Taxing and Spending Clause
Encyclopedia
Article I
, Section 8, Clause 1 of the United States Constitution
, is known as the Taxing and Spending Clause. It is the clause that gives the federal government
of the United States
its power of tax
ation. Component parts of this clause are known as the General Welfare Clause and the Uniformity Clause.
was its lack of a grant to the central government of the power to lay and collect taxes. Under the Articles, Congress was forced to rely on requisitions upon the governments of its member states. Without the power to independently raise its own revenues, the Articles left Congress vulnerable to the discretion of the several State governments—each State made its own decision as to whether it would pay the requisition or not. Some states were not giving Congress the funds for which it asked by either paying only in part, or by altogether ignoring the request from Congress. Without the revenue to enforce its laws and treaties, or pay its debts, and without an enforcement mechanism to compel the States to pay, the Confederation was practically rendered impotent and was in danger of falling apart.
The Congress recognized this limitation and proposed amendments to the Articles in an effort to supersede it. However, nothing ever came of those proposals until the Philadelphia Convention
.
of the federal government and the individual states
. These two powers have been received over time to be very broad, but have also, on occasion, been abridged by the courts. They are also currently held to be independent powers, not subject to the limitations imposed by the other enumerated powers
of Congress
.
In 1922, the Supreme Court struck down a 1919 tax on child labor
in Bailey v. Drexel Furniture Co., commonly referred to as the "Child Labor Tax Case". The Court had previously held that Congress did not have the power to directly regulate labor, and found the law at issue to be an attempt to indirectly accomplish the same end. This ruling appeared to have been reinforced in United States v. Butler
, in which the Supreme Court of the United States
ruled that the processing taxes instituted under the 1933 Agricultural Adjustment Act
were an unconstitutional attempt to regulate state activity in violation of the Tenth Amendment
. However, despite its outcome, Butler affirmed that Congress does have a broad power to tax, and to expend revenues within its discretion. Butler was the last case in which the Court would find a constitutional limitation on the power of Congress to tax and spend.
The Supreme Court has also found that, in addition to the power to use taxes to punish disfavored conduct, Congress can also use its power to spend to encourage favored conduct. In South Dakota v. Dole
, the Court upheld a federal law which withheld highway funds to states that did not raise their legal drinking age to 21.
es and the uniformity of indirect tax
es, the disallowal of taxes on exports, the General Welfare requirement, the limitation on the release of funds from the treasury except as provided by law, and the apportionment exemption of the Sixteenth Amendment
.
The two primary authors of The Federalist Papers
set forth two separate, conflicting interpretations:
Although The Federalist was not reliably distributed outside of New York, the essays eventually became the dominant reference for interpreting the meaning of the Constitution as they provided the reasoning and justification behind the Framers' intent in setting up the federal government.
While Hamilton's view prevailed during the administrations of Presidents
Washington
and Adams
, historians argue that his view of the General Welfare Clause was repudiated in the election of 1800
, and helped establish the primacy of the Democratic-Republican Party for the subsequent 24 years. This belief is based on the motivating factor which the Kentucky and Virginia Resolutions
played upon the electorate; the Kentucky Resolutions, authored by Thomas Jefferson
, specifically criticized Hamilton's view. Further, Jefferson himself later described the distinction between the parties over this view as "almost the only landmark which now divides the federalists from the republicans...."
Associate Justice Joseph Story
relied heavily upon The Federalist as a source for his Commentaries on the Constitution of the United States. In that work, Story excoriated both the Madisonian view and a previous, strongly nationalistic view of Hamilton's which was rejected at the Philadelphia Convention
. Ultimately, however, Story opined the broader spending view of Hamilton, as described above, was the correct construction.
Prior to 1936, the United States Supreme Court had imposed a narrow interpretation on the Clause, as demonstrated by the holding in Bailey v. Drexel Furniture Co., in which a tax on child labor
was an impermissible attempt to regulate commerce beyond that Court's equally narrow interpretation of the Commerce Clause
.
This narrow view was later overturned in United States v. Butler
. There, the Court agreed with Justice Story's construction, holding the power to tax and spend is an independent power; that is, the General Welfare Clause gives Congress power it might not derive anywhere else. However, the Court did limit the power to spending for matters affecting only the national welfare. The Court wrote:
The tax imposed in Butler was nevertheless held unconstitutional as a violation of the Tenth Amendment
reservation of power to the states.
Shortly after Butler, in Helvering v. Davis, the Supreme Court interpreted the clause even more expansively, conferring upon Congress a plenary power
to impose taxes and to spend money for the general welfare subject almost entirely to its own discretion. Even more recently, the Court has included the power to indirectly coerce the states
into adopting national standards by threatening to withhold federal funds in South Dakota v. Dole
.
To date, the Hamiltonian view of the General Welfare Clause predominates in case law. Historically, however, the Anti-Federalists
were wary of such an interpretation of this power during the ratification debates in the 1780s. Due to the objections raised by the Anti-Federalists, Madison was prompted to author his contributions to the Federalist Papers, attempting to quell the Anti-Federalists' fears of any such abuse by the proposed national government and to counter Anti-Federalist arguments against the Constitution.
