Is the individual mandate constitutional? Part 3

In my first and second posts, I gave a broad overview of congressional power and the Commerce Clause, and summarized three major precedents in Commerce Clause law. In this post, I’ll take a first look at how these precedents might apply when determining the constitutionality of the individual mandate by discussing how the federal government could argue in its favor.

The Supreme Court has held that the sale of insurance is “commerce” within the meaning of the Commerce Clause. United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 552-53 (1944). And the applicability of the substantial economic effects test (discussed in my previous posts) to the individual mandate, which requires that non-exempt individuals purchase health insurance, seems to be self-evident: if more people pay insurance premiums, insurance claim costs are more dispersed and the price of insurance goes down. Hence the regulated activity (the purchase of health insurance) will have a substantial economic effect on the interstate insurance market (by affecting premium prices). That’s particularly true because people who would not otherwise buy insurance, were it not for the law, are more likely to be healthy (all things equal). So the government can argue that courts should apply the substantial economic effects doctrine in a straightforward way: Congress has regulated the purchase of health insurance, and this activity has a substantial economic effect on the interstate market for that insurance.

Moreover, although it struck down a law by invoking a limit to Congress’s Commerce Clause power, the Lopez decision nevertheless noted that intrastate activity could be regulated as “an essential part of a larger regulation of economic activity, in which the regulatory scheme could be undercut unless the intrastate activity were regulated.” United States v. Lopez, 514 U.S. 549, 561 (1995). It thereby distinguished its holding, which struck down a criminal statute that stood apart from any regulatory scheme, from such an instance. See id. This reasoning subsequently provided some of the justification for the Supreme Court’s decision in Raich. Gonzales v. Raich, 545 U.S. 1, 23-25 (2005); id. at 36-38 (Scalia, J., concurring in the judgment).

Of course, federal regulation of the health insurance market, even under the new health care bill, isn’t nearly as comprehensive as that of the marijuana market regulated by the Controlled Substances Act, the statute at issue in Raich. In the latter instance, the sale of the commodity (as well as its manufacture, distribution, or possession) is banned entirely. The federal health care bill, by contrast, does not purport to completely control the market for health insurance, nor does it otherwise supplant state insurance regulation. So the government might have a harder case to make in this instance that the individual mandate is an “essential part” of Congress’s regulatory scheme whose absence would “undercut” that scheme. But this line of attack would probably be a dead end for the mandate’s challengers; Congress clearly intended to make health insurance premiums more affordable, and eliminating the individual mandate would undermine that intention. That should be enough to withstand rational basis scrutiny, the most deferential form of constitutional review. See id. at 22.

In any event, it would also be a dead end for challengers to argue that the failure of any given individual to purchase health insurance cannot be regulated because that failure is a purely intrastate activity, or because that one individual’s failure, alone, will not substantially affect the interstate insurance market. First, as noted above, even intrastate activity can be regulated if the failure to regulate it would undercut a constitutional regulatory scheme. Lopez, 514 U.S. at 561; see also Raich, 545 U.S. at 18. Second, under either the “substantial economic effects” justification or the “essential part of a larger regulat[ory scheme]” justification, Wickard and Raich tell us that the key inquiry is whether a regulated activity will, in the aggregate, have a substantial economic effect or undercut the regulatory scheme. So the mandate can be applied to individuals even if any one individual, on his or her own, would not substantially affect the interstate market by purchasing or declining to purchase health insurance. See Wickard v. Filburn, 317 U.S. 111, 127-28 (1942); Raich, 545 U.S. at 19.

The government may have one more hurdle that I haven’t previously noted: it may have to show that the regulated activity (i.e., the decision not to purchase health insurance) that substantially affects interstate commerce is itself an economic activity. Five years before Raich was handed down, the Supreme Court noted that “thus far in our Nation’s history our cases have upheld Commerce Clause regulation of intrastate activity only where that activity is economic in nature,” United States v. Morrison, 529 U.S. 598, 613 (2000), and Raich essentially did not disturb that principle. See Raich, 545 U.S. at 25-26 (noting that the federal Act at issue therein “is a statute that directly regulates economic, commercial activity,” and including within this category the Act’s “[p]rohibiti[on of] the intrastate possession . . . of an article of commerce [i.e., marijuana]”). The challengers to the individual mandate could ask: How can a failure to engage in economic activity constitute economic activity and so satisfy Supreme Court precedent?

