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; . . .
The grant of power to
provide . . . for the general welfare raises a two-fold question: how may Congress provide for
the general welfare and what is
the general welfare that it is authorized to promote? The first half of this question was answered by Thomas Jefferson in his opinion on the Bank as follows:
[T]he laying of taxes is the power, and the general welfare the purpose for which the power is to be exercised. They [Congress] are not to lay taxes ad libitum for any purpose they please; but only to pay the debts or provide for the welfare of the Union. In like manner, they are not to do anything they please to provide for the general welfare, but only to lay taxes for that purpose. 1 The clause, in short, is not an independent grant of power, but a qualification of the taxing power. Although a broader view has been occasionally asserted, 2 Congress has not acted upon it and the Court has had no occasion to adjudicate the point.
With respect to the meaning of
the general welfare the pages of The Federalist itself disclose a sharp divergence of views between its two principal authors. Hamilton adopted the literal, broad meaning of the clause; 3 Madison contended that the powers of taxation and appropriation of the proposed government should be regarded as merely instrumental to its remaining powers; in other words, as little more than a power of self-support. 4 From early times, Congress has acted upon Hamilton's interpretation. Appropriations for subsidies 5 and for an ever-increasing variety of
internal improvements 6 constructed by the Federal Government, had their beginnings in the administrations of Washington and Jefferson. 7 Since 1914, federal grants-in-aid, which are sums of money apportioned among the states for particular uses, often conditioned upon the duplication of the sums by the recipient state, and upon observance of stipulated restrictions as to their use, have become commonplace.
The scope of the national spending power came before the Supreme Court at least five times prior to 1936, but the Court disposed of four of the suits without construing the
general welfare clause. In the Pacific Railway Cases 8 and Smith v. Kansas City Title & Trust Co., 9 it affirmed the power of Congress to construct internal improvements, and to charter and purchase the capital stock of federal land banks, by reference to its powers over commerce, post roads, and fiscal operations, and to its war powers. Decisions on the merits were withheld in two other cases, Massachusetts v. Mellon and Frothingham v. Mellon, 10 on the ground that neither a state nor an individual citizen is entitled to a remedy in the courts against an alleged unconstitutional appropriation of national funds. In United States v. Gettysburg Electric Ry., 11 however, the Court invoked
the great power of taxation to be exercised for the common defence and general welfare 12 to sustain the right of the Federal Government to acquire land within a state for use as a national park.
Finally, in United States v. Butler, 13 the Court gave its unqualified endorsement to Hamilton's views on the taxing power. Justice Roberts wrote for the Court:
Since the foundation of the Nation sharp differences of opinion have persisted as to the true interpretation of the phrase. Madison asserted it amounted to no more than a reference to the other powers enumerated in the subsequent clauses of the same section; that, as the United States is a government of limited and enumerated powers, 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. In this view the phrase is mere tautology, for taxation and appropriation are or may be necessary incidents of the exercise of any of the enumerated legislative powers. Hamilton, on the other hand, maintained the clause confers a power separate and distinct from those later enumerated, is not restricted in meaning by the grant of them, and Congress consequently has a substantive power to tax and to appropriate, limited only by the requirement that it shall be exercised to provide for the general welfare of the United States. Each contention has had the support of those whose views are entitled to weight. This court has noticed the question, but has never found it necessary to decide which is the true construction. Mr. Justice Story, in his Commentaries, espouses the Hamiltonian position. We shall not review the writings of public men and commentators or discuss the legislative practice. Study of all these leads us to conclude that the reading advocated by Mr. Justice Story is the correct one. While, therefore, the power to tax is not unlimited, its confines are set in the clause which confers it, and not in those of § 8 which bestow and define the legislative powers of the Congress. It results 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. 14
By and large, it is for Congress to determine what constitutes the
general welfare. The Court accords great deference to Congress’s decision that a spending program advances the general welfare, 15 and has even questioned whether the restriction is judicially enforceable. 16 Dispute, such as it is, turns on the conditioning of funds.
