring break; we go to the Supreme Court," said Sukti Dhital, a third-year student who worked on the case. Added John Moore, a second-year student who also worked on the case: ''This is 'Law nerds visit D.C.' " ''It was once-in-a-lifetime experience," said Bednar, ''because you don't always get to work on a Supreme Court case, let alone as a law student." Sacha Pfeiffer can be reached at pfeiffer@globe.com. ---------------------------------- HIGH COURT TO EXAMINE CORPORATE TAX BREAKS By SACHA PFEIFFER, GLOBE STAFF March 01, 2006 Wednesday The constitutionality of a popular tax credit used by most states to lure and retain businesses will be challenged today before the US Supreme Court. Critics deride the tax breaks as corporate welfare that pit one state against another with little or no overall economic benefit, while supporters say the incentives are crucial for promoting economic development in a hyper-competitive international economy. The case involves $280 million in tax incentives used by Ohio in 1998 to persuade DaimlerChrysler Corp. to build a $1.2 billion auto plant in Toledo rather than in neighboring Michigan. A lawsuit challenging the tax breaks was brought by more than a dozen Toledo taxpayers and several small businesses, as well as several Michigan residents, who want the court to find Ohio's in vestment tax credit unconstitutional. The outcome has the potential to affect a wide array of similar tax breaks offered by state and local governments across the country. Such breaks, which are used by almost all 50 states and thousands of local governments, come in various forms, including sales tax credits, property tax credits, employment tax credits, and subsidized financing for capital projects. In the 1990s, Massachusetts approved hotly debated tax cuts and credits that benefited Raytheon Co. and Fidelity Investments after the firms threatened to move jobs or expand out of state. At the time, administration officials said the move would eventually produce $100 million a year in breaks for Raytheon, Fidelity, and other state residents and corporations. The legal issue at the crux of the Ohio case, Cuno v. DaimlerChrysler Corp., is whether Ohio's investment tax credit violates the Commerce Clause of the US Constitution, which has been interpreted to prohibit states from giving tax advantages to in-state businesses that unfairly burden out-of-state-competitors. The case is being closely watched by industry and government officials. Numerous friend-of-the-court briefs have been filed by supporters of the tax credit that include 36 states; automakers Ford Motor Co., General Motors Corp. and Nissan North America Inc.; and several national organizations, such as the National Governors Association and US Chamber of Commerce. Briefs supporting the suit have been filed by economists and public policy professors, and by research and policy groups such as Good Jobs First and the Center on Budget and Policy Priorities, both based in Washington D.C. Critics of corporate tax incentives argue that they have become lavish giveaways that businesses have not only come to expect, but have learned to manipulate by playing states off one another. The results, critics say, are bidding wars in which states engage in an escalating competition of expanding tax breaks, some of which benefit companies that were never considering out-of-state locations. "The states have been caught in this vicious cycle where they all have really no choice but to give bigger and bigger tax breaks to businesses to keep up with one another, and no one state can back away from that," said Peter D. Enrich, a law professor at Northeastern University who is scheduled to argue against the credit before the high court today. The ultimate victims, according to Enrich and other detractors, are residents who pay higher taxes to offset tax breaks granted to businesses, or who suffer the ill effects of states having fewer funds to pay for schools, roads, health care, and other public services. Corporate tax incentives have become politically popular tools for many governors and other politicians who use them to spur economic growth and job creation. Most state governments argue that tax incentives are necessary for them to remain competitive not only with other states, but other countries. Without the ability to offer tax incentives to lure business investment, states say, they would lose a critical tool for promoting economic development and creating jobs that might otherwise go overseas. "Ohio isn't just competing with Tennessee for these businesses, it's competing with Taiwan," said Ohio Solicitor Douglas R. Cole, who along with former Solicitor General Theodore B. Olson, now in private practice will argue in favor of the investment tax credit. Added Olson: "This is no more discriminatory than if Wal-Mart gives you 25 percent off and you choose to go there rather than to Target." But many economists say most tax incentives have little or no effect on economic development, and that taxes generally don't affect companies' decisions on where to locate. As a result, they say, states would be better off encouraging development by investing in education, technology, and infrastructure. "These state tax incentives are for the most part grossly inefficient and a waste of taxpayer money," said Robert G. Lynch, chairman of the economics department at Washington College in Chestertown, Md., and a research associate at the Economic Policy Institute in Washington, D.C. If the Supreme Court finds Ohio's investment tax credit unconstitutional, the ruling could spur similar lawsuits that challenge other business tax breaks. Such litigation is already underway in Minnesota and North Carolina. Sacha Pfeiffer can be reached at pfeiffer@globe.com. --------------------------------------------- LINING THE POCKETS OF BIG BUSINESS By PETER D. ENRICH February 28, 2006 Tuesday IN RECENT YEARS, states have found themselves caught in an accelerating competition to offer ever-larger tax breaks to big businesses. The rationale, aggressively marketed by corporate lobbyists, is that giveaways are necessary to attract business investment and jobs to a state, and that the resulting expanded business activity will more than pay for the lost revenues from the tax cuts. Reality, however, contradicts these claims. Several studies, including one by economist Robert Lynch in 2004 called "Rethinking Growth Strategies: How State and Local Taxes and Service Affect Economic Development," establish that state tax incentives have, at best, a minimal impact on businesses' decisions about where to locate their facilities. State taxes are simply too small a fraction of business costs (typically 1 to 2 percent) to be a major factor in siting decisions. Moreover, since all states are offering competing incentives, the differences are usually very small. When asked about the efficacy of business tax incentives during his confirmation hearings in 2001 to be US treasury secretary, Paul O'Neill, former chief executive officer of ALCOA, said: "As a businessman I never made an investment decision based on the tax code. If you give money away I will take it, but good business people don't do things because of inducements." The real effect of these tax breaks is a dramatic loss of state and local revenues. In 1997, the national cost of state and local incentives was estimated at $50 billion, and the numbers have grown dramatically since then. The result: heavier tax burdens on individual taxpayers and small businesses. And less money for education, infrastructure, and the other government services that the research shows are real factors affecting business decisions about where to locate. Nonetheless, state policy makers find it hard to say no to these giveaways. As long as other states are offering them, no one is ready to unilaterally disarm. And big businesses have become adept at playing states against one another to extract generous tax breaks. The states are caught in a vicious cycle of proliferating business incentives. The best hope for saving the states from this destructive competition lies in the courts. Tomorrow, the US Supreme Court will hear a case, DaimlerChrysler v. Cuno, in which the lower court struck down Ohio's investment tax credit, one of the most common incentive devices, because it discriminatorily favors in-state business activity. In fact, one of the primary purposes behind the Constitution was to put an end to tax wars among the states that were threatening to balkanize the national economy. Over the years, the courts have repeatedly stepped in to stop the states from using their tax systems to pursue parochial aims in ways that ended up hurting all of them. In particular, they have repeatedly forbidden a wide variety of state tax measures providing preferential tax benefits that are restricted to in-state business activity. The present array of location incentives are just the latest examples in that long history. Meanwhile, corporate lobbyists are already laying the groundwork for federal legislation to reverse the impact of a possible Supreme Court decision invalidating location-based tax incentives. But hopefully, once the court has acted, Congress will have the wisdom to save the states from the renewal of a rivalry that only lines corporate pockets. NOTES: Peter D. Enrich, a professor at Northeastern University School of Law, is representing the plaintiffs in the Cuno case.