Proponents of the Madisonian view also point to Hamilton's limited participation in the Constitutional Convention
, particularly during the time frame in which this clause was crafted, as further evidence of his lack of constructive authority.
An additional view of the General Welfare Clause that is not as well known, but equally as authoritative as the views of both Madison and Hamilton, can be found in the pre-Revolutionary
writings of John Dickinson
, who was also a delegate to the Philadelphia Convention
. In his Letters from a Farmer in Pennsylvania
, Dickinson wrote of what he understood taxing for the general welfare entailed:
The idea Dickinson conveyed above, explains University of Montana Law Professor Jeffrey T. Renz, is that taxing for the general welfare is but taxation as a means of regulating commerce. Renz expands upon this point:
:
Here, the requirement is that taxes must be geographically uniform throughout the United States. This means taxes affected by this provision must function "with the same force and effect in every place where the subject of it is found." However, this clause does not require revenues raised by the tax from each state be equal.
Justice Story characterized this requirement in a light more relevant to practicality and fairness:
In other words, it was another check placed on the legislature in order to keep a larger group of states from "ganging up" to levy taxes benefiting them at the expense of the remaining, smaller group of states.
A somewhat notable exception to this limitation has been upheld by the Supreme Court. In United States v. Ptasynski, the Court allowed a tax exemption which was quasi-geographical in nature. In the case, oil produced within a defined geographic region above the Arctic Circle
was exempted from a federal excise tax on oil production. The basis for the holding was that Congress had determined the Alaskan oil to be of its own class and exempted it on those grounds, even though the classification of the Alaskan oil was a function of where it was geographically produced.
To understand the nuance of the Court's holding, consider this explanation: Congress decides to implement a uniform tax on all coal
mining. The tax so implemented distinguishes between different grades of coal (e.g., anthracite versus bituminous
versus lignite
) and exempts one of the grades from taxation. Even though the exempted grade could potentially be defined by where it is geographically produced, the tax itself is still geographically uniform.
Generally, a direct tax is subject to the apportionment rule, meaning taxes must be imposed among the states in proportion to each state's population in respect to that state's share of the whole national population. For example: As of the 2000 Census
, nearly 34 million people populated California
(CA). At the same time, the national population was 281.5 million people. This gave CA a 12 percent share of the national population, roughly. Were Congress to impose a direct tax in order to raise $1 trillion before the next census, the taxpayers of CA would be required to fund 12 percent of the total amount: $120 billion dollars.
es" (Hylton v. United States
) and "taxes on lands and buildings, and general assessments, whether on the whole property of individuals or on their whole real or personal estate" (Springer v. United States
). The decision in Springer went further in declaring that all income taxes
were indirect taxes—or more specifically, "within the category of an excise
or duty
." However, in 1895 income taxes derived from property such as interest, dividends, and rent (imposed under an 1894 Act) were treated as direct taxes by the Supreme Court in Pollock v. Farmers' Loan & Trust Co.
and were ruled to be subject to the requirement of apportionment. As the income taxes imposed under the 1894 Act were not apportioned in such a manner, they were held unconstitutional. It was not the income tax per se, but the lack of a provision for its apportionment as a direct tax which made the tax unconstitutional.
The resulting case law prohibiting unapportioned taxes on incomes derived from property was later eliminated by the ratification of the Sixteenth Amendment
in 1913. The text of the amendment was clear in its aim:
Shortly after, in 1916, the U.S. Supreme Court ruled in Brushaber v. Union Pacific Railroad
that under the Sixteenth Amendment income taxes were constitutional even though unapportioned, just as the amendment had provided. In subsequent cases, the courts have interpreted the Sixteenth Amendment and the Brushaber decision as standing for the rule that the amendment allows income taxes on "wages, salaries, commissions, etc. without apportionment."
This provision was an important protection for the southern states secured during the Constitutional Convention. With the grant of absolute power over foreign commerce given to the federal government, the states whose economies relied chiefly on exports realized that any tax laid by the new central government upon a single item of export would apply very unevenly amongst all the states and favor states which did not export that good.
In 1996, the Supreme Court held this provision prohibits Congress to tax any goods in export transit, and further forbids taxes on any services related to such export transit.
Shortly after, the Supreme Court reaffirmed this provision in United States v. United States Shoe Corp. in 1998. As part of the Water Resources Development Act of 1986, a harbor maintenance tax was imposed at the ad valorem (percentile) rate of 0.125% the value of the cargo instead of at a rate dependent entirely upon the cost of the service provided by the port. The Court unanimously affirmed the ruling of the lower Federal Circuit Court
that a "user fee" imposed in such a manner is, in fact, a tax on exports and unconstitutional.
However, Congress may tax goods not in transit even though they are intended for export so long as the tax is not imposed solely for the reason that the good will be exported. For example, a tax imposed on all medical supplies would be constitutional even though there is a likelihood a portion of those supplies will be exported.
