Strategy or Principle? Strategy or Principle? The Choice between Regulation and Taxation Mark Kelman Ann Arbor Copyright © by the University of Michigan 1999 All rights reserved Published in the United States of America by The University of Michigan Press Manufactured in the United States of America c Printed on acid-free paper 2002 2001 2000 1999 4321 No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, or otherwise, without the written permission of the publisher. A CIP catalog record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Kelman, Mark. Strategy or principle? : the choice between regulation and taxation / Mark Kelman. p. cm. Includes bibliographical references and index. ISBN 0-472-11047-0 (acid-free paper) 1. Taxation—Law and legislation—United States. 2. Fiscal policy—United States. I. Title. KF6289 .K45 1999 343.7304—dc21 99-6269 CIP With the deepest love and gratitude to my parents, Kurt and Sylvia Kelman, and to the second set of parents I was lucky enough to acquire as an adult, my mother-in-law, Barbara Richman, and the memory of my father-in-law, Bud Richman Contents Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Chapter 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Chapter 2. Current Constitutional Practice . . . . . . . . . . . . . . . . . . . . . . . 7 Chapter 3. Constitutional Considerations (II): A Less Deferential Alternative . . . . . . . . . . . . . . . . . . . . . . . 43 Chapter 4. Prudential Concerns (I): Public Finance Considerations . . . . . . . . . . . . . . . . . . . . . . 75 Chapter 5. Prudential Concerns (II): Political Process . . . . . . . . . . . . 113 Chapter 6. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Preface I delivered a somewhat different version of this manuscript as the forty- second annual Thomas M. Cooley Lecturer at the University of Michigan Law School in October 1997. I am especially grateful to Dean Jeffrey Lehman and the faculty at Michigan, particularly Tom Green, Sam Gross, Michael Heller, Don Herzog, Rick Hills, Saul Levmore, Kyle Logue, Catharine MacKinnon, Deborah Malamud, Bill Miller, and Julie Roin, for being generous hosts and intellectually stimulating critics of my work. I am grateful as well to workshop participants here at Stanford for their probing questions and most of all to colleagues who read and responded to earlier drafts of the manuscript: Joe Bankman, Tom Grey, Peggy Radin, and especially Barbara Fried. I benefited greatly from the capable research assistance of Christine Wade and Lina Ericsson. Truc Do did the bulk of the research for this par- ticular project and merits my greatest gratitude in that regard. The research was supported financially by both the Roberts Program in Law and Corporate Governance and by the Stanford Legal Research Fund, made possible by a bequest from Ira S. Lillick and by gifts from other friends of the Stanford Law School. As always, my wonderful wife, Ann, and kids, Nick and Jake, matter most by a mile. [...]... relationship between the regulated party and the parties aided by the regulation The Court may well be extremely deferential in deciding that regulated parties would, in the absence of regulation, worsen the position of some other party with whom they interact or exploit the regulation s beneficiaries under some theory or other of illegitimate contracting, but if the Court decides that there is nothing... must be immunized from any losses, whether a result of regulation or explicit taxation, if the regulatory or tax program diminishes the income the individual or individuals would have privately appropriated and controlled in a world in which the state did no more than protect some real (or imagined) common law (or natural) property, tort, and contract rights, and tax the individuals to provide a small... regulatory mandates but must instead substitute some sort of tax -and- spend program that relieved the owners of the costs of regulatory compliance The Court could direct that the state entity relieve these burdens either by banning the regulatory scheme altogether or, more plausibly, by directing that the owners be compensated for bearing compliance costs In discussing both the constitutional issues in the. .. case since the company does not gain title to the portions of the building on which the objects sit and would have to remove the cable boxes if, say, the landlord no longer served residential tenants in the building Conversely, it is not clear that the owner’s property is not occupied when a third party’s wishes and agenda absolutely dictate how landlords can use their nominal space, and landlords cannot... Marshall found that the ordinance seized the owner’s property, entirely on the ground that what the Court presumed to be permanent physical occupancy of a portion of the landlord’s building by the authorized third-party cable company amounted to the loss of a fee interest in a very small space via transfer to the cable company.32 The Court distinguished the regulations at issue in the case, rather unpersuasively,... moment for functionalists, but its symbolic meaning appeared enormous: as one commentator noted, “Whether the employer/employee mandate is considered as a payroll tax or a premium contribution, however, has less to do with the consequences for the federal budget and more to do with perceptions about the role and size of government” (Alexander Polinsky, The Health Insurance Mandate: A Tax by Any Other... of the land was probably not unduly substantial, especially given the corresponding regulatory gain; however, the title in the trees was certainly destroyed by an order to cut them down as much as landholders’ titles in their land were destroyed by floods in the cases Marshall cites as authority in Loretto for the proposition that the state cannot seize title in property by destroying it See Loretto,... money when she does so, given the need to pay $28.00 for an interpreter when her net receipts for the patient visit are only $13.94) 5 The distinction between traditional antidiscrimination norms, which demand no more than impersonal market-rational treatment of customers and workers, and the more politically progressive views of the antidiscrimination norm embodied in the ADA’s requirement Current... Central Transportation Co v New York City, 438 U.S 104 (1978) lost use and disposition rights in the airspace over Grand Central Terminal, which was just as much a physical part of their parcel as the portions of the building the Court thought were seized in Loretto Conventional property norms hardly dictate the idea that the fee is invaded in Loretto because a third party authorized by the state physically... particular mandate (e.g., a regulatory requirement to make the workplace safer might be met by slowing the production line 2 Strategy or Principle? At times, this interchangeability or substitutability of taxation and regulation is quite transparent, and it is debated publicly whether certain regulatory mandates ought to be thought of as new taxes Thus, for example, governments could mandate that employers . Strategy or Principle? Strategy or Principle? The Choice between Regulation and Taxation Mark Kelman Ann Arbor Copyright © by the University. conceptual organizing theme—that regulatory taxation closely resembles taxing and spending—I will divide the discussion of the virtues and flaws of regulatory taxation