The government will have a ready response to this question, probably akin to that articulated by Dean Erwin Chemerinsky of the UC Irvine School of Law in this online debate. Dean Chemerinsky argues that Wickard and Raich itself show that a person can engage in economic activity even in the absence of an economic transaction—indeed, recall from my last post that Wickard’s holding was based in part on the premise that farmer Filburn grew wheat for his own consumption and thus abstained from purchasing wheat in the market, and that this failure to participate in the market had a substantial economic effect on wheat prices in the aggregate and could be regulated by Congress. “If this is economic activity,” Dean Chemerinsky argues, “then certainly the purchase of health insurance (or a refusal to do so) is economic activity.”

As a result, the government should be able to make a fairly strong case under current law that the Commerce Clause authorizes Congress to enact the individual mandate.

In my next post, I’ll discuss some possible counterarguments to the government’s position.

Another nail in Keynes' coffin...

The great thing about math is that numbers don’t lie. Even if assumptions are overly optimistic or pessimistic, the resulting equation will remain mathematically true. This is the case when analyzing deficit spending and the validity of Keynesian economics, which we’ve discussed previously is on its death bed. Simply put, the math doesn't add up.

There is an interesting analysis that was just released which debunks the claim that "in a recession, government spending (read: deficit spending) is necessary to stave off a deep recession."

Let's start with the conclusion:

The federal government cannot create prosperity by spending funds that it does not have. It can, however, spend us into poverty by taking dollar balances from highly productive individuals and their business entities, through borrowing or taxing. This process of transferring these assets from income and wealth generators to other government applications has profound economic consequences.

The proponents of Keyneisan economics (and deficit spending) must hold these two important factors to be true: 1) the expenditure multiplier (which we discuss here) is greater than 1.00; and 2) increased government spending will not crowd out private business (and growth). If either point #1 or #2 are untrue, the rationale for deficit spending, at least within the confines of a capitalist system, would be intellectually dishonest and merely partisan (see our commentary on Romer later).

Point #1 begins with the notion that massive deficit spending increases the overall economic pie. That is, for every $1 of deficit spending, GDP increases by more than $1. In the last 10 years the deficit as a percentage of GDP has increased from 18.4% to 24.7%. Howevr, during that same time period,

"[t]he percent of the population working today is 58.6% while prior to the large budget deficit spending of the last ten years it was 64.6%. Our GDP was growing at 4.8% ten years ago, and today we are staggering out of recession."

The same holds true for Japan.

"Its government debt soared from 52% of GDP in 1989 to 184% today...GDP in that country is no higher than it was 18 years ago; its employment is no higher than it was 19 years ago, and there is no inflation since consumer prices are at 1993 levels."

How is this possible? It's quite simple really. Government expenditures must come from taxing or borrowing. Period. In both cases, as the analysis points out, resources are shifted from one sector of the economy to another which doesn't expand the economic pie, but merely its composition. There are historical examples where the government expenditure multiplier was 0 (that is, for every $1 of government spending, private spending decreases by a $1) and there are also examples of the multiplier being greater than 0 but less than 1. As the report illustrates,

"during the extraordinary conditions of World War II and the Korean War the multiplier has been calculated as 0.6, meaning that a $1 rise in government spending would lift the economy as a whole by 60 cents while reducing private spending by 40 cents." 

In an additional study, the conclusion was the multiplier was 1.1. Eliminating the 0 reading, the average is 0.85. Remember that number.

Point #2 simplistically holds that access to capital (in the fungible and economic sense) and the incentive to acquire / spend such capital remains unchanged in the face of increased deficit spending. However, as mentioned above, governments must tax or borrow in order to spend (which, in the event of massive borrowing will require additional taxes). The key is this:

Beginning January 1, 2011 the sizeable tax reductions enacted in 2001 and 2002 will expire. The administration projects that household taxes will rise by a cumulative $1.1 trillion over the ensuing ten year period, while business taxes will rise by $400 billion. This calculation was prior to any taxes enacted in the healthcare bill, and does not account for other taxes such as the recently mentioned value added tax suggested by administration policy advisors.

