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now the North Carolina legislature is engaged in discussion of a patient's bill of rights and HMOs and those sorts of things, and ERISA is obviously a real impediment to the efforts in that area. But, for example, any ideas about things you have encountered in the area of education?

Mr. BLUE. Nothing specifically comes to mind, except there are a lot of regulations regarding different classifications of students in public education. We have had some debates about that. I will not say that we are preempted. It is just the regulatory requirements that we run into and spending money the ways that we think may be more effective to address certain student populations.

I will give you another area perhaps where preemption has bothered us, or at least we think it has. In the area of transportation, there has been a lot of debate. There was some debate about drivers' licenses requiring Social Security numbers and issues like that that directly conflicted with North Carolina law, and we thought without any valid reason, privacy issues and things like that where we have made a specific public policy finding that we wanted to preserve certain aspects of privacy. You get Federal law preempting without any clear indication on the part of the Congress that you want us totally preempted in that field. It is things like that that we get the midnight phone calls on, and a wide range of issues.

I think, again, to answer your question directly, it would be much easier if I just list all of the various things, and we will get that to you this afternoon as they come to mind. I will call my staff at home and get the specific instances. I was looking at the broad effects and the cumulative effect of preemption in sort of a vacuum, somewhat, without looking at the specifics, but I will get that information for you.

Senator EDWARDS. I think that Ed-Flex, for example, which was mentioned by the Chairman, was a good step in the right direction, but it is just one step that needs to be taken. There are many steps that need to be taken to remove some of these bureaucratic strings that are tied to Federal money that goes to State and local governments so that you all can use this money more efficiently. I mean, you are there. You are living there. You know what is happening. Mr. Anthony, can you respond to that question, too, some specific areas that you have seen?

Mayor ANTHONY. Senator, first, I was going to ask you, would you like to be a mayor, because you sound as if you would make a great local government official.

Senator EDWARDS. I have to see if I like this job, first.

Mayor ANTHONY. As Representative Blue has already noted, there have been strings in the educational area in regards to stringent requirements, and you can go into the construction of schools, you can go and get examples in regards to specific curriculums that are required.

But can I give you a great example? There are States all over this Nation that are taking charge and making sure that the flexibility that is there, they are utilizing it. For example, if we look in the education area, there are State legislators and governors all over this Nation that are having special sessions funding education because that is an important priority to their State. Other States

are having special sessions on environmental policy because that is a specific interest in that State. Counties and cities are having special revenue directed for sensitive lands. In Palm Beach County, where I am from, we created a taxing authority for children's issues, children's services taxes.

These are examples to show that if we have the flexibility and if we are not preempted by the requirements of the Federal Government, we deal with our issues based upon the concerns and the desires of the people that live in those communities, and I think that that is the real model that we would like to be able to share Nationwide and that Congress understands.

Cities, States, and counties in this Nation are not usurping their responsibility. In fact, if we are concerned about education in our State, if you are not preempting us and giving us all of the additional requirements, we will have a special session and we will put money into education if that is our State priority. But we would like that flexibility, and some cities around this Nation are buying sensitive properties through a general obligation bond of the citizens of that community because that is their interest.

So there are some examples and models throughout this Nation that I hope we keep in mind through this process that are working. As you said, Mr. Chairman, government officials all over this Nation are prepared to provide the services, Senator, that our citizens want.

Senator EDWARDS. The word that comes to mind is a word I have heard the Speaker use on occasion, is empowerment. It seems to me that we want less of our Federal tax dollars spent on this bureaucracy up here in Washington and more of it spent to empower State and local governments to do the kind of job they need to do and are well-equipped to do, in my judgment. Do you agree with that, Speaker Blue?

Mr. BLUE. I agree with that, Senator. And the other thing, when we look at the wide range of issues, it is further empowerment, but also allowing us to use a power that at least historically we have had or perceived that we have.