.
In this case, the Court held that Congress had imposed a coercive federal regulatory scheme on farm production under the Agricultural Adjustment Act of 1933
(AAA). By entering into contracts with farmers who reduced their output of selected crops, Congress had placed non-participating farmers at a distinct disadvantage to farmers who cooperated. As such, the program was not truly voluntary as it left the farmers no real choice; the options for the farmers were either cooperation or financial ruin. Under those circumstances, the regulatory scheme essentially required submission of farmers to a regulatory scheme Congress had no power to impose on its own.
The holding of the Butler case stemmed from the legal theory of that era, which held that regulation of production fell outside of Congress' commerce power. While the Court today is much more likely to defer to Congressional spending via the Commerce Clause
, there are still circumstances where such spending may not be justifiable or validated by that power.
The Court has typically held this spending limitation as only applying to First Amendment
rights where the choice imposed is unreasonable or vague, or where the beneficiary essentially is put into a position where acceptance of the conditions becomes obligated.
reaffirmed the authority of Congress to attach conditional strings to the receipt of federal funds by state or municipal governments. In addition to the requirement that spending be for the general welfare, however, the Court devised more scrutinous criteria for determining the constitutionality of the conditions imposed:
At dispute in Dole was a condition placed on the receipt of federal highway funds: elevation of the drinking age. Any state in which persons less than 21 years of age could lawfully possess and consume alcohol would consequently lose five percent of the federal highway funds allocated by Congress. The Court found the second and last conditions met since the requirement for the funds was germane to highway safety. Additionally, the loss of only five percent of the amount was not found so substantial as to be coercive in the eyes of the Court (as opposed to losing half or all of the funds might be).
The first half of this clause indicates that Congress must have appropriated by law the funds to be spent before the funds can be released from the Treasury. It serves as a powerful check of the legislature on the executive branch, as it further secures Congress's power of the purse
. This provision, when also combined with the bicameral nature of Congress and the quorum
requirements of both the Senate
and the House of Representatives
, serves as a constitutional check and balance on the legislature itself, preventing most spending that in effect does not implicitly have broad support with respect to both representational popular will in the House of Representatives and inter-regional approval in the Senate.
Congress attempted to limit appropriations logrolling
via riders
with the Line Item Veto Act of 1996
. The U.S. Supreme Court later struck down the act on grounds that it violated the Presentment Clause
.
Article One of the United States Constitution
Article One of the United States Constitution describes the powers of Congress, the legislative branch of the federal government. The Article establishes the powers of and limitations on the Congress, consisting of a House of Representatives composed of Representatives, with each state gaining or...
, Section 8, Clause 1 of the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
, is known as the Taxing and Spending Clause. It is the clause that gives the federal government
Federal government of the United States
The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...
of the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
its power of tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
ation. Component parts of this clause are known as the General Welfare Clause and the Uniformity Clause.
Constitutional text
Weakness of Articles of Confederation
One of the most often claimed defects of the Articles of ConfederationArticles of Confederation
The Articles of Confederation, formally the Articles of Confederation and Perpetual Union, was an agreement among the 13 founding states that legally established the United States of America as a confederation of sovereign states and served as its first constitution...
was its lack of a grant to the central government of the power to lay and collect taxes. Under the Articles, Congress was forced to rely on requisitions upon the governments of its member states. Without the power to independently raise its own revenues, the Articles left Congress vulnerable to the discretion of the several State governments—each State made its own decision as to whether it would pay the requisition or not. Some states were not giving Congress the funds for which it asked by either paying only in part, or by altogether ignoring the request from Congress. Without the revenue to enforce its laws and treaties, or pay its debts, and without an enforcement mechanism to compel the States to pay, the Confederation was practically rendered impotent and was in danger of falling apart.
The Congress recognized this limitation and proposed amendments to the Articles in an effort to supersede it. However, nothing ever came of those proposals until the Philadelphia Convention
Philadelphia Convention
The Constitutional Convention took place from May 14 to September 17, 1787, in Philadelphia, Pennsylvania, to address problems in governing the United States of America, which had been operating under the Articles of Confederation following independence from...
.
Powers granted
The powers to tax and spend are concurrent powersConcurrent powers
Concurrent powers are those powers in nations with a federal system of government that are shared by both the state and the federal government. They may be exercised simultaneously within the same territory and in relation to the same body of citizens. They are contrasted with reserved powers...
of the federal government and the individual states
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
. These two powers have been received over time to be very broad, but have also, on occasion, been abridged by the courts. They are also currently held to be independent powers, not subject to the limitations imposed by the other enumerated powers
Enumerated powers
The enumerated powers are a list of items found in Article I, section 8 of the US Constitution that set forth the authoritative capacity of the United States Congress. In summary, Congress may exercise the powers that the Constitution grants it, subject to explicit restrictions in the Bill of...
of Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
.
Power to tax
This power is considered by many to be essential to the administering of government. As argued under the Articles, the lack of a power to tax renders government ineffectual. Typically, the power is used to raise revenues for the support of government. But, Congress has employed the taxing power in uses other than solely for the raising of revenue, such as:- regulatory taxation — taxing to regulate commerceCommerceWhile business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...
