Wall Street Journal Editorial on the Empress Casino Takings Case:

The Wall Street Journal has a good editorial on Empress Casino v. Giannoulias, an important takings case that is currently before the Supreme Court on a petition for cert. The case involves an extremely blatant effort to tax one small group of firms (four riverboat casinos) for the sole purpose of transferring the money to rival businesses (racetracks). Unfortunately, the Illinois Supreme Court categorically ruled that no "tax" can be a taking requiring compensation under the Fifth Amendment's Takings Clause, even when the tax narrowly targets one specific group of businesses for the purpose of benefiting another. Along with several other property scholars, I helped author an amicus brief urging the Court to hear this important case.

As the Wall Street Journal article points out, the tax in question may have been enacted in part because of corruption on the part of since-impeached Illinois Governor Rod Blagojevich. The case also has important implications for takings law more generally:

Illinois politics seems to be everywhere this year — and now it may be headed to the Supreme Court in the form of a lawsuit brought against the state. The case, which has ties to impeached Illinois Governor Rod Blagojevich, could have an important impact on the definition of a "taking" under the Fifth Amendment — as well as implications for the state's power of taxation.

In Empress Casino v. Giannoulias, the question involves the passage of a state law that took money from four riverboat casinos and gave it to five horse-racing tracks to use as purse money, among other things. According to the Illinois Supreme Court, the action cannot be considered a "taking" because it involved the transfer of money from one party to another, not the confiscation of land, as takings law has traditionally been applied. (The casinos are appealing to the U.S. Supremes, who will consider the certiorari petition soon.)

Property is property, however, whether it's the contents of a bank account, a factory, or a house with a white picket fence. If the Illinois Supreme Court ruling is allowed to stand, it could establish a precedent whereby the government may take money from any successful business to prop up a failing one. That means, in theory, the government could pass a law to take money from the successful dry cleaner on Main Street to subsidize the lousy one around the corner — or from Barnes and Noble to subsidize the corner bookshop.

Broadly levied, wealth redistribution for public purpose has already been ruled Constitutional by the Supreme Court in the case of the income tax. Writ small, as it is in Empress Casino, it's a tool that might be wielded against unpopular industries and used by politicians to kiss up to favorite constituents. Think revenge of the aldermen.

This is close to the way things were working in Illinois under Mr. Blagojevich's leadership. The bill authorizing the transfer of money from the four riverboat casinos to the horse-racing industry came in the context of more than $340,000 in contributions by Balmoral and Maywood race track owner John Johnston and other associates to the Friends of Blagojevich between 2002 and 2007. Among the evidence in the Governor's impeachment trial were transcripts of Mr. Blagojevich and his brother Rob discussing some $100,000 in contributions as a quid pro quo for the legislation to benefit the racing industry.


whereby the government may take money from any successful business to prop up a failing one.

Isn't this the way things normally work?
3.25.2009 4:20pm
Ilya Somin:
whereby the government may take money from any successful business to prop up a failing one.

Isn't this the way things normally work?

It's one thing to have a broad-based tax that is then used to support an entire industry or to help the poor. It's another thing to have an extremely narrowly targeted tax that benefits one small group of firms at the expense of another. The latter is, in practical terms, little different from a taking of of property rights, and should therefore be compensated under the Fifth Amendment.
3.25.2009 4:23pm
I agree, I just wanted to make sure that's what you meant. The sentence I quoted is staggeringly broad.
3.25.2009 4:27pm
The governor may have been corrupt and he may have pushed for it, but didn't Illinois legislators themselves had to pass this law before he could sign it? This seems to be a cheap effort to tarnish the law by using Blagojevich's name, but to avoid angering Illinois legislators. This may be an extremely bad law, but why single out one person? It is the "accomplishment" of the legislative and executive branches together.
3.25.2009 4:46pm
Ilya Somin:
This may be an extremely bad law, but why single out one person? It is the "accomplishment" of the legislative and executive branches together.

