Congress needs to stop state tax shakedowns

The Manhattan Institute's Steven Malanga in City Journal has an article titled “The State Tax Grab” on how states —especially New York, New Jersey, California, Massachusetts and Michigan -- have been extending their tax reach beyond all reasonable bounds. Here is one example, from New Jersey:

"Until recently, one of the most aggressive — and, to businesses, infuriating — assertions of tax nexus took place in New Jersey. According to congressional testimony by owners of trucking companies and the American Trucking Associations, beginning around 2000, revenue agents from New Jersey’s department of taxation began descending on truck stops, weigh stations, and loading docks and waylaying trucks, demanding that the owners pay at least Jersey’s $1,100 minimum corporate-franchise tax before letting the drivers proceed. Many of the vehicles — about 40,000 have been stopped — worked for companies with zero connection to New Jersey, other than making a pickup or delivery there. New Jersey was, in essence, charging a $1,100 entry fee into the state."

As Malanga points out, such tax-grabbing is probably prohibited by Article I, Section 8, Clause 3 of the Constitution giving Congress power to regulate interstate commerce. But small businesses socked with such taxes often choose to pay up rather than bear the expense of litigation. Congress could act to stop such tax-grabbing, but as Malanga shows it has been dithering instead.

Conservatives like to talk about federalism as if the Constitution was written to limit the government and give leeway to the states. But as Michael Greve (a former colleague at the American Enterprise Institute) writes in his brilliant and fascinating book The Upside-Down Constitution, when it came to commerce, the Framers were interested in preventing the states from putting burdens on interstate commerce and discriminating in favor of local interests, particularly local cartels and monopolies.

The idea was to create a wide internal free trade zone to allow commerce, entrepreneurialism and innovation to flourish. Taxes like New Jersey’s shakedown of truck drivers, in this view, are exactly the sort of thing the Framers wanted to prevent.

The efficient way to do this is for Congress to step in, as it has by temporarily banning state taxes on Internet sales. States should not be able to tax people who are just passing through.

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

Making Ryan's tax plan smarter
image The teacher evaluation confronts the future
image How to reform the US immigration system
image Inversion hysteria
AEI on Facebook
Events Calendar
  • 01
    MON
  • 02
    TUE
  • 03
    WED
  • 04
    THU
  • 05
    FRI
Wednesday, September 03, 2014 | 9:00 a.m. – 10:30 a.m.
From anarchy to Augustus: Lessons on dealing with disorder, from Rome’s first emperor

We invite you to join us for two panel discussions on how Augustus created order from chaos 2,000 years ago, and what makes for durable domestic and international political systems in the 21st century.

Wednesday, September 03, 2014 | 12:00 p.m. – 1:30 p.m.
Multiple choice: Expanding opportunity through innovation in K–12 education

Please join us for a book launch event and panel discussion about how a marketplace of education options can help today's students succeed in tomorrow's economy. Attendees will receive a complimentary copy of the featured book.

Thursday, September 04, 2014 | 12:00 p.m. – 1:30 p.m.
How conservatives can save the safety net

Please join us for a luncheon event in which our panel will discuss what conservatives can learn from how liberals talk and think about the safety net and where free-market economics, federalism, and social responsibility intersect to lift people out of poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.