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The Unanimous Supreme Court Decision in The Iowa Gambling Case:
When Is a Difference Also an Inequality?


Wednesday, Jun. 11, 2003

In Iowa, revenue from slot machines on riverboats is subject to a twenty percent tax. Meanwhile, revenue from slot machines at racetracks is subject to a thirty-six percent tax.

Iowa racetrack owners objected to this blatantly unequal treatment and sued the state. They claimed the disparate tax rates denied them "the equal protection of the laws," in violation of the U.S. Constitution's Fourteenth Amendment.

On June 9, the U.S. Supreme Court, in Fitzgerald v. Racing Ass'n of Central Iowa, unanimously upheld the different tax rates. The Iowa tax code may treat riverboats and racetracks differently, the Court reasoned, but it doesn't therefore treat them unequally.

That distinction may sound like lawyerly hairsplitting. In fact, however, it's crucial to modern constitutional law and, more generally, to constitutional democracy.

The Historical Background: An Era of Active Review of Economic Legislation

Prior to the Civil War, the Constitution placed few restrictions on how the states could treat their own residents. The Bill of Rights was construed to limit the federal government, but not the states.

That changed, however, with the adoption of the Thirteenth, Fourteenth, and Fifteenth Amendments in 1865, 1868, and 1870, respectively. These "Reconstruction Amendments" abolished slavery, provided a federal guarantee of civil rights, and prohibited race discrimination in voting.

Or at least that's what the Amendments were supposed to do. By the Presidential election of 1876, Reconstruction had run out of steam. Without a popular commitment to securing the rights of formerly enslaved African Americans, the Reconstruction Amendments were worth little more than the paper on which they were printed.

Occasionally, in that era, the Supreme Court would uphold a claim of race discrimination. For example, in the 1879 case of Strauder v. West Virginia, the Court ruled that a state could not exclude all non-whites from jury service. For the most part, however, the Court took an extremely narrow view of the rights conferred upon racial minorities by the Due Process and Equal Protection Clauses of the Fourteenth Amendment.

Indeed, until the 1950s, the Court denied what today would be regarded as clear-cut constitutional equality claims brought by the primary intended beneficiaries of the Reconstruction Amendments, African-Americans. The infamous 1896 decision in Plessy v. Ferguson, upholding racially segregated passenger train cars as "separate but equal," was typical.

Ironically, however, the Court was more sympathetic, during much of the same period, to claims that progressive state legislation aimed at ameliorating the conditions of workers violated the Fourteenth Amendment. The Court read the Due Process and Equal Protection Clauses as permitting only "reasonable" restrictions on property rights and freedom of contract. As a result, the Court struck down laws setting railroad rates, creating favorable conditions for labor unions, and establishing minimum wages and maximum hours for particular industries.

Over this period, the Court still upheld more legislation than it invalidated. Yet the Justices made clear that their judgment--not the judgment of elected officials--was the critical factor in determining whether an economic regulation was reasonable.

The Switch to a Laxer Standard of Review: The Rational Basis Test

By the 1930s, with the country mired in the Great Depression, the Supreme Court's inclination to strike down economic regulation designed to help workers was increasingly unpopular. Then, in 1937, the Justices abruptly abandoned the practice of closely scrutinizing regulations of the economy. This "switch in time that saved nine," as it was dubbed, was arguably a response to President Franklin Delano Roosevelt's threat to pack the Court with New Deal sympathizers.

Whatever the precise cause of the Court's change of heart in 1937, it has followed the same approach for over six decades now. Under the current test, due process and equal protection challenges to economic legislation will only succeed if there is no "rational basis" for the challenged law.

That formula may sound similar to the requirement of "reasonableness" that prevailed in the prior period. But the similarity in wording is deceptive. In their application, the two standards couldn't be further apart.

Under the modern, rational basis approach, courts do not rely upon their own judgment about whether a law is reasonable; rather, they defer to the judgment of the legislature. Indeed, they even defer to what they imagine the judgment of the legislature might have been. When considering an equal protection claim under the rational basis test, the Court only requires that "the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decisionmaker." (Emphasis added.)

Given this degree of deference, it is not surprising that plaintiffs almost never prevail when bringing challenges that are evaluated under the rational basis test. This week's Racing Ass'n case is a good example - but it's only one of many.

In Racing Ass'n, the racetrack owners argued that subjecting racetrack slot machines to higher tax rates than riverboat slots was irrational. They noted that the goal of the Iowa legislature in legalizing slot machines at racetracks was to help the ailing racetrack industry. And they said that the higher taxation - which encouraged gamblers to seek out riverboats, not racetracks - was only impeding the legislature's own goal. Defeating one's own purposes, the racetrack owners argued, made no sense.

But the Court disagreed. It reasoned that the Iowa legislature could have rationally chosen to help the racetrack industry somewhat--by legalizing slots--but not at the expense of harming the riverboat gambling industry. Thus, the rational basis test was satisfied, and according to the Court, the legislation was valid.

