The Wrongs of States’
Rights
By
Phil Mattera for the Dirt Diggers
Digest
 |
| For more cartoons by Mike Luckovich, CLICK HERE |
It’s
true that the revelations about offshore tax havens have mentioned domestic
counterparts such as Delaware, Nevada and Wyoming, but officials in those
states don’t seem to think that any action needs to be taken.
As
the headline of an article in the BNA Daily Tax
Report put it: STATES GIVE GROUP SHRUG TO PANAMA PAPERS.
One
reason for the tepid reaction is that the criticisms have been heard before. As
BNA points out, a 2006 report from the Treasury Department’s
Financial Crimes Enforcement Network (FinCEN) listed the three states as being
especially appealing to those seeking to create shell companies.
Another
basis for complacency by the states is that their practices are part of a long
and unfortunate tradition in the United States politely called federalism, but
which is really a race to the bottom when it comes to oversight of corporations
and the wealthy.
Rockefeller’s
flagship firm Standard Oil of Ohio tried to get around this by creating the
Standard Oil trust, in which affiliates were nominally independent but were
actually controlled by a centralized board chosen by Rockefeller. Similar
trusts were created in a variety of other industries.
Standard
Oil’s transparent effort to circumvent state law was eventually struck down by
the Ohio Supreme Court, but by that time Rockefeller and other robber barons
had a new tool at their disposal: the willingness of some states to water down
their chartering regulations to make them more attractive to big business.
The
pioneer of this practice was New Jersey, which adopted a series of legislative
measures from the 1870s through the 1890s to make its regulations more
business-friendly.
During
this period, New Jersey became the destination of choice for trusts looking to
legitimize themselves by reincorporating in a state that had no problem with
bigness.
That
position was reinforced after Standard Oil made the Garden State its new base
of operations. Muckraker Lincoln Steffens took to calling New Jersey the “traitor state.”
Other
states sought to get in on this action. In 1899 Delaware adopted a corporation
law that was even looser than New Jersey’s and had lower incorporation fees and
franchise taxes. After New Jersey later changed course and went back to
stricter corporation laws, it was Delaware that became the new mecca of
corporations and has remained so to the present day.
Looser
chartering procedures not only helped large corporations get larger but also
made it easier for both businesses and wealthy individuals to set up the kind
of shell companies highlighted in the Panama Papers. The ability and
willingness of states to compete with one another to offer the most
corporate-friendly practices goes well beyond company formation and governance.
Two
areas in which the effects have been most pernicious are economic development
and labor relations. Starting in the 1930s but especially during the past few
decades, states have been willing to hand over larger and larger “incentive”
packages to corporations to lure investments.
For
example, in 2014, following a multi-state competition, tax haven Nevada gave away nearly $1.3 billion in taxpayer
revenue to get Tesla Motors to locate an electric-car battery plant in the
state.
Some
states also lure companies with the promise of weak or non-existent labor
unions. Ever since the Tart-Hartley Act of 1947, states have had the right to
enact laws outlawing union security provisions in collective bargaining
agreements.
These
so-called right-to-work laws tend to weaken the ability of unions to organize
while saddling existing unions with lots of free riders who don’t contribute to
the cost of running the organization.
It’s
widely understood that the notion of states’ rights is often a smokescreen for
racial discrimination, but it’s also part of what enables other retrograde
practices such as union-busting, corporate welfare and tax dodging.