Like government spending, there is a tax multiplier, which seeks to answer the same question as the government multiplier, but in reverse. That is "an increase (decrease) in taxes will reduce (increase) GDP by how much?"

Dr. Barro estimates that the tax multiplier is minus 1.1, meaning that a $1 increase in taxes will reduce GDP by $1.10. However, Christina Romer, Chair of the Council of Economic Advisors and her husband David in an exhaustive study published in March 2007 found the tax multiplier to be –3.

If the tax multiplier is applied to the estimated increase in taxes, the drag on economic activity will be "between $1.65 trillion and $4.5 trillion."

So, if the government multiplier (the "revenue" portion of our equation) is 0.85 and the tax multiplier is roughly -2.1 (which is the "expense" portion of our equation) "then mathematically this country cannot spend its way to prosperity." That's because in an extremely overleveraged economy,

"monetary policy doesn’t work. Potential borrowers do not have the balance sheet capacity to take on more debt...Currently, borrowers are loaded with excess houses, office buildings, retail space, and plant capacity. No need exists to get even deeper in debt. Moreover, due to rising foreclosures and delinquencies, bank capital has been badly eroded and banks are not in a position to put more risk onto their balance sheets by lending to already over committed borrowers."

Are moderates moving into "repeal" camp...?

An interesting poll came out this morning which shows support for repealing the recently passed health care bill is gaining, not losing support (58% favor repeal compared to 38% not in favor of repeal). For more insight into the upcoming legal battles, I would point you to our multi-part introspective analysis here and here. The purpose of the legal analysis is to discuss the potential weight, if any, already filed lawsuits may have. I look forward to the conclusion.

Back to the poll. We're cautious about reading too much into polls, particularly the headline numbers as they can differ wildly. For an idea, Stu Rothenberg gives a concise example of how different polls of the same Senate race can show a completely different picture. What is important are the internals (ie, the numbers that make up the headline number), and the internals of Rasmussen's recent poll depict two important things: 1) there is a +18 point intensity gap between those that strongly favor repeal compared to those that strongly oppose repeal; and 2) moderate voters are moving into the "repeal" camp.

Let's take each point separately.

1) "There is a +18 point intensity gap between those that strongly favor repeal compared to those that strongly oppose repeal".

Pundits often talk about "intensity gaps" as vital to the success of any election cycle. Intensity gaps can be broad based (ie, in favor / against a given party) or specific (ie, in favor / against a given policy). At the risk of stating the obvious, the higher the motivation, the increased likelihood a given bloc of voters will vote (of course, this assumes candidates' messages are aligned with the issues).

2) "Moderate voters are moving into the "repeal" camp."

According to Rasmussen, "[e]ighty-eight percent (88%) of Republicans and 54% of voters not affiliated with either major party favor repeal." This does not bode well for the Administration's strategy of limiting its losses in November by "rallying the base".

According to a recent Gallup poll 40% of the electorate is conservative, 20% is liberal, and 37% is moderate.

The implication is 40% of the electorate is considered to be in the Republican base, while only 20% of the electorate is in the Democrat base. Winning moderate support is imperative to a successful "base" strategy. It's a large reason Obama won in 2008 (there was also an enormous intensity gap) and it's a huge reason Democrats should be worried come November.

On a side note, voters are starting to associate the health care bill as being bad for the economy, which is not good for those who supported it, particularly since the economy is the most important issue as November inches closer. "Seventy-six percent (76%) of Republicans believe repeal would be good for the economy, while 59% of Democrats believe it would be bad. Among those not affiliated with either political party, 47% believe repeal would be good for the economy, and 29% believe it would be bad." Adding salt to the ever increasing Democrat wound is the second most important issue for voters: health care.

The bottom line is really three-fold: there is a large intensity gap favoring repeal; swing voters are moving into the repeal "camp"; and the economy and health care are no longer exclusive of one another.

Greatest 4 days of the year...

