1. 1 Congress’ Power to Tax & Spend

2. 2 Enumerated Power Art. I, § 8, cl. 1 –The Congress shall have Power to lay and collect Taxes... to pay the Debts and provide for the common Defence and General Welfare of the US Questions –Is the power to tax a stand-along power, or can taxes only be levied to raise revenues in order to “pay the Debts”? –Is the power to spend a stand-alone power, or can it be used only to provide Defence and Welfare? –Is the power to provide for the General Welfare a stand-alone power, or does it merely qualify the power to lay and collect taxes?

3. 3 Federal Taxes as a Federalism Issue Taxing for revenue raising or for other purposes (e.g., to regulate) –How can taxes have a regulatory effect? –Bailey v. Drexel Furniture (1922) p.229 10% tax on employers who use child labor Note: the question whether taxes are permitted to have regulatory effect is important only if congress cannot regulate directly on the subject matter

4. 4 Tax as Revenue or Regulation What made the tax regulatory in nature? –tax was imposed as a penalty –compare other taxes upheld by Court Veazie Bank (tax on non-federal currency) McCray v. US (oleomargarine case)

5. 5 Extent of Congress’ Spending Power Can congress spend for general welfare, or only as a means to promote other powers? –Madisonian position power to tax & spend confined to enumerated powers –Hamiltonian position distinct substantive power –Even as distinct power, it is subject to limita- tions in the clause; must be for “gen’l welfare” Can congress spend where its expenditure has regulatory effects?

6. 6 Spending as Regulatory Example 1: Conditional spending –7 USC § 601 (Agriculture Adjustment Act): It is hereby declared that the disruption of the orderly exchange of commodities in interstate commerce impairs the purchasing power of farmers and destroys the value of agricultural assets... –7 USC § 608: Whenever the Secretary of Agriculture has reason to believe that: the current average farm price for any basic agricultural commodity is less than the fair exchange value thereof... the Secretary shall provide, through agreements with producers or by other voluntary methods... for benefit payments... in such amounts as he finds to be fair and reasonable and best calculated to effectuate the declared policy of this chapter Example 2: unconditioned cash grant –would this promote the general welfare?

7. 7 Who decides if a spending program promotes the general welfare? US v. Butler (1936) p. 235 –Justice Roberts: “This court neither approves nor condemns any legislative policy” gen’l welfare is quintessentially legislative policy thus, whether the Agric. Adjustment Act promotes general welfare is for congress to decide –But the Act “invades the reserved rights of states” that must mean –congress can’t spend for the general welfare; or –congress can’t spend if expenditure has regulatory effects; or –this law doesn’t promote the general welfare

8. 8 Is regulatory spending const’l? Not according to Roberts –but conditional spending is “There is an obvious difference between a statute stating the conditions upon which moneys shall be expended and one effective only upon assumption of a contractual obligation to submit to a regulation which otherwise could not be enforced.” What is that obvious difference?

9. 9 Support for Regulatory Spending Power Should regulatory spending be allowed where congress lacks direct regulatory power? –Voluntary vs. mandatory –Conditional spending may not displace state law Virtually all spending is regulatory –Stone (dissent): The power of congress to spend is inseparable from persuasion to action –If spending is inevitably regulatory, and Hamilton prevailed over Madison, then the spending clause must give congress additional power to regulate. see examples p. 239

10. 10 Federal Spending on States Does conditional spending raise other concerns when the recipients are states? –since states are so dependent upon federal funds, congess could use its purse strings to commandeer state regulation on federal terms South Dakota v. Dole (1987) p. 244 –Reaffirms modern rule - conditional spending ok –Rehnquist establishes process constraint (rather than putting regulatory objects beyond cong’l power)

11. 11 SD v. Dole Rule 1. Expenditure must be for gen’l welfare –courts will defer substantially to congress 2. Funding condition must be unambiguous –State must be able to exercise their choice knowingly, cognizant of consquences 3. Condition must be related to the purpose of the particular spending program –This is the battleground of SD v. Dole 4. Conditions cannot be independently unconstitutional –this test is omnipresent

12. 12 Relational Standard under Dole Is condition (states must raise drinking age to 21) reasonably related to the purpose of providing federal highway funds –Yes (Rehnquist): federal funds are intended to facilitate interstate commerce through safe interstate travel; drunk kids make roads unsafe and obstruct IC –No (O’Connor): purpose of federal funds was to promote con- struction of interstate road system drinking age is not related to whether roads were properly constructed

13. 13 O’Connor’s Formalism Distinction Between Conditional Spending and Regulatory Effect –Once the money is spent per congress’ instructions, no further strings can attach –Otherwise, it is regulation –Compare to Robert’s Butler test How does O’Connor test apply to ongoing federal funding schemes –e.g., education assistance –congress can discontinue funding, but no more (i.e., no private rights of action)

14. 14 Civil Rights & Spending Major spending-based civil rights laws –Title VI “No person in the United States shall, on the ground of race, color, or national origin, be excluded from partici- pation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.” 42 USCS § 2000d –Title IX “No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance” 20 USCS § 1681