Professor Peter Enrich Enrich turns theory into practice with triumph over corporate welfare

Nine years ago, Professor Peter Enrich published an article in the Harvard Law Review arguing that the preponderance of state and local tax breaks for business are unconstitutional. This fall, after hearing oral argument from Enrich himself, the Sixth Circuit Court of Appeals ruled that Ohio's investment tax credit -- which allows corporations to offset their corporate franchise taxes in proportion to new machinery and equipment they locate in the state -- violates the Constitution's commerce clause.

The suit began five years ago when DaimlerChrysler decided to replace its massive Jeep assembly plant in Toledo, Ohio, by extracting a package of more than $300 million in incentives from the city and state to keep the replacement plant in Toledo. Ralph Nader, who had read Enrich's article, convinced the law professor to test his argument by litigating against Ohio, Toledo and DaimlerChrysler to end the tax breaks.

The Sixth Circuit declined to strike down the other tax break challenged in the case, a 10-year exemption from local personal property taxes, which the court found did not discriminate between in-state and out-of-state investment, and it suggested that direct subsidies to DaimlerChrysler in an amount equal to the investment tax credits could pass constitutional muster. Still, there is no doubt that this is a major victory, destined to resonate in the 40 other states using similar tax credits to lure corporations.

"The Sixth Circuit's decision marks an important turning point in the fight against the endless proliferation of tax breaks for large, mobile businesses," said Enrich, who served as general counsel to the Massachusetts Executive Office for Administration and Finance before joining the law school faculty. "It promises sharp limits on the kinds of incentives that states and cities can offer to companies and hopefully will invite a broader public dialogue about the wisdom of states giving away their tax bases in a futile effort to outbid other jurisdictions. This case has created a major stir among businesses that benefit from the tax breaks and state officials who derive political benefits from granting them. An array of these groups, along with the defendants, are seeking to reverse the ruling by an en banc rehearing."

The case has also generated signficant media attention, from articles in the local Ohio press to The Wall Street Journal and The New Yorker.