; - prohibitive taxation — taxing to discourage, suppress, or even exterminate commerce; and finally,
- tariffs — taxing as a means of protectionismProtectionismProtectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
.
In 1922, the Supreme Court struck down a 1919 tax on child labor
Child labor
Child labour refers to the employment of children at regular and sustained labour. This practice is considered exploitative by many international organizations and is illegal in many countries...
in Bailey v. Drexel Furniture Co., commonly referred to as the "Child Labor Tax Case". The Court had previously held that Congress did not have the power to directly regulate labor, and found the law at issue to be an attempt to indirectly accomplish the same end. This ruling appeared to have been reinforced in United States v. Butler
United States v. Butler
United States v. Butler, , was a case in which the Supreme Court of the United States ruled that the processing taxes instituted under the 1933 Agricultural Adjustment Act were unconstitutional...
, in which the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
ruled that the processing taxes instituted under the 1933 Agricultural Adjustment Act
Agricultural Adjustment Act
The Agricultural Adjustment Act was a United States federal law of the New Deal era which restricted agricultural production by paying farmers subsidies not to plant part of their land and to kill off excess livestock...
were an unconstitutional attempt to regulate state activity in violation of the Tenth Amendment
Tenth Amendment to the United States Constitution
The Tenth Amendment to the United States Constitution, which is part of the Bill of Rights, was ratified on December 15, 1791...
. However, despite its outcome, Butler affirmed that Congress does have a broad power to tax, and to expend revenues within its discretion. Butler was the last case in which the Court would find a constitutional limitation on the power of Congress to tax and spend.
Implicit power to spend
With the power to tax implicitly comes the power to spend the revenues raised thereby in order to meet the objectives and goals of the government. To what extent this power ought to be utilized by the Congress has been the source of continued dispute and debate since the inception of the federal government, as will be explained below. However, interpretations recognizing an implicit power to spend have been questioned.The Supreme Court has also found that, in addition to the power to use taxes to punish disfavored conduct, Congress can also use its power to spend to encourage favored conduct. In South Dakota v. Dole
South Dakota v. Dole
South Dakota v. Dole, 483 U.S. 203 , was a case in which the United States Supreme Court considered federalism and the power of the United States Congress under the Taxing and Spending Clause.-Background:...
, the Court upheld a federal law which withheld highway funds to states that did not raise their legal drinking age to 21.
Limitations on taxing power
In various places within the Constitution, and in one amendment, there are to be found several clauses related to Congress' power to tax and spend. These include both requirements for the apportionment of direct taxDirect tax
The term direct tax generally means a tax paid directly to the government by the persons on whom it is imposed.-General meaning:In the general sense, a direct tax is one paid directly to the government by the persons on whom it is imposed...
es and the uniformity of indirect tax
Indirect tax
The term indirect tax has more than one meaning.In the colloquial sense, an indirect tax is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax...
es, the disallowal of taxes on exports, the General Welfare requirement, the limitation on the release of funds from the treasury except as provided by law, and the apportionment exemption of the Sixteenth Amendment
Sixteenth Amendment to the United States Constitution
The Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results...
.
General Welfare Clause
Of all the limitations upon the power to tax and spend, the General Welfare Clause appears to have achieved notoriety as one of the most contentious. The dispute over the clause arises from two distinct disagreements. The first concerns whether the General Welfare Clause grants an independent spending power or is a restriction upon the taxing power. The second disagreement pertains to what exactly is meant by the phrase "general welfare."The two primary authors of The Federalist Papers
Federalist Papers
The Federalist Papers are a series of 85 articles or essays promoting the ratification of the United States Constitution. Seventy-seven of the essays were published serially in The Independent Journal and The New York Packet between October 1787 and August 1788...
set forth two separate, conflicting interpretations:
- James MadisonJames MadisonJames Madison, Jr. was an American statesman and political theorist. He was the fourth President of the United States and is hailed as the “Father of the Constitution” for being the primary author of the United States Constitution and at first an opponent of, and then a key author of the United...
advocated for the ratification of the Constitution in The Federalist and at the Virginia ratifying convention upon a narrow construction of the clause, asserting that spending must be at least tangentially tied to one of the other specifically enumerated powers, such as regulating interstate or foreign commerce, or providing for the military, as the General Welfare Clause is not a specific grant of power, but a statement of purpose qualifying the power to tax. - Alexander HamiltonAlexander HamiltonAlexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...
, only after the Constitution had been ratified, argued for a broad interpretation which viewed spending as an enumerated power Congress could exercise independently to benefit the general welfare, such as to assist national needs in agriculture or education, provided that the spending is general in nature and does not favor any specific section of the country over any other.
Although The Federalist was not reliably distributed outside of New York, the essays eventually became the dominant reference for interpreting the meaning of the Constitution as they provided the reasoning and justification behind the Framers' intent in setting up the federal government.
