Governors and state legislators across the United States are playing an increasingly active role in prohibiting localities from enacting laws that harm taxpayers. The tool lawmakers use is known as “preemption,” where a law passed by a higher authority takes precedence over a law passed by a lower one. The federal government has the authority to preempt state laws that impinge on interstate commerce or core constitutional rights, and states have the authority to preempt laws or ordinances passed by city councils, zoning boards, and other entities. Preemption, when deployed carefully in accordance with an appropriate balance of powers, can be an important tool to protect taxpayers from burdensome taxes and regulations.
Preemption is sometimes framed as an assault on the sovereignty of localities, but state governments have a duty to protect their citizens from onerous local laws. After all, in most states, cities derive their power from state legislatures and must act in accordance with the state’s constitution. As such, states are justified in occasionally stepping in to preempt local actions.
One of the most alarming recent examples of out-of-control local government can be found in Seattle’s new Employee Head Tax (EHT), which taxes some employers at a rate of $275 per employee. National Taxpayers Union Foundation recently published an in depth analysis of these ill-advised taxes and concluded that EHT’s will negatively impact job creation in the city while doing little to combat the social challenges it faces. Despite widespread opposition to this policy, Seattle’s City Council unanimously approved the tax for 2019. Thankfully, a bipartisan group of state lawmakers are preparing to introduce preemption legislation that would specifically prohibit per-head taxes on employers in the state of Washington.
There are numerous examples of states coming to the defense of businesses, consumers, workers, and taxpayers through preemptive measures. In 2016, City Council members in Austin, Texas imposed strict rules pertaining to ride-sharing services that made it extremely expensive for them to operate in the city. As a result, the legislature passed and the governor signed HB 100, which created a statewide regulatory framework. In Wisconsin, Governor Walker signed legislation prohibiting cities and towns from enacting new occupational-licensing requirements. These requirements act as a barrier to employment for many, who are typically lower income, attempting to enter the workforce and earn money to better their situation.
According to a recent report by the National League of Cities, preemption legislation is becoming more frequent. They highlight 41 states that now have ride-sharing preemption laws (up from 37 last year), 28 that have preemption laws for minimum wage (up from 25), and 42 states that have some sort of tax and expenditure limitations. Some of of the most important taxpayer protection measures in the U.S., such as California’s Proposition 13 (enacted in 1978) and Colorado’s Amendment 1 (enacted in 1992), preempt localities from overtaxing their citizens in addition to limiting state tax powers. A host of other states have either introduced or enacted legislation limiting the authority for localities to enact legislation banning plastic bags, regressive taxes on groceries and beverages, or hydraulic fracturing (fracking) for natural gas.
By limiting the authority of local government to arbitrarily hike taxes on employers, groceries, or whatever is the next item lawmakers think of targeting, taxpayers will be able to keep more of their own money. It can also help ease fears that businesses might have to worry about a Seattle-style tax attack in their own jurisdiction.
Most decisions that impact quality of life in a city should be made at the local level. Governments closest to home are best suited to answer many questions raised by life in a busy metropolis. However, state governments have a responsibility to ensure that cities don’t abuse the power they’ve been granted in ways that unreasonably burden taxpayers and businesses. If used occasionally and with care, preemption can help prevent such burdens.