Taxing & Spending Powers Feb. 24, 2006

1. Taxing & Spending Powers Feb. 24, 2006

2. The Tax & Spend Clause “The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States” Enumerated Power Are these additional congressional powers? Congress shall have power to tax -and- the power to pay the debts -and- the power to provide for the common defense & gen welfare Or are they limitations on the power to tax?

3. The Tax & Spend Clause “The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States” Enumerated Power Are these additional congressional powers? Congress shall have power to tax -for the purpose of- paying the debts -and the purpose of- providing for the common defense & general welfare Or are they limitations on the power to tax? What kind of limitation is “general welfare”?

4. US v. Butler (1936) • Gen’l welfare clause not independent power, but qualification on tax/spend power • “The Congress shall have power to lay and collect taxes … for the general welfare” √ Confined to the other enumerated powers? Not confined to the other enum-erated powers? Hamilton Madison √ X In this respect, the power to tax is a mere tautology Story

5. US v. Butler (1936) • Power to tax … for general welfare is an independent power in congress Scope of this power? Who decides meaning of “general welfare”? • No need to decide since AAA “invades the reserved rights of the states” • It is “beyond the powers delegated to the federal government.” • US may not indirectly accomplish impermissible ends by taxing • US can tax for general welfare, but it cannot regulate via taxes • Unless it otherwise has regulatory power

6. US v. Butler (1936) • What makes this a regulatory tax? • Tax imposed only if you engage in certain acts • Grow too much wheat; use child labor • Buy goods, gasoline, prepared food • Buy Ritz crackers rather than Saltines • Fail to recycle beverage containers • A regulatory tax must be valid under an enumerated power • A revenue tax(no regulatory effect) can be based on taxing power • Is there such a thing, or do all taxes influence behavior?

7. Sonzinsky v. US (1937) • Issue: • If a tax is imposed, not for revenue-raising purposes, but for regulatory purposes (i.e., to suppress traffic), can it be based on congress’ taxing power, or must it be based on an enumerated power (to regulate)? • Theory: • The taxing power can be used only to raise revenue. • If a tax has regulatory effect (induces compliance), it exceeds the taxing power, and is constitutional only if congress has power to regulate the subject matter. • What makes the Firearms tax “regulatory”? • Amount of the tax? Cumulative imposition?

8. Power to Lay and Collect Taxes • What if the tax has a “coercive” effect? • Modern test: • All taxes regulate behavior • Congress’ motive irrelevant • Only specific prohibitions act to limit congress’ power

9. Other Tax Problems • Income Tax • Art. I, § 9: (“no capitation, or other direct, Tax shall be laid, unless in proportion to the Census”) • Compare “indirect” taxes (imposed on acts, not property) • Income tax held an invalid “direct” tax in 1895 • Reversed by 16th Amendment (1913) • Uniformity • “all duties, imposts and excises shall be uniform throughout the US” • Geographic (state) uniformity required • US v. Ptasynski (1983): use of place name (“Alaska oil”) may be shorthand for category, rather than place • See also Art. I, § 9 (no tax on exports from a state)

10. US v. Butler (1936) • Can congress spend “for the gen’l welfare” even if that has a regulatory effect? • Spending can induce compliance(just like taxes) • E.g., subsidy not to grow wheat • Or must all grants be “unconditional”? • Roberts (majority): • Can impose conditions, but cannot enforce them • Stone (dissent): • “The power of congress to spend is inseparable from persuasion to action (even if congress has no legislative control)”

11. Steward Machine v. Davis (1937) • Issue: • Can congress rebate taxes to states only if they adopt an Unemployment Insurance program? • Or does this “coerce” states into regulating on matters that exceed congress’ enumerated powers? • Does Court uphold law because • It agrees with its objectives, or because • “general welfare” clause does not impose any judicially-enforceable limits? • See Helvering v. Davis (1937) (“the concept of welfare is shaped by Congress, not the states [or the courts]”)

12. Sabri v. US (2004) • 18 USC § 666(a)(2) – bribing state/municipal officials • if agency receives any federal $$ • Is this a conditional grant? • No. Impacts 3rd party (briber) • Does N&P clause augment spending power? • Yes. Applies to all of congress’ powers • Congress can regulate to ensure grant’s purpose • If there is a substantial relation between purpose of grant and condition imposed • Jurisdictional element (proof of connection) not req’d

13. Rethinking Tax & Spend Powers • When federal power is broadly construed • It doesn’t matter whether a federal tax or grant has a regulatory effect • What happens to tax & spend doctrine when federal power is narrowly construed? • As appears to be happening once again? • Will the John Roberts court follow the Owen Roberts line of reasoning?

14. Conditional Grants to States • Basic Issue: • If tenth amendment prohibits congress from regulating states, may congress buy compliance with conditional grants? • This becomes a serious problem as revenue sharing becomes more important to states • When does inducement turn into "coercion"?

15. S. Dakota v. Dole (1987) • Limitations on taxing / spending power • Must be for general welfare • as determined by congress, subject to RB test • Conditional Grants generally • Unconstitutional Conditions Test • If gov't benefit is conferred only upon relinquishment by recipient of a constitutional right, • There must be a substantial relation between purpose of the grant and the condition imposed Otherwise gov't will always be able to purchase rights Congress cannot use its taxing/spending power (or any other power) in violation of specific prohibitions Serves process rationale of federalism • Specific limitations on congressional power • e.g., spending for religious purposes • Additional requirement for grants to states • Conditions must be unambiguous

16. S. Dakota v. Dole (1987) • Brennan dissent • 21st Amd imposes specific prohibition • Judicially construed to give states plenary power to regulate alcohol • O'Connor dissent • Condition not "reasonably related" to grant • Drinking age unrelated to highway construction Is O'Connor substituting her view of relatedness for that of congress? Is this too narrow a view of congress' purpose?