That's true. But without the governor's participation, the legislature might well not have passed the law. The governor's lobbying was likely an essential element in the process. That's not to say that the legislators are blameless, but neither I nor the WSJ editorial claims that they were.
3.25.2009 4:51pm
Ilya, I did not mean to offend you. I just sense a deliberate attempt in that article to limit the responsibility to just one "bad" person, as if that proves that the law is unconstitutional.

Actually I take my first statement back. It is the "accomplishment" of the legislative, executive AND judicial branches together, as Illinois Supreme Court has already let the law stand. The author seems to think readers would not agree with him if he says all three branches are in error, as opposed to a convenient scapegoat. Your comment lacks the same air, so my criticism is only for WSJ article.
3.25.2009 5:01pm
Merge this one with the question of whether a "tax" directed at a small number of individuals can ever be a bill of attainder (or, comports with the Due Process clause).

It seems that courts in the US are easily confused by the labels legislators slap on bills. Presumably a levy of $100/day payable to the State of Illinois by anyone who declines to volunteer to house US troops in their house would also be a constitutional "tax"?
3.25.2009 5:05pm
Pointless, sarcastic comment coming up:

the tax in question may have been enacted in part because of corruption

This likely describes a sizable amount of the taxes in Illinois. How much of Cook County's sales taxes go toward bribing people to get out the vote for Daley, Stroger, and the rest of the machine by giving them jobs that involve standing around and not doing anything? Or giving them jobs they're not qualified for where they accidentally run over their co-workers?
3.25.2009 5:06pm
Bob White (mail):
What is this, Illinois Week on the VC? Orion Samuelson, Prof. Painter's posts leading to discussion of the '04 Senate race, and now taking from the casinos to give to the race tracks. Not that I'm complaining, of course, but this is still Flyover Country.

In light of the horse racing matter, it seems germane to note that, IIRC, Gov-turned-prisoner Otto Kerner was found out about when a track owner claimed a bribe as a deductible business expense.
3.25.2009 5:22pm
Christopher Cooke (mail):
I am not sure I agree with the premise of the amici, which would call into question a whole host of taxes and assessments, and the government's power to impose them.

Their premise is that a narrow tax, applicable to not very many companies, can be a "takings" rather than a tax. However, the law, as written, applies to any casinos that generate over a certain amount of revenue. It does not single them out by name. Thus, in the future, the law could apply to a much larger number, or a small number, of businesses, but the law is neutral on its face about who is subject to the tax.

How narrow of a tax is "too narrow" for it to be converted into a takings? I don't see a principled way to make that distinction. For example, there are only 3 domestic automakers, and a handfull of foreign car companies that make cars in the USA. What if Congress imposed a tax on all domestically manufactured vehicles, to fund an car crash victim's compensation fund? Would that be a "takings" and not a tax? Why not?

If your objection is that the purpose of the tax --funding race tracks--is invalid, I would have more sympathy. One can argue that funding horse rack tracks is not a valid public purpose. But that is not the argument you are making.

And, I doubt the framers of the Fifth Amendment had this concept in mind when they wrote it, and I did not see any evidence of such a construction in your brief.

In short, why isn't this an instance of conservative activitists attempting to distort a constitutional right to advance their own, anti-tax, agenda?
3.25.2009 5:27pm
Christopher Cooke (mail):
Also, I forgot to add, I would have more sympathy with the "takings" argument if it were a 100 percent tax. Here, it is only a 3 percent tax. What is "taken"? 3 percent of gross receipts. Seems to me to be a de minimus takings, if it is one, of the sort upheld in the regulatory takings cases.
3.25.2009 5:35pm
Dilan Esper (mail) (www):
This is rent-seeking and I am with the libertarians and the conservatives on this one.

Indeed, if I were to be a bit wistful about this, this sort of shows the lost opportunity of the Lochner era. The Lochner era court was more aggressive at striking down rent-seeking legislation than current courts. Unfortunately, the Lochner court also infamously struck down some laws that sought to protect workers, on the specious ground that protecting workers impinged on their liberty to enter into exploitative contracts. And that resulted in the Court eventually throwing the baby out with the bathwater.