If you just look at the areas where preemption gets to be a hot topic, at least in NCSL corridors, it is tort reform, areas that traditionally have been the domain or bailiwick of the States. Right now, we have serious discussions on what kind of preemption there will be to insulate various entities from Y2K potential tort liability. Those are issues that States are best suited to deal with. Those are issues that, historically, States have been empowered to deal with. To have the Federal Government intrude in that area, whether it is commerce or other areas, and preempt us out of the fields, we think does not serve the purposes of the Federal system that we are a part of. And you can go down the list, of product liability and a wide range of different issues where there has been serious discussion of preempting State authority to act in ways the States are best suited to act.

Senator EDWARDS. I could not agree with you more. All I have to say, I have ultimate confidence in State and local governments' abilities to act in those areas and to act intelligently and thoughtfully and with respect to their specific local concerns, which is what

Let me just say, Mr. Chairman, thank you very much. I want to say thank you to Speaker Blue. Mr. Anthony, thank you for being here. It is always an honor for me to be in the presence of our Speaker.

Mr. BLUE. Thank you.

Chairman THOMPSON. Thank you very much. Senator Lieberman. Senator LIEBERMAN. Very briefly. I am sorry, gentlemen, I had to be in and out. I thank you for your testimony and your interest and your leadership generally.

I was actively involved in the activities here that led to the moratorium on taxation regarding Internet sales, and part of the reason for the moratorium was the complication of the issue. I do not know whether you have any thoughts today about it, but we are taking some tried and true federalism principles that have been applied to interstate commerce, but we are applying them to this extraordinary new highway, as they say.

The question that puzzled a lot of us, because we see this trend developing-more and more sales going on e-commerce and, therefore, more and more revenue being deprived to the State and local governments from sales tax-but whom do we tax and how do we do it? Does the sale occur in the place where the person is sitting in front of their PC? Does it occur in the State where the headquarters of the seller is? Does it occur maybe in some third State where they have their warehouse from which they dispatch? Does it occur, as some have alleged, where the Internet service provider happens to be located, where all the connections are happening?

It is really serious, and again, having come from State Government myself in a State that has been primarily dependent on the sales tax for its revenue, this has real serious implications. But the question is how to make it rational and fair and not deprive the States not only of the revenue, but, as you have said, of the independence that comes, of the strength that comes with an independent source of revenue. Do you have any thoughts about that this morning?

Mr. BLUE. I have a few. First, I agree with you that there are some very serious questions raised in e-commerce. You get the situs question, certainly, and it is as compelling as any.

Senator LIEBERMAN. Right.

Mr. BLUE. I think that this may be the kind of situation that does not question the States' rights to a revenue stream but raises a challenge for the States and localities in partnership with the Federal Government and the Congress to come up with some solution by defining those issues and still collecting the revenue. It may cause us to create different kinds of mechanisms for doing what all 50 States are uniquely qualified to do. Every State-well, not all 50, I think there may be four or five States without a sales tax, but that is the one strength of State tax officers and revenue collectors around the country. They are experts in collecting sales taxes. Senator LIEBERMAN. Right.

Mr. BLUE. We distribute them back to the local government.

But it may call for some kind of partnership developed at the national level so that you cannot skip from State to State or deciding the question that we ran into. Congress can deal with that because of its commerce powers while we can at the State level and you can

determine how to aid us in doing what we have to do in order to deliver the services to our people.

I do not at all question the need for a serious study. The moratorium may have been appropriate. I just would say that if, in fact, it is going to take us a long time to do something about it, the forces build up so quickly that after we have decided what to do, it may be a little more difficult to do it when you are dealing with a $100 billion stream of commerce as opposed to a $5 billion stream of commerce.

So we think there is some urgency about it. We know that the Committee that was appointed to look at it has not met. We know about the challenges of its composition. But something has to be done. We have appointed a committee within the National Conference of State Legislatures to study all of the aspects of e-commerce and, hopefully, come up with some suggestions, and recommendations, that we can share with you here in Congress.