While Hamilton's view prevailed during the administrations of Presidents
President of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
Washington
George Washington
George Washington was the dominant military and political leader of the new United States of America from 1775 to 1799. He led the American victory over Great Britain in the American Revolutionary War as commander-in-chief of the Continental Army from 1775 to 1783, and presided over the writing of...
and Adams
John Adams
John Adams was an American lawyer, statesman, diplomat and political theorist. A leading champion of independence in 1776, he was the second President of the United States...
, historians argue that his view of the General Welfare Clause was repudiated in the election of 1800
United States presidential election, 1800
In the United States Presidential election of 1800, sometimes referred to as the "Revolution of 1800," Vice-President Thomas Jefferson defeated President John Adams. The election was a realigning election that ushered in a generation of Democratic-Republican Party rule and the eventual demise of...
, and helped establish the primacy of the Democratic-Republican Party for the subsequent 24 years. This belief is based on the motivating factor which the Kentucky and Virginia Resolutions
Kentucky and Virginia Resolutions
The Kentucky and Virginia Resolutions were political statements drafted in 1798 and 1799, in which the Kentucky and Virginia legislatures took the position that the federal Alien and Sedition Acts were unconstitutional...
played upon the electorate; the Kentucky Resolutions, authored by Thomas Jefferson
Thomas Jefferson
Thomas Jefferson was the principal author of the United States Declaration of Independence and the Statute of Virginia for Religious Freedom , the third President of the United States and founder of the University of Virginia...
, specifically criticized Hamilton's view. Further, Jefferson himself later described the distinction between the parties over this view as "almost the only landmark which now divides the federalists from the republicans...."
Joseph Story
Joseph Story was an American lawyer and jurist who served on the Supreme Court of the United States from 1811 to 1845. He is most remembered today for his opinions in Martin v. Hunter's Lessee and The Amistad, along with his magisterial Commentaries on the Constitution of the United States, first...
relied heavily upon The Federalist as a source for his Commentaries on the Constitution of the United States. In that work, Story excoriated both the Madisonian view and a previous, strongly nationalistic view of Hamilton's which was rejected at the Philadelphia Convention
Philadelphia Convention
The Constitutional Convention took place from May 14 to September 17, 1787, in Philadelphia, Pennsylvania, to address problems in governing the United States of America, which had been operating under the Articles of Confederation following independence from...
. Ultimately, however, Story opined the broader spending view of Hamilton, as described above, was the correct construction.
Prior to 1936, the United States Supreme Court had imposed a narrow interpretation on the Clause, as demonstrated by the holding in Bailey v. Drexel Furniture Co., in which a tax on child labor
Child labor
Child labour refers to the employment of children at regular and sustained labour. This practice is considered exploitative by many international organizations and is illegal in many countries...
was an impermissible attempt to regulate commerce beyond that Court's equally narrow interpretation of the Commerce Clause
Commerce Clause
The Commerce Clause is an enumerated power listed in the United States Constitution . The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to...
.
This narrow view was later overturned in United States v. Butler
United States v. Butler
United States v. Butler, , was a case in which the Supreme Court of the United States ruled that the processing taxes instituted under the 1933 Agricultural Adjustment Act were unconstitutional...
. There, the Court agreed with Justice Story's construction, holding the power to tax and spend is an independent power; that is, the General Welfare Clause gives Congress power it might not derive anywhere else. However, the Court did limit the power to spending for matters affecting only the national welfare. The Court wrote:
The tax imposed in Butler was nevertheless held unconstitutional as a violation of the Tenth Amendment
Tenth Amendment to the United States Constitution
The Tenth Amendment to the United States Constitution, which is part of the Bill of Rights, was ratified on December 15, 1791...
reservation of power to the states.
Shortly after Butler, in Helvering v. Davis, the Supreme Court interpreted the clause even more expansively, conferring upon Congress a plenary power
Plenary power
A plenary power or plenary authority is the separate identification, definition, and complete vesting of a power or powers or authority in a governing body or individual, to choose to act on a particular subject matter or area...
to impose taxes and to spend money for the general welfare subject almost entirely to its own discretion. Even more recently, the Court has included the power to indirectly coerce the states
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
into adopting national standards by threatening to withhold federal funds in South Dakota v. Dole
South Dakota v. Dole
South Dakota v. Dole, 483 U.S. 203 , was a case in which the United States Supreme Court considered federalism and the power of the United States Congress under the Taxing and Spending Clause.-Background:...
.
To date, the Hamiltonian view of the General Welfare Clause predominates in case law. Historically, however, the Anti-Federalists
Anti-Federalism
Anti-Federalism refers to a movement that opposed the creation of a stronger U.S. federal government and which later opposed the ratification of the Constitution of 1787. The previous constitution, called the Articles of Confederation, gave state governments more authority...
were wary of such an interpretation of this power during the ratification debates in the 1780s. Due to the objections raised by the Anti-Federalists, Madison was prompted to author his contributions to the Federalist Papers, attempting to quell the Anti-Federalists' fears of any such abuse by the proposed national government and to counter Anti-Federalist arguments against the Constitution.
