Page 22 - Delaware Lawyer - Issue 3 - 2024

FEATURE | DRIVE-THROUGH CRITIC
of labor. What is left for labor when
manufacturing jobs are gone? Welcome
to the services sector.
Delaware did not lose manufacturing
jobs to neighboring Maryland or Penn-
sylvania;24 America lost manufactur-
ing jobs to lower-cost foreign jurisdic-
tions.25 Weitzman questions Delaware’s
choices without considering the macro
trends that framed them.26 That makes
for an edgier book about Delaware, but
a less accurate one.
B. Delaware’s Expert-Authored
Corporate Law
Weitzman next objects to how Dela-
ware maintains its corporate law. A group
of lawyers known as the Council of the
Corporate Law Section of the Delaware
State Bar Association (the “Council”)
examines Delaware’s law annually and
proposes changes. Weitzman criticizes
them as an unelected group of experts
and regards the process as undemocratic.
Weitzman again misses the bigger
picture. He acknowledges that experts
write many laws27 and that ordinary
Delawareans are not eager to weigh
in on corporate questions,28 only to
claim that the “level of public interest
is not an indication of whether an issue
should be debated publicly.”29 Yet civic
apathy is natural in a depoliticized world
where ordinary people increasingly feel
their agency slipping away, along with
their ability to hold power accountable.30
Financialization and globalization erod-
ed the New Deal institutions that medi-
ated an uneasy but prosperous settlement
between public and private interests,31
elevating capital’s policy preferences over
those of ordinary people.32 Powerful
financiers also led or forced a massive con-
solidation of newspapers and other sourc-
es of local news, which has been shown to
have further reduced civic engagement.33
Those larger forces came from outside of
Delaware, not from within it.34
To Weitzman’s credit, he offers two
constructive suggestions: expanding the
Council to include more voices, with
Weitzman suggesting “legal experts
specifically representing stakeholders
other than shareholders,”35 and making
the Council’s proceedings public.36 This
embrace of stakeholderism appears on
the last page of Weitzman’s book — an
unearned payoff for a work that mostly
ignores the rich, ongoing debate about
corporate purpose. Nor does Weitzman
explain why greater transparency would
change legislative outcomes that he
claims constituents do not care about.
C. Entity Anonymity
Similar problems affect Weitzman’s
criticisms of Delaware for allowing in-
dividuals to form entities anonymously,
which he says facilitates money laun-
dering and tax evasion.37 But this too
is not a Delaware-specific problem.
Many states offer anonymity to busi-
ness incorporators. Delaware is the big-
gest facilitator only because it has the
biggest market share, not because it is
doing something different than other
states. Delaware also did not create the
demand for anonymous entities. That
grew with the removal of restrictions
on the free flow of capital.38 The deci-
sionmakers who adopted those policies
lived in New York, Washington, D.C.,
and other world capitals, not Dover.39
Delaware could not have addressed
these issues alone. If Delaware had re-
quired disclosure, then individuals who
demanded anonymity would go else-
where. The problem required a fed-
eral solution, and Congress eventually
provided one by passing the Corporate
Transparency Act.40
D. The Delaware Loophole
Weitzman stands on firmer ground
when he criticizes the “Delaware Loop-
hole,” which deprives other states of tax
revenue.41 Delaware does not tax income
from property not located in Delaware,
nor does Delaware tax corporations
whose purpose is to own and monetize
20 DELAWARE LAWYER ISSUE 3 2024
intellectual property.42 Out-of-state busi-
nesses can take advantage of that by
forming a Delaware affiliate to own intel-
lectual property, entering into a licensing
agreement to pay fees for the use of the
intellectual property, and thereby turning
revenue generated in other states into a
cost (the licensing fee) that leads to rev-
enue not subject to tax in Delaware. Once
again, any other state could do the same
thing, as Nevada did in 2020.43
Weitzman asserts that the Delaware
Loophole cost other states “between $6.6
billion and $9.5 billion in lost revenues
between 1995 and 2009.”44 That sounds
like a lot, but not as a percentage of total
U.S. state and local income tax revenue:
0.3% at the high end, or $13.8 million
per state excluding Delaware.45 Jurisdic-
tions worldwide lose an estimated $480
billion in tax revenue, largely attributable
to favorable laws in the United Kingdom,
its current or former colonies (excluding
the one where we live), and three Euro-
pean states.46
Tax evasion is a major problem, and
Weitzman is right to focus on it, but it
is a national and international problem.
It requires a national or international
solution.47
III. Conclusion
What’s the Matter with Delaware?
remains an example of drive-through
criticism, but Weitzman gets credit for
elevating the genre. He does a com-
mendable job describing Delaware’s
peculiar role to a lay audience, but
he presents an incomplete picture. A
better effort might have been What’s
the Matter with the Neoliberal Order
and Delaware’s Role in It.
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