As with its other powers, Congress may enact legislation
necessary and proper to effectuate its purposes in taxing and spending. In upholding a law making it a crime to bribe state and local officials who administer programs that receive federal funds, the Court declared that Congress has authority
to see to it that taxpayer dollars . . . are in fact spent for the general welfare, and not frittered away in graft or on projects undermined when funds are siphoned off or corrupt public officers are derelict about demanding value for dollars. 17 Congress’s failure to require proof of a direct connection between the bribery and the federal funds was permissible, the Court concluded, because
corruption does not have to be that limited to affect the federal interest. Money is fungible, bribed officials are untrustworthy stewards of federal funds, and corrupt contractors do not deliver dollar-for-dollar value. 18
Social Security Act Cases
Although the Court in Butler held that the spending power is not limited by the specific grants of power contained in Article I, § 8, the Court found, nevertheless, that the spending power was qualified by the Tenth Amendment, and on this ground ruled that Congress could not use moneys raised by taxation to
purchase compliance with regulations
of matters of state concern with respect to which Congress has no authority to interfere. 19 Within little more than a year this decision was narrowed by Steward Machine Co. v. Davis, 20 which sustained the tax imposed on employers to provide unemployment benefits, and the credit allowed for similar taxes paid to a state. To the argument that the tax and credit in combination were
weapons of coercion, destroying or impairing the autonomy of the states, the Court replied that relief of unemployment was a legitimate object of federal expenditure under the
general welfare clause, that the Social Security Act represented a legitimate attempt to solve the problem by the cooperation of state and Federal Governments, and that the credit allowed for state taxes bore a reasonable relation
to the fiscal need subserved by the tax in its normal operation, 21 because state unemployment compensation payments would relieve the burden for direct relief borne by the national treasury. The Court reserved judgment as to the validity of a tax
if it is laid upon the condition that a state may escape its operation through the adoption of a statute unrelated in subject matter to activities fairly within the scope of national policy and power. 22
It was not until 1947 that the right of Congress to impose conditions upon grants-in-aid over the objection of a state was squarely presented. 23 The Court upheld Congress’s power to do so in Oklahoma v. Civil Service Commission. 24 The state objected to the enforcement of a provision of the Hatch Act that reduced its allotment of federal highway funds because of its failure to remove from office a member of the State Highway Commission found to have taken an active part in party politics while in office. The Court denied relief on the ground that,
[w]hile the United States is not concerned with, and has no power to regulate local political activities as such of state officials, it does have power to fix the terms upon which its money allotments to states shall be disbursed. . . . The end sought by Congress through the Hatch Act is better public service by requiring those who administer funds for national needs to abstain from active political partisanship. So even though the action taken by Congress does have effect upon certain activities within the state, it has never been thought that such effect made the federal act invalid. 25
The general principle is firmly established.
Congress has frequently employed the Spending Power to further broad policy objectives by conditioning receipt of federal moneys upon compliance by the recipient with federal statutory and administrative directives. This Court has repeatedly upheld against constitutional challenge the use of this technique to induce governments and private parties to cooperate voluntarily with federal policy. 26
The Court has set forth several standards purporting to channel Congress’s discretion in attaching grant conditions. 27 To date only one statute, discussed below, has been struck down as violating these standards, although several statutes have been interpreted so as to conform to the guiding principles. First, the conditions, like the spending itself, must advance the general welfare, but the determination of what constitutes the general welfare rests largely if not wholly with Congress. 28 Second, because a grant is
much in the nature of a contract offer that the states may accept or reject, 29 Congress must set out the conditions unambiguously, so that the states may make an informed decision. 30 Third, the Court continues to state that the conditions must be related to the federal interest for which the funds are expended, 31 but it has never found a spending condition deficient under this part of the test. 32 Fourth, the power to condition funds may not be used to induce the states to engage in activities that would themselves be unconstitutional. 33 Fifth, the Court has suggested that in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which
pressure turns into compulsion. 34 Certain federalism restraints on other federal powers seem not to be relevant to spending conditions. 35
In 2010, Congress passed the Patient Protection and Affordable Care Act (ACA), 36 which established a comprehensive health care system for the United States. As part of this new system, the Act expanded which persons were eligible for Medicaid, which is financed jointly by the federal and state governments. Failure of a state to implement such expansion could, in theory, have resulted in the withholding of all Medicaid reimbursements, including payments for persons previously covered by the Medicaid program. In National Federation of Independent Business (NFIB) v. Sebelius, 37 seven Justices (in two separate opinions) held that the requirement that states either comply with the requirements of the Medicaid expansion under the ACA or lose all Medicaid funds violated the Tenth Amendment. 38 The Court held, however, that withholding of just the funds associated with that expansion raised no significant constitutional concerns, essentially making the Medicaid expansion voluntary.