Senator LIEBERMAN. That is a fair point. Interestingly, your answer reminds me that in all the discussion we had leading up to that bill, nobody was talking about, or wanting, the Federal Government to become the tax collector. It was really more a question of how you rationalize the claims that competing State and local jurisdictions might have to tax this new form of commerce. Even if anybody thought about it conceptually, it was as a way to collect the taxes to then return them to the State and local governments, but I do not think there is much interest here in having the Federal Government develop the capacity or the whole bureaucracy required to begin to collect sales taxes, essentially.

Mr. BLUE. What we are concerned about, Senator Lieberman, is that we do not experience what so many of us went through in the late 1980's or early 1990's by coming up with a way to tax or to get the revenue from this source that we get from any other sale and 60 days later it has changed its situs. In the 1980's, those of us at the State level addressed the use of incentives that States were giving to lure companies from one State to the other, and we know that with e-commerce, it is easy-in fact, you can move it instantaneously.

So from the Federal level, we need some ability to ensure that it does not jump across the North Carolina mountains over into Tennessee and you constantly are chasing an object that you cannot catch.

I know that there is serious discussion on us guaranteeing that the VAT tax will be collected for the European Community, and so there may be some other ways that we can look at what we do for States within this structure to collect sales tax on e-commerce. But I am saying that it is the kind of thing that is challenging, but certainly we ought to be able to rise to the instance.

Senator LIEBERMAN. To deal with it. Mayor, do you want to add anything?

Mayor ANTHONY. I agree with Representative Blue. Clearly, as local governments, we think that the State level is where it is happening in regards to the revenue collection. The National League of Cities has been discussing and debating this process for the last 2 years in preparation for this commission. We do agree that more

ate confusion, in a sense, of saying that we have 50 different States and 50 different collection processes is one that I think goes back to the concept that we do not think that State and local governments are able to manage and create policy for their own constituents and their own future, and, in fact, we are. We are prepared to deal with this.

I personally think that the State in which the recipient receives the product is where the tax is collected. The report may not, in fact, come back and say that. It may be greater minds than mine, because I am a little country boy from South Bay, Florida, but

Senator LIEBERMAN. Yes. The Chairman tries to pull that line on me every now and then. [Laughter.]

Mayor ANTHONY. But I think that that is the answer there. But, again, we can go through a process of research to come up with one that I think is appealing to the partnership that we have created through the Big 7 to resolve this issue.

Senator LIEBERMAN. Good. I look forward to working with both of you and your organizations on it. Thanks very much.

Chairman THOMPSON. One of the things in listening to that that I am reminded of is the conflicts of law question. I never could figure it out in law school, but it is there. Each State has its own rules as to the conflicts of law that it will apply. You think about the law of contract. Some States apply where the contract was executed, some where it was consummated, some where it was performed. Some recognize that if you put in the contract that this is the State law that will apply.

So the point is that States are used to dealing with rather complex situations. There are accusations sometimes of forum shopping and things of that nature that would be under any kind of a system. But we have a rather, for, I guess, at least 150 years or so, a rather complex set of 50 different sets of rules as to how they apply, conflicts of law situations that involve transactions across State lines with regard to very complex commercial transactions. We are not flying blind here. It is nothing that we cannot do.

Thank you very much, gentlemen. You have been extremely helpful and we really appreciate you being here. We look forward to working with you in the future.

Mr. BLUE. Thank you.

Mayor ANTHONY. Thank you very much.

Chairman THOMPSON. Thank you very much.

I would like to introduce our third and final panel. Professor John McGinnis is joining us from Cardozo Law School. He will be followed by Dr. William Galston, Director of the Institute for Philosophy and Public Policy.

Gentlemen, thank you very much for being with us here today and for waiting through this long morning, but we certainly want to hear from you. Professor McGinnis, would you like to start?

TESTIMONY OF JOHN O. MCGINNIS,1 PROFESSOR OF LAW, BENJAMIN N. CARDOZO LAW SCHOOL, YESHIVA UNIVERSITY Mr. MCGINNIS. Thank you very much, Mr. Chairman. I would like to make my full statement a part of the record. I am very

1 The prepared statement of Mr. McGinnis appears in the Appendix on page 180.

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