Lecture 37 The Power to Tax and Spend

1. Lecture 37The Power to Tax and Spend Part 4: General Welfare- Part II: Republican Era Cases

2. This Lecture • We finish up the section on taxing and spending for the general welfare • We move to the Republican Court Era National-state fiscal tensions • Cases on drinking age and health care • Pages 557-568

3. South Dakota v. Dole (1987) • South Dakota v. Dole (1987) • Background • In 1984, Congress gives the Secretary of Transportation the ability to withhold a portion of federal highway funds from states that did not raise their drinking age to 21 • Many states including New York had lower drinking ages • It was designed to reduce the number of underage drinkers and highway fatalities • South Dakota allowed the sale of near-beer (3.2) to those at 19 • It was not an outlier on this- most states had not adopted a 21 drinking age • Question • Did Congress exceed its spending powers, or violate the Twenty-first Amendment, by passing legislation conditioning the award of federal highway funds on the states' adoption of a uniform minimum drinking age?

4. South Dakota v. Dole- II • Arguments • For South Dakota (law is unconstitutional) • States have long had the local police power to control alcohol within its borders • The 21st Amendment gives them additional powers • States are not merely subdivision of the federal government • Federal regulation of the state drinking age violates both the 10th and 21st Amendment

5. South Dakota v. Dole- III • Arguments • For Elizabeth Dole and the United States • This was passed in response to alcohol related deaths by underage drivers • This does not set a minimum drinking age for states this is only a financial incentive to do so • It is within the authority of Congress to place conditions on the awarding of federal funds • The amount of federal funds withheld under this law is minimal for those that choose not to comply and is therefore not coercive

6. South Dakota v. Dole- IV • Chief Justice Rehnquist writes for a 7-2 majority • Congress can attach strings to spending to states • “The power of Congress to authorize expenditure of public monies for public purposes is not limited by the direct grants of legislative power found in the Constitution” • The power is not unlimited under the spending power and these limitations are set • The spending must promote "the general welfare"; • The condition must be unambiguous; • The condition should relate "to the federal interest in particular national projects or programs"; • The condition imposed on the States must not in itself be unconstitutional; and • The condition must not be coercive

7. South Dakota v. Dole- V • More from Rehnquist • The first three are undisputed for the federal government • The purpose of the law was safe interstate travel • This was frustrated by varying state drinking ages • The 21st Amendment does not pose a problem either • This is indirect • If South Dakota raises its drinking age, who is harmed? • This is also not coercive • It loses only 5% of its highway funds for non-compliance • This is more encouragement than coercion

8. South Dakota v. Dole- VI • Two differing dissents • O’Connor, J. dissenting • This is more of a congressional attempt to regulate liquor, which is prohibited • This is barred by the 21st Amendment • Congress cannot insist on highway safety for states to change their laws • Could this power be used to make states move their capitals? • This is not an enumerated power • She looks to the Butler case • Brennan, J. dissenting • He bases his dissent on the 21st Amendment overriding this

9. National Federation of Independent Business v. Sebelius (2012) • National Federation of Independent Business v. Sebelius (2012) • Background • This decision is back (for us) • This involves the individual mandate and the Medicaid expansion • States that did not expand Medicaid would lose all their Medicaid money • The expansion would cover eventually 90% of the new enrollees • Individuals not exempted that did not have insurance must pay a fine on their taxes • Questions: • Was the penalty for not having insurance a tax exceed its Taxation Power? • Did the Medicaid expansion provision violate principles of federalism? • There was also a severability issue as well

10. National Federation of Independent Business v. Sebelius- II • Arguments • For the NFIB (overturn the ACA) • A penalty is not a tax • One cannot uphold the unconstitutional mandate by calling it a tax • Congress intended this to be a penalty and not a tax • Congress may not use the spending power to commandeer the legislative power of states • The ACA is an abuse of the spending power • Approval of the ACA would mean the spending power has no bounds

11. National Federation of Independent Business v. Sebelius- III • Arguments • For Sebelius and the Obama Administration (uphold the law) • It is a tax because it raises revenue and is enforced by the IRS • It is based in part on income level • Taxes can have regulatory objectives as well as revenue raising • The fact that the word penalty is used do not mean that it is not a tax • Congress may fix the terms which it appropriates federal funds • Congress has changed the Medicaid system several times since enactment • The Medicaid expansion is so generous that most states will choose to participate, making it non-coercive

12. National Federation of Independent Business v. Sebelius- IV • Chief Justice Roberts, ruling for the Court • 5-4 on the tax provision, 7-2 on the Medicaid expansion • First the penalty for not having insurance • It is administered by the IRS and could generate $4 billion by 2017 • Just because it is called a penalty does not mean it may not be a tax • Fees and surcharges can be part of the taxation power • In Drexel Furniture, the tax was 10% a heavy burden punitive and enforced by the Department of Labor, not the IRS so this was a penalty • In this case, the penalty is far less than the cost of purchasing insurance • It is enforced by the IRS, but is not allowed the power of criminal prosecution to enforce it

13. National Federation of Independent Business v. Sebelius- V • More from Chief Justice Roberts • More on the tax provision • This is designed to affect individual conduct and this is allowed • He mentions the high cost of tax in cigarettes • While it tries to induce those to purchase insurance but without negative legal consequences for not doing so • Four million are estimated to pay the tax rather than buy insurance • But none will be declared “outlaws”

14. National Federation of Independent Business v. Sebelius- VI • More from Roberts • He then addresses the apportion issue • Article 1, Section 9, Clause 4 on head and direct taxes required to be apportioned among states in proportion of their population • Roberts says it is not a direct tax it is based on income • The federal government has the power to impose a tax for those that fail to buy health insurance

15. National Federation of Independent Business v. Sebelius- VII • More from Roberts • He moves onto the Medicaid expansion (This is a 7-2 decision) • The penalty for not complying with the expansion is loss of all Medicaid funds • Congress can impose conditions on spending but may not coerce or commandeer states • Pressure cannot turn into compulsion states must have to have a legitimate choice • Forcing states to do this would be against the federal nature of our system • One must worry when Congress uses its spending power to implement a federal policy it could not impose directly under its enumerated powers • South Dakota v. Dole only involved taking away 5% of highway funds • Medicaid makes up over 20% of most state budgets, funded 50%-83% by the feds • Congress cannot penalize states with threat of all their Medicaid money • States have to have a legitimate choice on whether to implement the Medicaid expansion • This made Medicaid expansion optional the remainder is constitutional, without this penalty

16. National Federation of Independent Business v. Sebelius- VIII • Justice Ginsburg, concurring in part, concurring in judgment in part, and dissenting in part • Joined by Sotomayor, and Kagen and Breyer in part (not on Medicaid provision) • This focuses on the Medicaid expansion • She would uphold the Medicaid provision • This applies only to Medicaid money, not threats to take away others • She thinks the get things backwards Congress is the one tasked with the spending power, not the states • States have no right to these funds to start with • She does agree with him on the severability provision

17. National Federation of Independent Business v. Sebelius- IX • Joint dissent of Scalia, Kennedy, Thomas, Alito • They would throw out the entire law • The disagree on the tax provision • They accuse the Court of re-writing the statute it is a penalty they call it that • Medicaid issue • The taking away all Medicaid money as a penalty goes too far • It would have to find a way to make up 20% of its budget • This is coercion and commandeering of states to implement this program no choice

18. Next lecture • Restrictions on Revenue Powers of States • Pages 568-583 • This finishes the chapter and unit