Strategy or Principle: The Choice Between Regulation and Taxation.

• Author: Issacharoff, Samuel
• Position: Review

STRATEGY OR PRINCIPLE: THE CHOICE BETWEEN REGULATION AND TAXATION. By Mark Kelman.([dagger]) Ann Arbor: The University of Michigan Press. 1999. 129 pp.

INTRODUCTION

Mark Kelman is an important and refreshing voice in the legal academy. Over the past two decades his wide-ranging publications have combined, in a sophisticated and idiosyncratic style, a concern for social justice that generally harkens to the left with a skeptical, economically focused methodology that typically finds its partisans on the right. His writings give little comfort on either side of the political divide. His penchant for addressing the costs and benefits of social policy, as in the valuable book under review, distances Kelman from the identity-driven left, for whom status compels remediation.(1) At the same time, Kelman is neither hostile to state-sponsored redistribution nor beholden to the narrow normative attachment to economic liberalism that characterizes much law-and-economics writing.

This unusual and difficult balance is on full display in Kelman's ambitious attempt to address the most vexing problem of the social reform agenda: How should the costs of social programs be borne? Based on his well-received Cooley Lectures at the University of Michigan, Kelman's book seeks the guiding constitutional and policy considerations that should constrain government action. The topics covered include such front-burner issues as the revitalization of takings doctrine and the debates over the role of tax subsidies for desired private conduct. Kelman simply dazzles in his ability to draw upon sources in constitutional law, tax policy, and a broad range of administrative and regulatory literature. Putting them together in novel ways allows Kelman to posit initially that "regulation and taxation are substitutes one for the other" that allow the state to meet its policy objectives "either through the public spending programs that tax revenues finance or through regulatory mandates requiring that actors take certain steps and forbear from others."(2) From the vantage point of the affected citizens, both regulation and taxation are impositions on their ability to fully and freely enjoy the fruits of their enterprise.(3) But there are critical constitutional and regulatory issues that are posed not by the objectives of such social legislation, but by how they are paid for. Drawing upon constitutional law and regulatory policy, Kelman wants to answer the question of when it is permissible to regulate as opposed to using tax-and-transfer programs. He frames the central inquiry as follows: "Generally, a regulation will be deemed to be illegitimate when it is thought unfair to expect the regulated party rather than society at large to bear costs."(4)

Once posed in this fashion, the ubiquity of this issue is readily apparent. When a building is given landmark status, who should bear the loss of the foregone opportunity to develop the property? Should the taxpayers assume the responsibility of preserving the social benefits of a historic property, or should the owner be forced to bear the cost privately? Similarly, when development is forbidden because of the presence of wetlands or an endangered species, should the government be required to compensate the owner for the restriction on "customary" use of property, or should the owner assume the responsibility as just another measure of regulatory reach by government? Clearly, were the state to simply take over the property through eminent domain, the fundamental tenets of the takings clause would require some form of just compensation. But, as Kelman well demonstrates, the world is not so neatly divided between complete compensable exactions and ordinary regulatory effects. Thus, in summing up the current state of the law, Kelman observes, "At some level the Court is trying to figure out when a particular owner is unduly singled out to bear burdens that ought to be more widely spread, but stating this fact does little more than restate a general purpose of the Takings Clause."(5)

1. THE MECHANICS OF TAKINGS

   We can begin the inquiry with the statutory scheme that troubles Kelman and remains fairly near the surface throughout the book. The public accommodations provision of the Americans with Disabilities Act requires significant alterations to private property. Stores that would prefer to feature more goods and recoup additional revenues are forced to have wider aisles, accessible toilets, ramps, and other forms of space-consuming alterations. As Kelman well describes, traditional approaches to takings law would be hard-pressed to reach a claim of a compensable exaction as a result of ADA compliance requirements. First, the ADA does not invoke a "per se" takings rule: There is no compromise of title held by the storeowner, there is no physical invasion of space by another party who is effectively given an easement onto the property,(6) and there is no complete destruction of the use of property. This last condition is drawn from one of the more curious takings doctrines: that the regulatory limitation on the use of property only becomes per se compensable when it eliminates all economically viable use of the property.(7) Second, the storeowner's property is not rendered completely valueless, thereby taking it outside of a traditional line of nuisance law.(8) Nor does there appear to be the same physical invasion of land as was evident in Nollan v. California Coastal Commission(9) and Dolan v. City of Tigard,(10) or a sufficient alteration of use to be deemed a regulatory taking under the balancing test espoused in Penn Central Transportation Co. v. City of New York.(11)

   Kelman rejects all the existing judicial approaches to takings as unresponsive and facile, as indeed he should. Instead, the book is aimed at asking whether a more robust rendition of current constitutional takings doctrine and the prudential limitations drawn from social policy should direct another look at the way private parties are forced to subsidize redistributive programs. Kelman's approach is to create a taxonomy of first the core constitutional takings principles and then the guiding prudential concerns.

   Kelman begins with the recognition that constitutional takings arguments come in many varieties. Of least interest to Kelman is the hard and fast libertarian claim that all individuals must be immunized from losses occcasioned by state conduct that is capable of being paid directly through the taxing powers. Kelman finds such claims both implausible as a statement of current doctrine and disingenuous insofar as the proponents of such theories are at least as hostile to state taxing power as they are to state regulatory power. As a result, Kelman gives relatively little attention to the most significant work on this issue to have emerged recently from the legal academy, Richard Epstein's Takings. Of far greater interest to Kelman is an argument that extends current takings law by recognizing the inherent legitimacy of both taxation and regulation, but restricts the latter to cases is which there is some demonstrable market failure.(12) This extension of takings law is necessary to move the constitutional concern beyond the more conventional categories covering outright governmental seizures, complete destruction of the value of property, and ill-motivated exactions that seek to illegitimately coerce private parties to cede property or concessions on the use of property to the state. It is hardly surprising that applying the muddled constitutional template of existing takings law provides relatively little that constrains the regulatory reach of government.(13) But the careful identification of the mismatch between current takings doctrine and the problem of uncompensated regulatory incursions serves primarily to remind readers of the difficulty of incorporating common law doctrines on the use of property into the modern regulatory era.

   Incorporating prudential concerns opens the inquiry substantially, and would allow three additional lines of inquiry. As applied to the public accommodations provision of the ADA, these further inquiries are as follows:

   To what extent is an implicit tax on public accommodation owners a good one? To what extent is the implicit spending program enacted by the statute in which private parties bear the costs of providing accommodation services superior to alternative state-based spending programs designed to increase the ability of those with disabilities to participate in the marketplace? Finally, to what degree is the political process distorted by having a subset of private parties rather than the state bear the costs of providing accommodation services?(14) The task set out in this book is to find whether a takings analysis could be constructed out of the constitutional domain that would both meet the objectives of the prudential inquiry, and allow a legally enforceable claim for compensation

   for owners whose property declines in value as a result of any regulation that benefits others at the expense of the regulated party rather than avoids what a deferential court might think of as some form of harm growing out of the atypical, interactive relationship between the regulated party and the parties aided by the regulation.(15) Accordingly, this robust form of takings doctrine would take in improperly applied burdens on the enjoyment of property, without either an assignment of improper purpose to the governmental regulators nor a harm so overwhelming as to compromise entirely the enjoyment of the property holding. In so doing, Kelman introduces directly into the takings mix the question of how the costs of paying for social programs are to be borne. The result is to posit a taking regime that would be less deferential in its treatment of property regulation than that set forth in cases such as Penn Central. In the most important chapter of the book, the evaluation of a non-deferential...