Since today is the start of arguably the greatest 4-day stretch of the year, I will take a break from politics and focus on the greatest golf event of the year.

First, this is creepy...



Second, is that Peyton Manning in the gallery?...

And, for the "sounds of spring"

http://users.rcn.com/rjparadis/music/Augusta_Dave_Loggins_instrumental.mp3

Likely winners & losers in 2011 redistricting...

The past two days, the USA Today has printed two very interesting maps on page one which depict the likely Electoral College gains and losses as a result of the upcoming redistricting process, which I've written previously. The estimates assume 2010 census data, which the 2011 redistricting process will rely on, mirror 2009 population estimates. If the data is relatively the same, the sun-belt will pick up +8 (net) electoral votes, while the rust-belt will lose -8 (net).

Winners...

Source: USA Today

Losers...

Source: USA Today

Is the individual mandate constitutional? Part 2

In my last post, I gave a brief overview of the limitations on congressional power generally, and on the Commerce Clause power specifically. I noted that Congress may invoke its Commerce Clause power to regulate three categories: 1) the use of the channels of interstate commerce; 2) the “instrumentalities of interstate commerce;” and 3) activities that “substantially affect” interstate commerce. See, e.g., United States v. Lopez, 514 U.S. 549, 558-59 (1995).

The individual mandate obviously doesn’t fit into either of the first two categories, but that shouldn’t particularly concern its proponents; the substantial economic effects test is the most frequently used category to justify congressional action pursuant to the Commerce Clause.

There are literally thousands of pages of Supreme Court opinions on the Commerce Clause, many of which pertain in whole or in part to the substantial economic effects test. Since I can’t canvass each of these opinions in depth, this post will instead summarize three cases that are more or less representative of the Court’s precedents in this area. I had originally intended to analyze the application of these precedents to the individual mandate in this post, but given its length as is, I will leave that analysis for a subsequent post.

The 1942 case Wickard v. Filburn provides a good example of the expansive reading of congressional power under the Commerce Clause that emerged during the New Deal. The Agricultural Adjustment Act of 1938 required farmers to produce only a certain amount of wheat, in an attempt to restrict the volume of wheat in the market and thereby to control wheat prices. In Wickard, the Supreme Court held that the Act could regulate the excess wheat that a commercial farmer grew on his own farmland for the purpose of personal consumption rather than sale. The Court reasoned that the farmer would otherwise purchase his wheat in the open market, and that, when he was considered along with similarly-situated farmers in the aggregate, their participation in the wheat market (or lack thereof) would affect interstate supply and demand (and would thereby affect prices that Congress was trying to regulate). The Court also noted the potential that a change in prices would shift some of that excess wheat into the interstate market, thereby affecting the volume of wheat in that market (and also affecting prices). See 317 U.S. 111, 114-19, 128-29 (1942).

In the 1995 case United States v. Lopez, by contrast, the Supreme Court, for the first time in sixty years, struck down a federal statutory provision on the ground that Congress had exceeded its Commerce Clause power. The statute had outlawed possessing a firearm within 1,000 feet of a school. The government argued that the law regulated an activity that had a substantial economic effect because possession of a firearm in a school zone might result in violent crime (and crime imposes costs on the economy and may inhibit travel) or otherwise hamper public education (which leads to a less productive citizenry and thus to a less productive national economy). The Court ruled that upholding a law that had, in its view, such an attenuated connection to interstate commerce would convert Congress’s power under the Clause into a general police power, a power that the Constitution does not delegate to Congress. 514 U.S. at 563-64, 567-68.

Finally, Gonzales v. Raich, a Supreme Court case from 2005, held that Congress’s power under the Commerce Clause allows it to outlaw the possession of marijuana for medical reasons that the medical patient litigants had either grown, or obtained for free, wholly within a state (California), even where such possession was legal under state law. Drawing parallels with Wickard, the Court ruled that exempting the litigants in Raich from the provisions of the federal Controlled Substances Act, which bans the manufacturing, possession, distribution, or sale of marijuana (and may generally do so because those activities either constitute interstate commerce in and of themselves or else have a substantial effect on the interstate market for marijuana), would leave a “gaping hole” in that Act and hinder Congress’s ability to regulate the interstate market. 545 U.S. 1, 17-22 (2005).

