Suppose executives from Company A, an over-the-counter medicine manufacturer, are told by their marketing team that their product, which they claim will relieve the common cold, is losing consumer appeal as well as money. Meanwhile, Company B, another firm in a similar line of business that has developed a different remedy, is winning over new customers and reaping additional profits as a result.
 
In a market-based economy where the laws of supply and demand rule, company A’s executives would tell their marketing team to come up with a better ad campaign, or tell their researchers to come up with a new and improved product that will recapture their market share from Company B.
 
But suppose instead that Company A and Company B operate in a market where powerful politicians rule. Company A throws its dwindling supply of cash into lobbying public officials rather than competing honestly against Company B. Through pressure tactics, wining and dining “the right people,” promises of electoral support, and campaign contributions, the lobbyists succeed in getting a new tax enacted on Company B whose revenues are transferred directly to Company A.
 
Most citizens who believe in the principles of fair play and limited government would find that scenario outrageous, almost impossible to believe. Well, prepare to be outraged.
 
In 2006, the Illinois Legislature invoked a 3 percent surcharge on Illinois’ top-performing casinos. Those revenues, as directed by the statute, were to be transferred in whole to Illinois racetracks with no funds being contributed to state programs. That law sunsetted, but was strong-armed once again through the Illinois Legislature in November 2008.
 
The second bill earned notoriety after transcripts were released by the U.S. Attorney’s office late last year. The 2008 legislation is alleged to be one of the pay-to-play schemes constructed by Rod Blagojevich, the scandalized former governor. He has been accused of trading his support for the bill for campaign donations from the racetrack industry.
 
However they feel about the gambling industry, each and every taxpayer ought to be concerned over this kind of arbitrary and politically tainted policymaking. If taxes can be used simply as transfer mechanisms from unpopular industries or companies to popular ones, there is no limit to the economic mischief that public officials could make.
 
America’s tax system is already complex enough, much of it due to laws enacted out of political rather than fiscal or economic considerations. According to a National Taxpayers Union study conducted last year, the cost for compliance with the federal tax system by corporations is $156.5 billion. To put that figure into perspective, it represents 44 percent of the $353.9 billion of corporate income taxes collected in FY 2006. Small business owners, meanwhile, face huge compliance burdens of their own. An IRS estimate published last year determined that self-employed taxpayers who file Form 1040 and associated schedules toil the equivalent of a two-week paid vacation – over 80 hours in all – working for the IRS to satisfy the requirements of the
tax laws.
 
Imagine how much worse this problem would be if the kind of blatant tax favor-trading embodied in the Illinois statute were allowed to take root across the country. Fortunately, taxpayer advocates are fighting back. After see-sawing back and forth through the Illinois judiciary system, a lawsuit against the tax by the casinos against the State Treasurer (Empress Casino Joliet Corp. .v Giannoulias) may reach the door of the U.S. Supreme Court. Should the nation’s highest court decide to hear the case, Illinois’ odious tax and the flawed motivation behind it could be stopped dead in its tracks.
 
That’s where National Taxpayers Union, the Grassroot Institute of Hawaii, Hawaiian Values, and Small Business Hawaii come in. These four organizations have joined with six other citizen groups and think tanks from across the country in filing a Friend of the Court, or amicus, brief urging the nine Justices to take up Empress v. Giannoulias. The amici assert that a law forcing one segment of an industry to directly support another industry imposes a taking without just compensation in contravention to the Fifth Amendment of the U.S. Constitution. Furthermore, the brief argues, if the law at issue is not subjected to scrutiny under Amendment V’s “Takings Clause,” states everywhere (including Hawaii) may be inclined to enact similar subsidies – and with them a corrupt, undemocratic process that the Framers of the Constitution would have abhorred.
 
NTU’s collaborative amicus brief is just one of at least six being filed in Empress v. Giannoulias, meaning the case may have a better chance of attracting the Court’s attention and making it through a normally difficult docket process. Taxpayers cannot afford to take a gamble with unethical political practices such as these. Unless the Supreme Court intervenes, the trend of levying discriminatory taxes will worsen, and taxpayers everywhere will suffer. And the disease will be harder to cure than even the common cold.

-GIR- 

Pete Sepp is Vice President for Policy and Communications for the 362,000-member National Taxpayers Union (ntu.org), a nonpartisan citizen organization founded in 1969 to work for lower taxes, limited government, and economic freedom at all levels. NTU has nearly 2,000 members in Hawaii.