Proponents of the Madisonian view also point to Hamilton's limited participation in the Constitutional Convention
Philadelphia Convention
The Constitutional Convention took place from May 14 to September 17, 1787, in Philadelphia, Pennsylvania, to address problems in governing the United States of America, which had been operating under the Articles of Confederation following independence from...
, particularly during the time frame in which this clause was crafted, as further evidence of his lack of constructive authority.
An additional view of the General Welfare Clause that is not as well known, but equally as authoritative as the views of both Madison and Hamilton, can be found in the pre-Revolutionary
American Revolution
The American Revolution was the political upheaval during the last half of the 18th century in which thirteen colonies in North America joined together to break free from the British Empire, combining to become the United States of America...
writings of John Dickinson
John Dickinson (delegate)
John Dickinson was an American lawyer and politician from Philadelphia, Pennsylvania and Wilmington, Delaware. He was a militia officer during the American Revolution, a Continental Congressman from Pennsylvania and Delaware, a delegate to the U.S. Constitutional Convention of 1787, President of...
, who was also a delegate to the Philadelphia Convention
Philadelphia Convention
The Constitutional Convention took place from May 14 to September 17, 1787, in Philadelphia, Pennsylvania, to address problems in governing the United States of America, which had been operating under the Articles of Confederation following independence from...
. In his Letters from a Farmer in Pennsylvania
Letters from a Farmer in Pennsylvania
Letters from a Farmer in Pennsylvania is a series of essays written by the Pennsylvania lawyer and legislator John Dickinson and published under the name "A Farmer" from 1767 to 1768. The twelve letters were widely read and reprinted throughout the thirteen colonies, and were important in uniting...
, Dickinson wrote of what he understood taxing for the general welfare entailed:
The idea Dickinson conveyed above, explains University of Montana Law Professor Jeffrey T. Renz, is that taxing for the general welfare is but taxation as a means of regulating commerce. Renz expands upon this point:
Comparative view
The narrow construction of the General welfare clause is unusual when compared to similar clauses in most State constitutions, and many constitutions of other countries. Virtually every state constitution has a general welfare clause which is interpreted as granting the state an independent power to regulate for the general welfare. An international example is provided by a report from the Supreme Court of ArgentinaSupreme Court of Argentina
The Supreme Court of Argentina is the highest court of law of the Argentine Republic. It was inaugurated on 15 January 1863. However, during much of the 20th century, the Court and, in general, the Argentine judicial system, has lacked autonomy from the executive power...
:
Uniformity Clause
The final phrase of the Taxing and Spending Clause stipulates:Here, the requirement is that taxes must be geographically uniform throughout the United States. This means taxes affected by this provision must function "with the same force and effect in every place where the subject of it is found." However, this clause does not require revenues raised by the tax from each state be equal.
Justice Story characterized this requirement in a light more relevant to practicality and fairness:
In other words, it was another check placed on the legislature in order to keep a larger group of states from "ganging up" to levy taxes benefiting them at the expense of the remaining, smaller group of states.
A somewhat notable exception to this limitation has been upheld by the Supreme Court. In United States v. Ptasynski, the Court allowed a tax exemption which was quasi-geographical in nature. In the case, oil produced within a defined geographic region above the Arctic Circle
Arctic Circle
The Arctic Circle is one of the five major circles of latitude that mark maps of the Earth. For Epoch 2011, it is the parallel of latitude that runs north of the Equator....
was exempted from a federal excise tax on oil production. The basis for the holding was that Congress had determined the Alaskan oil to be of its own class and exempted it on those grounds, even though the classification of the Alaskan oil was a function of where it was geographically produced.
To understand the nuance of the Court's holding, consider this explanation: Congress decides to implement a uniform tax on all coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
mining. The tax so implemented distinguishes between different grades of coal (e.g., anthracite versus bituminous
Bituminous coal
Bituminous coal or black coal is a relatively soft coal containing a tarlike substance called bitumen. It is of higher quality than lignite coal but of poorer quality than Anthracite...
versus lignite
Lignite
Lignite, often referred to as brown coal, or Rosebud coal by Northern Pacific Railroad,is a soft brown fuel with characteristics that put it somewhere between coal and peat...
) and exempts one of the grades from taxation. Even though the exempted grade could potentially be defined by where it is geographically produced, the tax itself is still geographically uniform.
Apportionment of direct taxes
Language elsewhere in the Constitution also expressly limits the taxing power. Article I, Section 9 has more than one clause so addressed. Clause 4 states:Generally, a direct tax is subject to the apportionment rule, meaning taxes must be imposed among the states in proportion to each state's population in respect to that state's share of the whole national population. For example: As of the 2000 Census
United States Census, 2000
The Twenty-second United States Census, known as Census 2000 and conducted by the Census Bureau, determined the resident population of the United States on April 1, 2000, to be 281,421,906, an increase of 13.2% over the 248,709,873 persons enumerated during the 1990 Census...