Notably, courts need only apply rational basis scrutiny to the government’s claim that a regulated activity has a substantial economic effect on interstate commerce. E.g., id. at 22 (citing, inter alia, Lopez, 514 U.S. at 557). The rational basis test, which is used in many areas of constitutional law, is notoriously lenient to the legislature; virtually any reason that can be adduced by a legislature in support of its enactment will do.

In my next post, I’ll discuss how the existing Commerce Clause precedent may be applied to the individual mandate.

Book Review: In Our Hands

Today is the first of a multi-part series dedicated to the review / analysis of Charles Murray's book In Our Hands, which examines government redistribution plans and offers a new approach to social policy. In many ways, entitlement reform is the most important public policy issue facing Americans today and informed, non-partisan, and objective analysis is required. All options should be on the table.

According to the Dallas Federal Reserve, structural deficits inclusive of unfunded liabilities from Social Security and Medicare equates to roughly 700% of GDP (~$104 trilion compared to ~$14 trillion). It is estimated that “for financing future benefits without future tax increases, the United States and major European countries would be required to generate an annual present value surplus in the order of 8–10% of 2005 GDP over the period to 2050.” If those staggering numbers don't have you convinced, considering the following: if the United States freezes relative age-related spending as a % of GDP at projected 2011 levels, in the year 2040 it is estimated that debt/GDP would still be a staggering 200% (blue line). If it does nothing, debt/GDP will be in excess of 400% (red line), and if it reduces funding by 1% for five years starting in 2012 debt/GDP will be 300% (green line). France, Ireland and the UK are the only other countries where freezing age-related benefits will not reduce debt/GDP under any of the three scenarios...

Source: BIS

  

Estimates vary and depending on assumptions can produce fairly different results. However, what is undebatable is the severeity of the crisis and the implications of doing nothing. Murray's book tries to tackle some of these very questions, and unlike most analyses, he presents an alternative.

There are two tenets upon which the social welfare state was founded: (1) resources are scarce; and (2) the government can allocate scarce resources efficiently. As Murray appropriately acknowledges, the first tenet was largely true for the first half of the 20th century, or at least up until the end of World War Two.

The indigent elderly depend on charity, so let the government provide everyone with a guaranteed pension. The unemployed husband and father cannot find a job, so let the government give him some useful work to do and pay him for it. Some people who are sick cannot afford to go to a private physician, so let the government pay for health care. It turned out not to be simple after all. The act of giving pensions increased the probability that people reached old age needing them. Governments had a hard time finding useful work for unemployed people and were ineffectual employers even when they did. The demand for medical care outstripped the supply. But, despite the complications, these were the easy tasks. Scandinavia and the Netherlands—small, ethnically homogeneous societies, with traditions of work, thrift, neighborliness, and social consensus—did them best.

The second tenet, while the outcomes are charitable in theory, has proven to be too rigid to adjust to modernity.

Traditions decay when the reality facing the new generation changes. The habit of thrift decays if there is no penalty for not saving. The work ethic decays if there is no penalty for not working. Neighborliness decays when neighbors are no longer needed. Social consensus decays with immigration. Even the easy tasks became hard as time went on.

The moral hazard carte-blanche entitlement programs have created over multiple decades has only exacerbated the fragile foundations of America’s entitlement society, and by the 1980s it was clear that government failed, resulting in a twisted irony of sorts. As throughout history, the welfare state, particularly in an open society as complex and vast as the United States, results in a multi-front war of negative feedback loops, eventually leading to the destruction of the policy, and potentially the State. The first thing to go is “the traditions of work, thrift, and neighborliness… [which] spawns social and economic problems it is powerless to solve leading to inevitable insolvency.”


In order to combat insolvency, which is already the case even if the political class doesn’t want to acknowledge it, Murray proposes the elimination of entitlement program payments to individuals which are to be replaced by a $10,000 per year cash payment to anyone over the age of 21. The concept draws on Milton Friedman’s “negative income tax” as proposed in the early 1960s to eradicate poverty which essentially gave a cash payment to those under the poverty line equal to the difference between their income and the aforementioned poverty level. The logic followed that the opportunity cost of a direct cash payment would be less over the long-run when compared to administrating a “complicated welfare system”. Simplistically, Murray’s Plan (as we’ll call it) adheres to the same logic.

