Early Spending Clause Jurisprudence

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Article I, Section 8, Clause 1:

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; . . .

Some Supreme Court opinions issued prior to 1936 featured arguments from parties that a particular appropriation exceeded Congress’s authority under the Spending Clause. Despite these arguments occasionally arising, the Court in the nineteenth and early twentieth centuries generally declined to address them. In 1892, the Court avoided the question of whether the Spending Clause permitted Congress to direct payments to the producers of domestic sugar, because if the appropriation exceeded Congress’s spending powers, that conclusion would not yield the relief sought by those seeking to invalidate the producer payment.1 Perhaps more important, in 1923, the Court relied on justiciability doctrines to dismiss separate challenges, brought by a state and an individual taxpayer, to a federal program offering grants to states to reduce maternal and infant mortality.2 Until the New Deal, disputes about the scope of Congress’s spending power were generally fought between and within the political branches, not in the courts.3 However, the Court had held by the 1930s that the Spending Clause’s use of the term “debts” allows Congress to pay claims that rest on moral considerations, in addition to those claims that rest on legally enforceable obligations of the United States.4

By 1937, the state of the case law had changed following three groundbreaking decisions. In 1936, the Court decided United States v. Butler, a challenge to the Agricultural Adjustment Act of 1933.5 To boost agricultural commodities prices, the Act authorized the Secretary of Agriculture to levy fees on agricultural commodity processors and pay farmers of the same commodities who agreed to reduce their acreage under cultivation.6 Processors challenged the program as exceeding Congress’s legislative authority. The Federal Government pointed to the Spending Clause as constitutional authority for the Act.7

For the first time in its history, the Court considered three perspectives of the authority granted by the Clause.8 The Court first noted that though it had “never been authoritatively accepted,” one could argue that the Spending Clause granted Congress authority to provide for the general welfare by regulating agriculture, whether or not taxation or expenditure figured in the regulation.9 The Court rejected this view. The grant of such a “general and unlimited” regulatory power in the first clause of Article I, Section 8 could not be squared with the later enumeration of Congress’s legislative powers.10 The “only thing” that the Clause granted was “the power to tax for the purpose of providing funds for payment” of debts and supporting the general welfare.11

Having rejected the conception of the Spending Clause as general regulatory authority, the Butler Court then considered two long-standing views on the types of taxes and expenditures authorized by the Clause’s reference to the “general welfare.” 12 The Madisonian view held that “the grant of power to tax and spend for the general national welfare must be confined to the enumerated legislative fields committed to the Congress.” 13 The Hamiltonian view cast the power as “separate and distinct from those later enumerated” and “not restricted” by them.14 Recognizing that support existed among the Founders for both perspectives, the Court adopted the Hamiltonian view, stating that “the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution.” 15

Even under this “broader construction” of the Clause, however, the Court held that the Act exceeded Congress’s authority.16 The producer fee and the farmer payments were part of a plan to regulate agriculture, which the Court held invaded the reserved powers of states.17 If Congress could not directly regulate agriculture, it could not “purchase compliance” with such federal policies by offering funds to farmers that they could not afford to refuse.18

One year later, in 1937, the Court reaffirmed Butler's embrace of the Hamiltonian perspective and offered further guidance on Congress’s authority to identify expenditures that serve the general welfare.19 In resolving a challenge to the Social Security Act’s system of old-age benefits, the Court in Helvering v. Davis characterized Spending Clause analysis as requiring a fact-intensive distinction between “one welfare and another,” that is, “between particular and general.” 20 Congress had discretion to decide that expenditures aided the general welfare, unless that choice was “clearly wrong, a display of arbitrary power,” or “not an exercise of judgment.” 21 What qualified as the general welfare could change with the times.22 Congress could thus conclude that legislation to support the destitute elderly, a “national” problem, would advance the general welfare.23

Whereas Helvering reaffirmed and expanded upon aspects of Butler, a companion case, Charles C. Steward Machine Co. v. Davis,24 eroded Butler's coercion conclusions. Steward Machine Co. involved a challenge to a federal payroll tax.25 Employers who made contributions to an unemployment fund established under state law could credit the contribution against the federal tax, but only if the state’s unemployment-fund law met standards set forth in federal law.26 The Court held that this framework did not coerce states to enact unemployment-fund laws; the prospect of a tax credit was merely an “inducement.” 27 States had the freedom of will to participate (or not) in the provision of unemployment relief, and if a state decided to participate it could rescind that decision at any time by repealing its unemployment-fund law.28

As the Court’s first forays into debates about the Spending Clause drew to a close, a few points were clear. The Spending Clause did not bestow general regulatory powers on Congress. Instead, the power conferred was the power to tax and spend in aid of the general welfare. These fiscal powers were not limited by the Constitution’s other grants of enumerated legislative powers. Congress instead had broad discretion to determine the types of expenditures that would further the general welfare, and the federal courts would not second-guess that choice. Where Congress’s offer of federal funds came with conditions attached, the federal courts would view the funds as a mere inducement to accept the condition unless compulsion was apparent.

1: See Marshall Field & Co. v. Clark, 143 U.S. 649, 695–96 (1892).
2: See Massachusetts v. Mellon, 262 U.S. 447, 483, 488 (1923) (dismissing challenge by state and taxpayer on political question and standing grounds, respectively).
3: See, e.g., David E. Engdahl, The Spending Power, 44 Duke L.J. 1, 26–35 (1994).
4: See United States v. Realty Co., 163 U.S. 427, 440 (1896). The Court reaffirmed this understanding in its New Deal-era cases. See Cincinnati Soap Co. v. United States, 301 U.S. 308, 317 (1937).
5: 297 U.S. 1, 53 (1936).
6: See id. at 58–59.
7: Id. at 64.
8: See United States v. Gerlach Live Stock Co., 339 U.S. 725, 738 (1950) (characterizing Butler as the Supreme Court’s “first” declaration on the “substantive power” to tax and spend).
9: Butler, 297 U.S. at 64.
10: Id.
11: Id.
12: Id. at 65.
13: Id.
14: Id.
15: Id. at 66.
16: Id. at 66, 77–78.
17: Id. at 68 (stating that the regulation of agriculture involved a power not delegated to the Federal Government).
18: Id. at 70–71, 74.
19: Helvering v. Davis, 301 U.S. 619, 640 (1937) (stating that, so far as the federal courts are concerned, differences between the Madisonian and Hamiltonian views had been “settled by decision” in Butler).
20: Id.
21: Id.
22: Id. at 641.
23: Id. at 644.
24: 301 U.S. 548 (1937).
25: Id. at 573–74.
26: Id. at 574–75.
27: Id. at 590.
28: Id. at 590, 592–93.