The Supreme Court heard a case on corporate subsidies that could have a major impact on the legality of state and local tax incentives used as a means to spur economic development.

The case before the court was filed by a group of Ohio residents and small business owners who are challenging $280 million in state and local tax breaks given to DaimlerChrysler for investing $1.2 billion in Toledo, Ohio, to expand a factory in 1998.

The issue is whether tax breaks for companies that build or expand factories within Ohio discriminate against other Ohio companies that choose to invest in a different state. Supporters of the breaks view them as economic development tools, while critics view the break as corporate welfare, helping a few towns but weakening the national economy.

Business and labor have both argued in favor of such subsidies. Briefs supporting the subsidies have been filed by dozens of states, as well as the United Automobile Workers, the U.S. Chamber of Commerce, and the Tax Foundation, a nonprofit research organization that favors lower taxes.

Briefs filed against the subsidies were filed by the North Carolina Institute for Constitutional Law, which favors limited government; the Center on Budget and Policy Priorities, which wants more federal spending to help the poor; and Good Jobs First, which says subsidies are likely to benefit corporate owners and not necessarily protect jobs.

A Federal District Court judge originally dismissed the case, but the Court of Appeals for the Sixth Circuit ruled in October 2004 that the Ohio tax credit was discriminatory.The first issue the court will address is whether the Ohio residents and business owners have standing in the cases, DaimlerChrysler v. Cuno, and Wilkins v. Cuno.

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