But rent-seeking is the perfect target of economic due process doctrine. The point of the due process clause is to ensure fundamental fairness in government procedures. Freezing qualified people out of professions, taking from businesses with less political connections to give to those with more, etc., are all deep-seated violations of fundamental fairness.

If Lochner-style scrutiny of economic regulations is ever restored, it will be because of these sorts of cases. But there is a long way to go.
3.25.2009 6:03pm
On a slightly more serious note than my last post, while I'm definitely sympathetic to the arguments in your brief, I'm not sure even if the Supreme Court heard the case it would result in a significant victory. As a practical matter, in this day and age, a decision in the casino's favor would at most hold that the government couldn't order one industry to transfer funds to another industry as a "tax." (On a side note, I think the explicit transfer from one industry to another is what distinguishes Christopher Cooke's arguments above)

This would leave the way open for the Illinois government to slap a 3% tax on casinos with the funds being paid to the Illinois treasury. The Illinois government could then at the same time give tax funds to racetracks or whoever else is buying Illinois politicians (they're cheap). Neither of two two nominally separate acts (taxing a particular industry on a progressive basis, and giving money to another industry) is going to be struck down now or in the near future.

Is there some reason to believe that the Illinois government would have a more difficult time getting this passed as a "tax and spend" rather than the "transfer of funds" that it currently is? Or some other reason to believe that winning the case would result in a better state of affairs instead of just shifting around how the legislature does things?
3.25.2009 6:25pm
Barbara Skolaut (mail):
"Pointless, sarcastic comment coming up:

This likely describes a sizable amount of the taxes in Illinois. How much of Cook County's sales taxes go toward bribing people to get out the vote for Daley, Stroger, and the rest of the machine by giving them jobs that involve standing around and not doing anything? Or giving them jobs they're not qualified for where they accidentally run over their co-workers?"

Did you leave out part of your comment, Calderon?

I see nothing pointless or sarcastic about your comment.
3.25.2009 6:33pm
Mark S. Devenow Esq. (mail):
"How narrow of a tax is 'too narrow' for it to be converted into a takings? I don't see a principled way to make that distinction."

Christopher Cooke raises an interesting question followed up with a number of examples as to the degree of difficulty attaching as burden on any intelligently formulated (or even any intelligible)answer.

However, it seems to me that courts grapple with this kind of question much, if not all, of the time. And in the case of reference there exist certain logical principles to inform, if not guide, the analysis once the fog of existing Fifth Amendment case law (and/or precedent, and/or doctrinal exegesis incident)is purged such that a rule might be fashioned ex-nihilo/ex-cathedra.

In this connection, let us presume that the powers of government ( tax, to seize with or without compensation, to do other things) are, implicitly and explicitly limited by either foundational document or by reference to some principle or set of principles sufficiently impelling (and/or stabilized/settled) to bind a general legal consensus over and across different periods and/or eras - i.e. sufficient to withstand the test(s) of time. [Should the language used here seem (or appear to be) overly vague and allusive, it may do well to remember - where it comes to the issue of the ability of courts to engage the analytic problem of what constitutes a "taking" in a context where a government undertakes to tax one specific line of business in order to directly transfer the proceeds of that in favor of another type of enterprise - that constitutional formulations concerning "penumbras formed of emanations" and "rights implicit in ordered liberty" retain some currency (and notwithstanding what cans of worms they open up) over the history of constitutional jurisprudence.]

From here, the next logical, in all probability the next ineluctable, question would not be hard to arrive at: What tax or taxing mechanism by which the government, acting as pure middleman/collection agent, solely for the purposes of directly transferring the yield of the tax (or policy) from a disfavored (but technically not proscribed) line of commerce to a "preferred" economic activity (viz. one to be directly subsidized by public policy)would be most inimical - would most affront - both notional fairness and the bounds
3.25.2009 9:00pm
Mark S. Devenow Esq. (mail):
of what comports with the legal purpose embodied in the "takings" clause of the Fifth Amendment? What most smacks of the ability of power to corrupt the neutral functions of government and/or to corrupt completely by the absolutism of
government fiat.