The Plan has six major components.

1. Each citizen will be given a Passport (the same as used today when traveling) and will ensure program eligibility.


2. The $10,000 payment will be deposited electronically into a previously established bank account, as set-up by the individual.


3. Earned income up to $25,000 will not be taxed, with a 20% surtax levied on earned income between $25,000 - $50,000 (eg, [$30,000 - $25,000] * 20% = $1,000 tax) up to a maximum of $5,000.


4. There is no Marriage Penalty.


5. Payment should be indexed to either median personal income or inflation.


6. The elimination of most “transfer” payment programs (ie, Social Security, Medicare, etc).

This is merely an introduction and an overview of Murray’s first chapter. There are many questions that arise, particularly at first glance. It will be interesting to see how Murray handles the legal and political aspects of such a drastic overhaul. That said, it’s important to appreciate that Murray, rightly or wrongly, is approaching this debate from two perspectives: 1) government’s role is limited and should be focused on equality of opportunity, not equality of outcomes; and 2) “here’s the money. Use it as you see fit. Your life is in your hands”.

Link to PDF of entire book (or you can buy it for $20): http://www.aei.org/book/846

Is the individual mandate constitutional? Part 1

A major aspect of the recently-enacted health care legislation is the so-called individual mandate, which requires that all individuals who do not fit a narrow range of exceptions possess health insurance. Those individuals who do not fit one of the exceptions and who do not possess health insurance will have to pay a fine that will be collected by the IRS.

Fourteen states, as well as four individuals, have now filed lawsuits challenging this aspect of the law as unconstitutional. The underlying issue is: Has Congress exceeded its enumerated powers by requiring some individuals to purchase health insurance or else pay a penalty?

With several exceptions not relevant here, Congress may only enact legislation that falls within the scope of the enumerated powers delegated to it by Article I, Section 8 of the Constitution. (All other powers are reserved to the states or to the people by the Tenth Amendment.) In defense of the individual mandate, the government will almost certainly invoke the Commerce Clause, one of Congress’s enumerated powers, and may also invoke the Taxing and Spending Clause as a separate enumerated power that could justify the enactment of the individual mandate.

In this post, I’ll give a brief overview of current Commerce Clause jurisprudence. In my next post, I’ll discuss several particular precedents in this area of the law and how they might affect the constitutionality of the individual mandate. Subsequent posts will discuss the Taxing and Spending Clause and other issues related to the pending lawsuits.

The Commerce Clause gives Congress the power “[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” U.S. Const. art. I, § 8, cl. 3. The Commerce Clause is most commonly invoked in the context of the second type of commerce, namely, interstate commerce. The Supreme Court has held that Congress may properly invoke its interstate commerce power to regulate three categories of activities or things: 1) the use of the channels of interstate commerce (e.g., transporting a minor across state lines for an immoral purpose); 2) the “instrumentalities of interstate commerce” (e.g., safety regulations for vehicles that transport goods across state lines); and 3) activities that “substantially affect” interstate commerce (e.g., national minimum wage laws, which, among other things, prevent states from lowering their minimum wages to give local corporations an unwarranted advantage over the corporations of other states in interstate commerce).

The government will try to invoke the third, “substantial economic effects” category when justifying the individual mandate. And the Supreme Court has used that category to countenance very expansive exercises of congressional authority. My next post will discuss several seminal cases in Commerce Clause law and their application to the individual mandate issue.

6/3/10 CORRECTION: I've added the phrase “With several exceptions not relevant here, . . . ” to the beginning of the third paragraph. The paragraph as originally written was inadvertently incorrect because it didn't take into account, for instance, the congressional power found in Section 5 of the Fourteenth Amendment.

Housekeeping...

I'm excited to announce that Morning 'N America will soon introduce guest bloggers that will write on a host of topics. In the coming days and weeks look for an introspective analysis on the legality of the recently passed health care bill.

