There were three additional issues that set the stage in early 1937: By 1937, it had been well established that regulatory taxes controlling commercial economic actions were within the power of the U.S. Congress.

After it compared opposing expansive and restrictive interpretations of the Spending Clause, the Court decided: The idea that Congress has authority separate and distinct from powers granted by enumeration has been controversial.

[citation needed] The fact that the Supreme Court struck down the Act despite an expansive interpretation of the Spending Clause reflects the turmoil in its thinking at the critical time.

In effect, the Act established a taxing structure, which was designed to induce states to adopt consistent laws for funding and payment of unemployment compensation.

Justice Benjamin N. Cardozo wrote for a sharply-divided Court, which was in the process of changing its character relative to affirmation of federal action for the general welfare: This was the key holding regarding the excise tax of the Act: An important part of the rationale was the conclusion that even if the excise taxes The arguments placed the actions of Congress within its constitutional power.

The provisions in question, if not amounting to coercion in a legal sense, are manifestly designed and intended directly to affect state action in the respects specified.

In fact, Butler, just the year before Steward, had been the last case in which the Supreme Court struck down an Act of Congress as beyond the authority granted by the Spending Clause.

Steward marked the beginning of the recognition that Congress could use the Spending Clause, under the umbrella of general welfare, to regulate state laws by incentives and encouragement but not coercion.

The federal government may induce the states, tempt them, or seduce them but not coerce them into passing legislation considered desirable to meet national needs.

In a modern case depending upon the jurisprudence of Steward, the Court held in South Dakota v. Dole[8] that Congress could influence states to raise the minimum drinking age to 21 by threatening to withhold funds for federal highways.