, nearly 34 million people populated California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
(CA). At the same time, the national population was 281.5 million people. This gave CA a 12 percent share of the national population, roughly. Were Congress to impose a direct tax in order to raise $1 trillion before the next census, the taxpayers of CA would be required to fund 12 percent of the total amount: $120 billion dollars.
Apportionment and income taxes
Before 1895, direct taxes were understood to be limited to "capitation or poll taxPoll tax
A poll tax is a tax of a portioned, fixed amount per individual in accordance with the census . When a corvée is commuted for cash payment, in effect it becomes a poll tax...
es" (Hylton v. United States
Hylton v. United States
Hylton v. United States, , was an early United States Supreme Court case in which the Court held that a tax on carriages did not violate the Article I, Section 9 requirement for the apportioning of direct taxes. It found the carriage tax was an "excise" instead of a "direct tax" requiring...
) and "taxes on lands and buildings, and general assessments, whether on the whole property of individuals or on their whole real or personal estate" (Springer v. United States
Springer v. United States
Springer v. United States, 102 U.S. 586 , was a case in which the United States Supreme Court upheld the Federal income tax imposed under the Revenue Act of 1864.- Background :...
). The decision in Springer went further in declaring that all income taxes
Income tax in the United States
In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...
were indirect taxes—or more specifically, "within the category of an excise
Excise
Excise tax in the United States is a indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are far from uniform throughout the United States...
or duty
Duty (economics)
In economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad...
." However, in 1895 income taxes derived from property such as interest, dividends, and rent (imposed under an 1894 Act) were treated as direct taxes by the Supreme Court in Pollock v. Farmers' Loan & Trust Co.
Pollock v. Farmers' Loan & Trust Co.
Pollock v. Farmers' Loan & Trust Company, , aff'd on reh'g, , with a ruling of 5–4, was a landmark case in which the Supreme Court of the United States ruled that the unapportioned income taxes on interest, dividends and rents imposed by the Income Tax Act of 1894 were, in effect, direct taxes, and...
and were ruled to be subject to the requirement of apportionment. As the income taxes imposed under the 1894 Act were not apportioned in such a manner, they were held unconstitutional. It was not the income tax per se, but the lack of a provision for its apportionment as a direct tax which made the tax unconstitutional.
The resulting case law prohibiting unapportioned taxes on incomes derived from property was later eliminated by the ratification of the Sixteenth Amendment
Sixteenth Amendment to the United States Constitution
The Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results...
in 1913. The text of the amendment was clear in its aim:
Shortly after, in 1916, the U.S. Supreme Court ruled in Brushaber v. Union Pacific Railroad
Brushaber v. Union Pacific Railroad
Brushaber v. Union Pacific Railroad, 240 U.S. 1 , was a landmark United States Supreme Court case in which the Court upheld the validity of a tax statute called the Revenue Act of 1913, also known as the Tariff Act, Ch. 16, 38 Stat. 166 Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916), was a...
that under the Sixteenth Amendment income taxes were constitutional even though unapportioned, just as the amendment had provided. In subsequent cases, the courts have interpreted the Sixteenth Amendment and the Brushaber decision as standing for the rule that the amendment allows income taxes on "wages, salaries, commissions, etc. without apportionment."
No taxes on exports
Article I, Section 9, Clause 5 provides a further limitation:This provision was an important protection for the southern states secured during the Constitutional Convention. With the grant of absolute power over foreign commerce given to the federal government, the states whose economies relied chiefly on exports realized that any tax laid by the new central government upon a single item of export would apply very unevenly amongst all the states and favor states which did not export that good.
In 1996, the Supreme Court held this provision prohibits Congress to tax any goods in export transit, and further forbids taxes on any services related to such export transit.
Shortly after, the Supreme Court reaffirmed this provision in United States v. United States Shoe Corp. in 1998. As part of the Water Resources Development Act of 1986, a harbor maintenance tax was imposed at the ad valorem (percentile) rate of 0.125% the value of the cargo instead of at a rate dependent entirely upon the cost of the service provided by the port. The Court unanimously affirmed the ruling of the lower Federal Circuit Court
United States Court of Appeals for the Federal Circuit
-Vacancies and pending nominations:-List of former judges:-Chief judges:Notwithstanding the foregoing, when the court was initially created, Congress had to resolve which chief judge of the predecessor courts would become the first chief judge...
that a "user fee" imposed in such a manner is, in fact, a tax on exports and unconstitutional.
However, Congress may tax goods not in transit even though they are intended for export so long as the tax is not imposed solely for the reason that the good will be exported. For example, a tax imposed on all medical supplies would be constitutional even though there is a likelihood a portion of those supplies will be exported.
Restrictions on spending
The constraints placed upon the Taxing and Spending Clause and the subsequent powers derived therefrom do not stop at the Taxing Power.Disguised regulations
While such holdings are rare and unlikely under contemporary jurisprudence, the Supreme Court has shown in the past its possible willingness to intervene on Congressional spending where its effects amount to a disguised regulation on private activity. The case illustrative of this is United States v. ButlerUnited States v. Butler
United States v. Butler, , was a case in which the Supreme Court of the United States ruled that the processing taxes instituted under the 1933 Agricultural Adjustment Act were unconstitutional...