State races key to 2011 redistricting...

One of the many issues we're paying attention to is the looming redistricting battles that will play out in 2011. The USA Today provides a nice summary of the importance of state elections in November. Recall that redistricting is a once-a-decade process which uses the Census, among other things, to guide the redrawing of political lines. (note: this is one of the main reasons the Administration's decision to move the Census Bureau from the Commerce Department to the Oval Office was so controversial.) Both parties will focus their attention on the six states "where one chamber of the legislature is within a few votes of switching control." Federal elections get the most media attention, but the legislative agenda in DC over the next 10 years could very well be shaped by a few state-level elections in November.

Possible redistricting lights up state races' fundraising

By Kathy Kiely, USA TODAY


WASHINGTON — As Census workers fan out this month to complete the nation's once-a-decade headcount, leaders of both political parties are amassing war chests for the high-stakes political battle that it will trigger.


Democrats and Republicans are planning to pour at least $20 million each into November's state legislative races that could determine which party controls about two dozen state legislative chambers. And in a case that could go to the Supreme Court, the Republican National Committee is arguing it should be able to add to the pot.


The reason for all the activity: In all but six states, legislatures have a hand in redrawing congressional boundaries after each Census — supposedly to account for population shifts, but usually with a political eye.


That's why both parties are investing in races for state House and Senate.


"If you focus some resources you can have an impact on congressional elections for a decade," says Ed Gillespie, a former national Republican Party chairman and co-chair of the party's effort to win state legislatures.


Democrats are ramping up for a historic fundraising effort. "With the Census and the health care agenda, people are focusing on what these state races mean," says Michael Sargeant, executive director of the Democratic effort.


Republicans are playing catch-up in the redistricting fight. Before congressional boundaries were redrawn in 2001, the GOP controlled governorships and both chambers of state legislatures in 13 states, compared with eight for Democrats.


Since then, Democrats have made steady gains in state legislative races and reversed the equation. Today, Democrats control the governor's office, the state House and the state Senate in 16 states. Republicans have total control in nine states.


There are no federal limits on fundraising because the legislative races are state contests. As a result, six-figure donations are pouring into the parties' legislative committees, from labor unions and wealthy individuals. Money is also coming from corporations banned from making direct contributions in congressional or presidential races.


State legislative races are traditionally the election undercard, overshadowed by races for statewide and federal offices. Fundraising for November's legislative races is expected to break records. "There's little doubt there will be more money spent on legislative races this year than ever," says the National Conference of State Legislatures' Tim Storey.


Contributors to the Democratic Legislative Campaign Committee last year included: AFSCME, the government employees' labor union, which has pitched in about $600,000; Hewlett-Packard, the high-tech manufacturer, $35,000 and Altria, a tobacco and food conglomerate, $100,000. Tim Gill, a gay rights activist from Denver, has contributed $50,000.


Among the Republican State Leadership Committee's backers: retailing giant Wal-Mart with $115,000; oil company Exxon-Mobil, $90,000; online auctioneer eBay, $40,000 and Comcast, the cable TV provider, $81,000.


A federal district court last month rejected the RNC's argument that it should be allowed to raise unlimited campaign funds for state legislative races. The RNC can go to the Supreme Court with its challenge to a federal law that limits the amount of money national parties can collect.


Most attention will focus on states expected to lose or gain congressional seats and where one chamber of the legislature is within a few votes of switching control. Iowa, Nevada, New York, Ohio, Pennsylvania and Texas are among those states.


In Texas, during the last redistricting fight, Democratic lawmakers at one point fled across state lines to avoid voting on a Republican-drawn congressional map. The map ultimately was put in place and helped shift the state's congressional delegation from majority Democrat to majority Republican.


"We understand the consequences of redistricting," says state Rep. Garnet Coleman, a Democrat spearheading his party's effort to win the Texas House.


Ohio's House Republican leader William Batchelder, hoping to reverse his party's minority status, says "it is difficult sometimes to get people focused on legislative races," but believes the best way to win is to highlight pocketbook issues.


That's the "mechanics" of politics, Batchelder says. "It turns most people off."