Like most other States, the Commonwealth of Kentucky taxes its residents’ income. [Citation.] The tax is assessed on ‘‘net income,’’ which excludes ‘‘interest on any State or local bond’’ (‘‘municipal bond,’’ for short), [citation]. Kentucky piggybacks on this exclusion, but only up to a point: it adds ‘‘interest income derived from obligations of sister states and political subdivisions thereof’’ back into the taxable net. [Citation.] Interest on bonds issued by Kentucky and its political subdivisions is thus entirely exempt, whereas interest on municipal bonds of other States and their subdivisions is taxable. (Interest on bonds issued by private entities is taxed by Kentucky regardless of the private issuer’s home.)

   The ostensible reason for this regime is the attractiveness of tax-exempt bonds at ‘‘lower rates of interest … than that paid on taxable … bonds of comparable risk.’’ [Citation.] Under the Internal Revenue Code, for example, [citation], ‘‘if the market rate of interest is 10 percent on a comparable corporate bond, a municipality could pay only 6.5 percent on its debt and a purchaser in a 35 percent marginal tax bracket would be indifferent between the municipal and the corporate bond, since the after-tax interest rate on the corporate bond is 6.5 percent.’’ [Citation.] The differential tax scheme in Kentucky works the same way; the Commonwealth’s tax benefit to residents who buy its bonds makes lower interest rates acceptable, while limiting the exception to Kentucky bonds raises in-state demand for them without also subsidizing other issuers.

   The significance of the scheme is immense. Between 1996 and 2002, Kentucky and its subdivisions issued $7.7 billion in long-term bonds to pay for spending on transportation, public safety, education, utilities, and environmental protection, among other things. [Citation.] Across the Nation during the same period, States issued over $750 billion in long-term bonds, with nearly a third of the money going to education, followed by transportation (13%) and utilities (11%). [Citation.] Municipal bonds currently finance roughly two-thirds of capital expenditures by state and local governments. [Citation.]

   Funding the work of government this way follows a tradition going back as far as the 17th century. [Citation.] * * *

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   The Commerce Clause empowers Congress ‘‘[t]o regulate Commerce … among the several States,’’ Art. I, § 8, cl. 3, and although its terms do not expressly restrain ‘‘the several States’’ in any way, we have sensed a negative implication in the provision since the early days, [citation]. The modern law of what has come to be called the dormant Commerce Clause is driven by concern about ‘‘economic protectionism—that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.’’ [Citation.] The point is to ‘‘effectuat[e] the Framers’ purpose to ‘prevent a State from retreating into [the] economic isolation,’’’ [citation], ‘‘that had plagued relations among the Colonies and later among the States under the Articles of Confederation,’’ [citation].

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   Under the resulting protocol for dormant Commerce Clause analysis, we ask whether a challenged law discriminates against interstate commerce. [Citation.] A discriminatory law is ‘‘virtually per se invalid,’’ [citation], and will survive only if it ‘‘advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives,’’ [citation]. Absent discrimination for the forbidden purpose, however, the law ‘‘will be upheld unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits.’’ Pike v. Bruce Church, Inc., [citation]. State laws frequently survive this Pike scrutiny, [citation], though not always, as in Pike itself, [citation].

   Some cases run a different course, however, and an exception covers States that go beyond regulation and themselves ‘‘participat[e] in the market’’ so as to ‘‘exercis[e] the right to favor [their] own citizens over others.’’ [Citation.] This ‘‘market participant’’ exception reflects a ‘‘basic distinction … between States as market participants and States as market regulators,’’ [citation], ‘‘[t]here [being] no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market,’’ [citations].

   Our most recent look at the reach of the dormant Commerce Clause came just last Term, in a case decided independently of the market participation precedents. United Haulers upheld a ‘‘flow control’’ ordinance requiring trash haulers to deliver solid waste to a processing plant owned and operated by a public authority in New York State. We found ‘‘[c]ompelling reasons’’ for ‘‘treating [the ordinance] differently from laws favoring particular private businesses over their competitors.’’ [Citation.] State and local governments that provide public goods and services on their own, unlike private businesses, are ‘‘vested with the responsibility of protecting the health, safety, and welfare of [their] citizens,’’ [citation], and laws favoring such States and their subdivisions may ‘‘be directed toward any number of legitimate goals unrelated to protectionism,’’ [citation]. That was true in United Haulers, where the ordinance addressed waste disposal, ‘‘both typically and traditionally a local government function.’’ [Citation.] And if more had been needed to show that New York’s object was consequently different from forbidden protectionism, we pointed out that ‘‘the most palpable harm imposed by the ordinances—more expensive trash removal—[was] likely to fall upon the very people who voted for the laws,’’ rather than out-of-state interests. [Citation.] Being concerned that a ‘‘contrary approach … would lead to unprecedented and unbounded interference by the courts with state and local government,’’ [citation], we held that the ordinance did ‘‘not discriminate against interstate commerce for purposes of the dormant Commerce Clause,’’ [citation].

   It follows a fortiori from United Haulers that Kentucky must prevail. In United Haulers, we explained that a government function is not susceptible to standard dormant Commerce Clause scrutiny owing to its likely motivation by legitimate objectives distinct from the simple economic protectionism the Clause abhors, [citations]. This logic applies with even greater force to laws favoring a State’s municipal bonds, given that the issuance of debt securities to pay for public projects is a quintessentially public function, with the venerable history we have already sketched, [citation]. By issuing bonds, state and local governments ‘‘sprea[d] the costs of public projects over time,’’ [citation], much as one might buy a house with a loan subject to monthly payments. Bonds place the cost of a project on the citizens who benefit from it over the years, * * * and they allow for public work beyond what current revenues could support. [Citation.] Bond proceeds are thus the way to shoulder the cardinal civic responsibilities listed in United Haulers: protecting the health, safety, and welfare of citizens. It should go without saying that the apprehension in United Haulers about ‘‘unprecedented … interference’’ with a traditional government function is just as warranted here, where the Davises would have us invalidate a century-old taxing practice, [citation], presently employed by 41 States, [citation], and affirmatively supported by all of them, [citation].

   * * * [T]he Kentucky tax scheme parallels the ordinance upheld in United Haulers: it ‘‘benefit[s] a clearly public [issuer, that is, Kentucky], while treating all private [issuers] exactly the same.’’ [Citation.]

   * * * Kentucky’s tax exemption favors a traditional government function without any differential treatment favoring local entities over substantially similar out-of-state interests. This type of law does ‘‘not ‘discriminate against interstate commerce’ for purposes of the dormant Commerce Clause.’’ [Citation.]

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   A look at the specific markets in which the exemption’s effects are felt both confirms the conclusion that no traditionally forbidden discrimination is underway and points to the distinctive character of the tax policy. The market as most broadly conceived is one of issuers and holders of all fixed-income securities, whatever their source or ultimate destination. In this interstate market, Kentucky treats income from municipal bonds of other States just like income from bonds privately issued in Kentucky or elsewhere; no preference is given to any local issuer, and none to any local holder, beyond what is entailed in the preference Kentucky grants itself when it engages in activities serving public objectives. * * * These facts suggest that no State perceives any local advantage or disadvantage beyond the permissible ones open to a government and to those who deal with it when that government itself enters the market. [Citation.]

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   In sum, the differential tax scheme is critical to the operation of an identifiable segment of the municipal financial market as it currently functions, and this fact alone demonstrates that the unanimous desire of the States to preserve the tax feature is a far cry from the private protectionism that has driven the development of the dormant Commerce Clause. * * *

   The judgment of the Court of Appeals of Kentucky is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.