Monday, June 11, 2007

Doyle's three-card monty

I have not blogged on the constitutionality of Governor Doyle's proposed tax on oil companies that, he says, may not be passed on to consumers. The constitutional problem lies in something called the dormant commerce clause. The Constitution gives Congress the power to regulate interstate commerce. Courts have found in the grant of authority under this explicit commerce clause" an implied restriction on the ability of states to regulate interstate commerce (a "dormant" commerce clause.) Subject to certain exceptions, states may not discriminate against out of state businesses or unduly burden interstate commerce. The argument here is that the provision that forbids the oil companies from passing the tax on to consumers will do so because the cost will have to be borne by customers outside of the state of Wisconsin. While, under traditional dormant commerce clause analysis, Wisconsin might still be able to have its "no pass through" if sufficiently needed to serve a sufficiently weighty state interest, it is unclear that the state can make that claim here. If, the argument would continue, the state is concerned about Wisconsin derived income evading taxation, there are other remedies such as requiring consolidated statements of income, etc.

The state relies on a 1988 Supreme Court decision which upheld a Puerto Rican law with a no -pass through provision. The problem is that the case in question did not rule on whether such a provision violated the dormant commerce clause, but whether Congress had preempted the field of oil price regulation. (The court concluded that it had not.) The dormant commerce question was not before the court, so the case provides no comfort.

I don't believe that the legislature should never pass a law about which there is a serious constitutional question. But here is where the Governor is playing a shell game. He is selling the tax with a promise that we in Wisconsin won't have to pay it. It'll fall entirely on those big bad oil companies and who cares about them.

Just how we can know that it was not passed on is unclear and, even if we can, the Wisconsin Policy Research Institute has done a good job of explaining - to those who did not take introductory economics - why the tax is still a bad idea. But, for my purposes, the important thing to note is that the bill enacting the tax has what is called a severability clause.

This means that if any portion of the bill (say the no pass-through provision) is declared unconstitutional, then the remainder stands. So if the courts say that the oil companies cannot be probibited from passing the tax through, the tax remains and we will wind up paying after all.

Doyle's proposed tax on the oil companies is typical Clintonian misdirection. He wants more money but he doesn't have the temerity to ask for it. So he creates the fiction that someone else will pay.


Dad29 said...


Looks like the RoadBuilders have purchased someone besides the (R) caucus.

Jim Bouman said...

"Severalability" ?

Last week it was "gross margin" misunderstood and presented with all the chutzpah of a guy who likes to throw in technical terms without taking sufficient care to get them under control. Spelling matters; so does the simple matter of definition.

Rick Esenberg said...

Given the immediacy of the media, I try not to get too exercised about other people's typos and editing errors in blogs. I fear it will make me look like an angry snark. It's good to see someone with more courage.

PaulNoonan said...

Don't forget that the law also demands the impossible, as the Market, and not the oil companies, set prices. The very concept of "passing costs on to consumers" is ridiculous without context. Any company that attempts such a thing in a competitive market will be undercut.

That is, unless, some force has used its power to raise the price of a commodity industry-wide, basically outlawing price-cutters.

Only government has such powers.