.
In this case, the Court held that Congress had imposed a coercive federal regulatory scheme on farm production under the Agricultural Adjustment Act of 1933
Agricultural Adjustment Act
The Agricultural Adjustment Act was a United States federal law of the New Deal era which restricted agricultural production by paying farmers subsidies not to plant part of their land and to kill off excess livestock...
(AAA). By entering into contracts with farmers who reduced their output of selected crops, Congress had placed non-participating farmers at a distinct disadvantage to farmers who cooperated. As such, the program was not truly voluntary as it left the farmers no real choice; the options for the farmers were either cooperation or financial ruin. Under those circumstances, the regulatory scheme essentially required submission of farmers to a regulatory scheme Congress had no power to impose on its own.
The holding of the Butler case stemmed from the legal theory of that era, which held that regulation of production fell outside of Congress' commerce power. While the Court today is much more likely to defer to Congressional spending via the Commerce Clause
Commerce Clause
The Commerce Clause is an enumerated power listed in the United States Constitution . The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to...
, there are still circumstances where such spending may not be justifiable or validated by that power.
Unconstitutional conditions
While clearing the hurdle of regulatory spending may be easier today than in the past, another significant hurdle exists in the unconstitutional conditions doctrine. Under this principle, the government may not use its spending power to purchase the constitutional rights of the spending's beneficiaries. Furthermore, entitlements may not be denied on grounds that violate a constitutionally protected right.The Court has typically held this spending limitation as only applying to First Amendment
First Amendment to the United States Constitution
The First Amendment to the United States Constitution is part of the Bill of Rights. The amendment prohibits the making of any law respecting an establishment of religion, impeding the free exercise of religion, abridging the freedom of speech, infringing on the freedom of the press, interfering...
rights where the choice imposed is unreasonable or vague, or where the beneficiary essentially is put into a position where acceptance of the conditions becomes obligated.
Conditional spending and federalism
In 1988, the holding in South Dakota v. DoleSouth Dakota v. Dole
South Dakota v. Dole, 483 U.S. 203 , was a case in which the United States Supreme Court considered federalism and the power of the United States Congress under the Taxing and Spending Clause.-Background:...
reaffirmed the authority of Congress to attach conditional strings to the receipt of federal funds by state or municipal governments. In addition to the requirement that spending be for the general welfare, however, the Court devised more scrutinous criteria for determining the constitutionality of the conditions imposed:
- First, there can be no surprises; that is, the conditions for receipt must be stated clearly and the beneficiary must be aware of those conditions and their consequences.
- Second, the conditions imposed must be related to the spending in question.
- Last, the incentive must not be so significant as to turn cooperation into coercion.
At dispute in Dole was a condition placed on the receipt of federal highway funds: elevation of the drinking age. Any state in which persons less than 21 years of age could lawfully possess and consume alcohol would consequently lose five percent of the federal highway funds allocated by Congress. The Court found the second and last conditions met since the requirement for the funds was germane to highway safety. Additionally, the loss of only five percent of the amount was not found so substantial as to be coercive in the eyes of the Court (as opposed to losing half or all of the funds might be).
Power of the purse, generally
Article I, Section 9, Clause 7 imposes accountability on Congressional spending:The first half of this clause indicates that Congress must have appropriated by law the funds to be spent before the funds can be released from the Treasury. It serves as a powerful check of the legislature on the executive branch, as it further secures Congress's power of the purse
Power of the purse
The power of the purse is the ability of one group to manipulate and control the actions of another group by withholding funding, or putting stipulations on the use of funds. The power of the purse can be used to save their money and positively or negatively The power of the purse is the ability...
. This provision, when also combined with the bicameral nature of Congress and the quorum
Quorum
A quorum is the minimum number of members of a deliberative assembly necessary to conduct the business of that group...
requirements of both the Senate
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
and the House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
, serves as a constitutional check and balance on the legislature itself, preventing most spending that in effect does not implicitly have broad support with respect to both representational popular will in the House of Representatives and inter-regional approval in the Senate.
Congress attempted to limit appropriations logrolling
Logrolling
Logrolling is the trading of favors, or quid pro quo, such as vote trading by legislative members to obtain passage of actions of interest to each legislative member...
via riders
Rider (legislation)
In legislative procedure, a rider is an additional provision added to a bill or other measure under the consideration by a legislature, having little connection with the subject matter of the bill. Riders are usually created as a tactic to pass a controversial provision that would not pass as its...
with the Line Item Veto Act of 1996
Line Item Veto Act of 1996
The Line Item Veto Act of 1996 enacted a line-item veto for the Federal government of the United States, but its effect was brief due to judicial review....
. The U.S. Supreme Court later struck down the act on grounds that it violated the Presentment Clause
Presentment Clause
The Presentment Clause of the United States Constitution outlines federal legislative procedure by which bills originating in Congress become federal law in the United States.-Text:...
.