If we can't stop internal domestic discrimination, how are we ever going to stop it in the international arena? The recent U.S. Supreme Court decision in Davis v. Kentucky Department of Revenue dealt with the issue of explict tax discrimination against out-of-staters. As explained on ScotusWiki:
At issue in Davis is a provision in Kentucky’s income tax law that taxes interest income from bonds issued by other state and local governments while providing an exemption for interest from Kentucky bonds. Two Kentucky taxpayers challenged the law, arguing that the tax discriminated against holders of out-of-state bonds and thus violated the Commerce Clause. Kentucky’s intermediate appellate court agreed. It held that the state’s scheme for taxing bond interest was unconstitutional, “as it obviously affords more favorable taxation treatment to in-state bonds than it does to extraterritorially issued bonds.”
So, the measure at issue is a Kentucky state law that gives a tax advantage to interest income on Kentucky government bonds as compared to other states' bonds.
The Supreme Court majority found that the Kentucky law did not violate the dormant commerce clause. There were a number of separate opinions, discussing a bunch of issues, but of key importance seemed to be the following two points. First, as a NY Times piece noted about the majority view:
All 49 other states had filed a brief urging the Supreme Court to overturn the Kentucky court and uphold the state preference. In his majority opinion, Justice David H. Souter cited the states’ unanimity as evidence of the enormity of what the court was being asked by the plaintiffs to do.
Basically, every state does this, and the Court was reluctant to overturn such an established practice.
In addition, there was the notion that this law involved a "public function" of government, as had a recent case, and for that reason did not violate the dormant commerce clause.
What interested me more, though, was Justice Kennedy's dissent. He started it this way:
Eighteenth-century thinkers, even those most prescient, could not foresee our technological and economic interdependence. Yet they understood its foundation. Free trade in the United States, unobstructed by state and local barriers, was indispensable if we were to unite to ensure the liberty and progress of the whole Nation and its people. This was the vision, and a primary objective, of the Framers of the constitution. History, as we know, vindicates their judgment. The national, free market within our borders has been a singular force in shaping the consciousness and creating the reality that we are one in purpose and destiny. The Commerce Clause doctrine that emerged from the decisions of this Court has been appropriate and necessary to implement the Constitution’s purpose and design.
These general observations are offered at the outset to underscore the imprudent risk the Court now creates by misinterpreting our precedents to decide this case. True, the majority opinion, wrong as it is, will not threaten the whole economy or national unity on these facts alone. The explicit, local discrimination the Court ratifies today likely will result in extra, though manageable, accommodation costs and can be welcomed by existing interests ready to profit from it. This market perhaps can absorb the costs of discrimination; our jurisprudence, unless the decision stands alone as an anomaly, cannot.
Reactive institutions and adjusting forces—for instance mutual funds for state and municipal bonds issued within a single State—already are in place in response to the local protectionist laws here at issue and now in vogue. These mechanisms may allow the market, though necessarily distorted by deviation from essential constitutional principles, to continue to cope in a more or less efficient manner; and the damage likely will be limited to the discrete, and now distorted, market for state and municipal bonds. Many economists likely will find it unfortunate, and inefficient, that a specialized business has emerged to profit from a departure from constitutional principles. Even if today’s decision is welcomed by those who profit from the discrimination, the system as a whole would benefit from a return to a market with proper form, freed from artificial restraints. It does seem necessary, however, to point out the systemic consequences of today’s decision—if only to confine it and to discourage new experiments with local laws that discriminate against interstate commerce and trade.
And he concluded:
... today the Court weakens the preventative force of the Commerce Clause and invites other protectionist laws, thus risking further dislocations and market inefficiencies based on the origin of products and commodities that should be traded nationwide and without local trade barriers.
Wow! If there had been more of this kind of talk when I was taking con law, I might have focused on that instead of trade law. After reading this, I'd really like to see Justice Kennedy take on GATT Article III:4!
In addition to Kennedy, Scalia and Thomas also had interesting things to say. From Scalia:
JUSTICE SCALIA, concurring in part.
I join all but Part III–B and Part IV of the opinion of the Court. I will apply our negative Commerce Clause doctrine only when stare decisis compels me to do so. In my view it is “an unjustified judicial invention, not to be expanded beyond its existing domain.”
I read this as saying he doesn't much like the dormant commerce claus doctrine, but he won't go so far as to get rid of it entirely. Rather, he'll just keep it as narrow as possible, e.g., no state-imposed tariffs on out of state goods.
As for Thomas, it seems as though he would go further than Scalia in reversing the doctrine:
JUSTICE THOMAS, concurring in the judgment.
I agree with the Court that Kentucky’s differential tax scheme is constitutional. But rather than apply a body of doctrine that “has no basis in the Constitution and has proved unworkable in practice,” I would entirely “discard the Court’s negative Commerce Clause jurisprudence.” ... Because Congress’ authority to regulate commerce “among the several States,” U. S. Const., Art. I, §8, cl. 3, necessarily includes the power “to prevent state regulation of interstate commerce,” United Haulers, supra, at ___ (slip op., at 2) (THOMAS, J., concurring in judgment), the text of the Constitution makes clear that the Legislature—not the Judiciary—bears the responsibility of curbing what it perceives as state regulatory burdens on interstate commerce.
Thomas seems to say that it is entirely up to the (federal) legislature to address the problem of state protectionism. Would he go so far as to say that tariff duties imposed by a state on products from other states are constitutional?
More commentary from SCOTUSBlog here.