Of course, it is plain that this sort of intellectual move will save almost any challenged piece of economic legislation. The legislation's goal can always be to go just so far toward doing whatever it does, but no further. Because the rational basis test permits such question-begging reasoning, I sometimes describe it to my students as the "roll over and play dead test."

Why the Rational Basis Test Won't Apply in Two Important Cases This Term

Does the rational basis test make dead letters of the Due Process and Equal Protection Clauses? Hardly. That is because it does not always apply.

At around the same time that the Supreme Court devised the rational basis test, it also announced that it would not apply that test to laws that deny basic civil liberties or classify people using illicit criteria such as race. These laws, instead, would be judged by a much tougher measure, one that the Court came to describe as "strict scrutiny."

The two most closely watched cases of the current Supreme Court Term nicely illustrate the limited domain of the rational basis test.

First, there is Lawrence v. Texas, challenging the Texas law prohibiting same-sex sodomy. Lawrence poses the questions whether sexual intimacy counts as a basic civil liberty, and whether laws that distinguish between same-sex and opposite-sex intimacy employ an illicit classification.

In deciding those questions, the Court probably will not apply the rational basis test. The petitioners in Lawrence argue that the Texas law should be struck down even under the rational basis test, but they invoke a line of highly unusual cases that are widely regarded as stating an exception to the traditional rational basis test. Under this exception, the bare desire to harm an unpopular group is an illegitimate basis for legislation. Should the Court strike down the Texas statute, its decision will not make the rational basis test stricter in cases involving economic legislation.

Likewise, in Grutter v. Bollinger and Gratz v. Bollinger, the University of Michigan affirmative action cases, the rational basis test is not at issue. No one denies that race plays a role in the university's admissions processes. And that means strict scrutiny applies.

Thus, rather than merely showing that its policies have a rational basis, the University must satisfy strict scrutiny. To do so, it will have to persuade a majority of the Court that unless it takes race into account in admissions, a compelling interest will be forgone.

Why the Rational Basis Test Makes Sense

If the Supreme Court can resolve the Texas sodomy case and the Michigan affirmative action cases without rolling over and playing dead, why does it insist on using the toothless rational basis test in cases like Racing Ass'n? The answer is that without something like the rational basis test, the Due Process and Equal Protection Clauses would permit the courts to usurp the role of state legislatures (or Congress when federal statutes are challenged).

Imagine a legal world without the rational basis test. In such a world, every single piece of legislation could be second-guessed by the courts, for virtually every piece of legislation has an economic effect, and treats different parties differently. Our whole tax system--indeed any workable tax system--could be held invalid.

Now consider the constitutional concept of equal protection more generally. Few would disagree that it forbids government from treating like kinds differently. The difficulty is figuring out what are like kinds.

One might think, to paraphrase Gertrude Stein, that a slot machine is a slot machine is a slot machine--whether it is on a boat or at a racetrack. But the point is hardly obvious.

Suppose the state subjects retail sales of ice cream to a higher tax rate than retail sales of fruit. Is that, on its face, a denial of equal protection because both products are sweet foods that can be eaten as dessert? If so, then much legislation is unconstitutional, because useful legislation requires all manner of classifications.

The rational basis test ensures that the decision to choose one set of classifications rather than another is left in the hands of elected officials and regulatory agencies, rather than judges.

The disadvantage of the test is that it permits legislative classifications that are motivated by nothing other than raw political power. It is quite possible, for example, that the Iowa legislature decided to tax the racetrack slots at a higher rate than the riverboat slots because the riverboat gambling industry had more effective lobbyists than the racetrack gambling industry.

But it is highly doubtful that courts could do a very good job of ridding politics of interest-group bargaining, even if they were to start applying close scrutiny to all state and federal legislation. More likely, if the courts were to abandon the rational basis test, they would return to the pre-1937 practice of reaching their own judgments about what is reasonable and what is not.

Some critics of the Supreme Court think that even its current practices are insufficiently deferential toward the legislative process. After all, the Court departs from the rational basis test and applies a more exacting standard of review in cases involving freedom of speech, separation of church and state, race and sex discrimination, states' rights, and a fairly large number of other subjects. According to the critics, the Court leaves insufficient room for the democratic process.

Most observers, however, accept the legitimacy of non-deferential review of at least some categories of legislation, even if they disagree with particular doctrines and decisions. But even this group typically recognizes a stopping point beyond which the courts should leave well enough alone.

Iowa's slot machine tax rules--and a great deal more--fall in this zone of political action, a zone that the courts wisely avoid. The Court's unanimity in the Racing Ass'n case is thus a testament to the stability of the basic framework of judicial review hammered out over six decades ago.

Michael C. Dorf is Professor of Law at Columbia University.

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