From here Empress Casino, becomes a fairly easy case to analyze. Result: the policy in question ought to fail on constitutional grounds because it interferes with the exercise of all notions of economic freedom consistent with and integral to property rights as a check on the arbitrary powers of the state to confiscate wealth authorially, or whimsically.
3.25.2009 9:11pm
1. How do we meaningfully distinguish between a "broadbased" tax/use and a "narrow" one? Should courts draw this line?

2. Which "narrowness" element is the critical one --

a. the narrowness of the tax
b. the narrowness of the use
c. Do both elements have to be present for the claim to apply?

3. Is the "narrow use" element any different from the argument the Supreme Court rejected in Kelo? Is the "narrow tax" element the really new one here?

4. Taxing authorities grant special tax breaks to individual companies all the time. If narrow taxes are unconstitutional, would that make narrow tax breaks unconstitutional? And vice versa: if we consider the constitutionality of individualized tax breaks established, wouldn't this tend to suggest narrow taxes are constitutional?
3.25.2009 11:34pm
Illinois guest:
These are not regular businesses, they are gambling businesses. The state controls and regulates them far more than any other type of business. Each year, the state tells the tracks which days and hours they can operate.

An earlier law gave preferential treatment to the casinos, and gave part of those proceeds to the track purses. Note, this money is not only for the tracks. It is split between the tracks and horse owners, with some money also going to horse breeders. This benefits the agricultural economy of the state.

Through no fault of the horse industry, those proceeds never happened. The casinos, however, have made millions, at least partially at the expense of the horse industry. That is why the first 3 percent law, which is now awaiting Supreme Court review, was passed.

The law signed by Gov. Blagovich and referred to on tape is a second 3 percent law that extends the first one (which was only for two years). The legislators knew the casinos were still fighting the first law, but this second law passed overwhelmingly.

The Supreme Court traditionally leaves gambling matters to the states.
3.26.2009 1:34am
The Illinois Supreme court is an elected branch. Partisan elected branch.

Millions are raised for some important races downstate; especially when big class-action lawsuits in Madison county (why Madison county? that's where the juries are known to pay out so plaintiffs firms choose it) are pending on appeal.

We can focus on the corruption of governors, the legislature in general and this particular tax; or we can focus on WHO the IL supreme court works for.

And for that, one would have to look to the donors. Funny, the same names appear on the donor rolls for the Court as they do for Blago or anyone else. In any event, I have no comment on the merits of the tax as its way outside my expertise.

I just don't want people to get disillusioned and think the 'IL Supreme Court' was somehow removed from the rest of the cesspool which is partisan politics in IL.

If bad facts make for bad law... what do bad facts AND a thoroughly corrupt system make?
3.26.2009 1:11pm
Yinka Double Dare:
"If bad facts make for bad law... what do bad facts AND a thoroughly corrupt system make?"

In Illinois? "Daily life"
3.26.2009 3:02pm
I wonder how this case is substantially different than laws requiring membership in marketing associations or growers co-ops that have required dues.

In essence the casinos were dragooned into a gambling marketing association, and the proceeds of their dues were diverted to horse racing purses.

I've always disliked mandatory growers co-operatives, here is just another way the concept can be misused.
3.26.2009 3:24pm
It would seem that all the Illinois legislature would have to do would be to make the tax part of the conditions under which c-s*no gambling is partially legalized and state that severability is not available. If Empress C*s*no succeeds in striking the law down, the result would be that c*s*no gambling would revert to being illegal in the state.

Note: It's really, really hard to write a comment about a c-s*no gambling topic (particularly about a case whose title contains the word "c-s*no" when the Volokh Conspiracy has blacklisted the word "c-s*no" and prohibits posts containing the word.
3.27.2009 1:52am

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