Chief Justice Roberts' controlling opinion 39 in NFIB held that the ACA Medicaid expansion created a
independent program. 40 As Congress's power to direct state activities under the Spending Clause is in the nature of a contract, Justice Robert's opinion suggests that the only changes that could be made to Medicaid would be those that could be reasonably anticipated by the states as they entered the original program, when only four categories of persons in financial need were covered: the disabled, the blind, the elderly, and needy families with dependent children. The Medicaid expansion arguably changed the nature of the program by requiring recipient states, as part of a universal health care system, to meet the health care needs of the entire nonelderly population with income below 133% of the poverty level. 41Thus, the Medicaid expansion
accomplishe[d] a shift in kind, not merely degree. 42
Once Justice Roberts established that the Medicaid expansion was a
independent program, he then turned to whether withdrawal of existing Medicaid funds for failure to implement the expansion was coercive. Justice Roberts noted that the threatened loss of Medicaid funds was
over 10 percent of most State's total revenue, which he characterized as a form of
economic dragooning which put a
gun to the head of the states. 43 Justice Roberts contrasted this amount with the amount of federal transportation funds threatened to be withheld from South Dakota in Dole, which he characterized as less than half of one percent of South Dakota's budget. How courts are to consider grant withdrawals between 10 percent and one-half of 1 percent, however, is not addressed by the Roberts' opinion, and Justice Roberts declined to speculate where such a line would be drawn.
If a state accepts federal funds on conditions and then fails to follow the requirements, the usual remedy is federal administrative action to terminate the funding and to recoup funds the state has already received. 44 Although the Court has allowed beneficiaries of conditional grant programs to sue to compel states to comply with the federal conditions, 45 more recently the Court has required that any such susceptibility to suit be clearly spelled out so that states will be informed of potential consequences of accepting aid. Finally, it should be noted that Congress has enacted a range of laws forbidding discrimination in federal assistance programs, 46 and some of these laws are enforceable against the states. 47
The appropriation of the proceeds of a tax to a specific use does not affect the validity of the exaction, if the general welfare is advanced and no other constitutional provision is violated. Thus a processing tax on coconut oil was sustained despite the fact that the tax collected upon oil of Philippine production was segregated and paid into the Philippine Treasury. 48 In Helvering v. Davis, 49 the excise tax on employers – the proceeds of which were not earmarked in any way, although intended to provide funds for payments to retired workers – was upheld under the
general welfare clause, the Tenth Amendment's being found inapplicable.
Debts of the United States
The power to pay the debts of the United States is broad enough to include claims of citizens arising on obligations of right and justice. 50 The Court sustained an act of Congress which set apart for the use of the Philippine Islands, the revenue from a processing tax on coconut oil of Philippine production, as being in pursuance of a moral obligation to protect and promote the welfare of the people of the Islands. 51 Curiously enough, this power was first invoked to assist the United States to collect a debt due to it. In United States v. Fisher, 52 the Supreme Court sustained a statute that gave the Federal Government priority in the distribution of the estates of its insolvent debtors. The debtor in that case was the endorser of a foreign bill of exchange that apparently had been purchased by the United States. Invoking the Necessary and Proper Clause, Chief Justice Marshall deduced the power to collect a debt from the power to pay its obligations by the following reasoning:
The government is to pay the debt of the Union, and must be authorized to use the means which appear to itself most eligible to effect that object. It has, consequently, a right to make remittances by bills or otherwise, and to take those precautions which will render the transaction safe. 53