Taxing and Spending Clause

[4] The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;One of the most often claimed defects of the Articles of Confederation was its lack of a grant to the central government of the power to lay and collect taxes.

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.

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.

In South Dakota v. Dole,[17] the Court upheld a federal law withholding a portion of highway funds from states that did not raise their minimum legal drinking age to 21.

Prior to 1936, the United States Supreme Court had imposed a narrow interpretation of the Clause, as demonstrated by the holding in Bailey v. Drexel Furniture Co., (1922)[15] 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.

Shortly after Butler, in Helvering v. Davis,[27] the Supreme Court interpreted the clause even more expansively, disavowing almost entirely any role for judicial review of Congressional spending policies, thereby conferring upon Congress a plenary power to impose taxes and to spend money for the general welfare subject almost entirely to Congress's own discretion.

Following that ruling, the Court later held by a 7–2 vote in National Federation of Independent Business v. Sebelius (2012) that Congress conditioning a state's receipt of the entirety of its federal Medicaid funds on whether said state elected to expand its Medicaid program in accordance with the Patient Protection and Affordable Care Act was an unconstitutionally coercive use of Congress's spending power.

[18][30] Proponents of the Madisonian view also point to Hamilton's limited participation in the Constitutional Convention,[31] particularly during the time frame in which this clause was crafted,[32] as further evidence of his lack of constructive authority.

[33] In his Letters from a Farmer in Pennsylvania (1767), Dickinson wrote of what he understood taxing for the general welfare entailed: The parliament unquestionably possesses a legal authority to regulate the trade of Great Britain, and all her colonies.

I have looked over every statute relating to these colonies, from their first settlement to this time; and I find every one of them founded on this principle, till the Stamp Act administration.

[34] – (emphasis in the original)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: If we excise "general welfare" from the Tax Clause, we are presented with the claim that Congress may not levy duties for purposes other than paying the debts and providing for the common defense.

An international example is provided with a report from the Supreme Court of Argentina: In Ferrocarril Central Argentino c/ Provincia de Santa Fe,[35] the Argentine Court held that the General Welfare clause of the Argentine Constitution offered the federal government a general source of authority for legislation affecting the provinces.

Justice Story characterized this requirement in a light more relevant to practicality and fairness: It was to cut off all undue preferences of one state over another in the regulation of subjects affecting their common interests.

Unless duties, imposts, and excises were uniform, the grossest and most oppressive inequalities, vitally affecting the pursuits and employments of the people of different states, might exist.

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.

The resulting case law prohibiting unapportioned taxes on incomes derived from property was later eliminated by the ratification of the Sixteenth Amendment in 1913.

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.

[10] 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).

The holding of the Butler case stemmed from the legal theory of that era, which held that regulation of production fell outside of Congress's commerce power.

[52] 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.

[53][54] In 1987, the holding in South Dakota v. Dole[17] reaffirmed the authority of Congress to attach conditional strings to the receipt of federal funds by state or municipal governments.

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.

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).

In 2012, the court held for the first time in National Federation of Independent Business v. Sebelius that Congress had used its power under the spending clause in a way that was impermissibly coercive.

[55] Article I, Section 9, Clause 7 imposes accountability on Congressional spending: No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.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.

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.