Congress’s New Unconstitutional ‘Tax Mandate’ and Its Runaway Spending Power

October 25, 2021 Updated: October 26, 2021

Commentary

While the public focuses on the Biden administration’s vaccination mandate, many are overlooking yet another new federal mandate: Congress’s effort to ban state tax cuts.

Congress passed the so-called “American Rescue Plan Act” (ARPA) in March. The statute prohibits any state accepting ARPA funds from cutting state taxes if ARPA money reimburses the state “directly or indirectly” for funds “reduce[d]” from the tax cut. States must provide detailed records to federal regulators to justify their tax decisions.

As a matter of policy, Congress’s tax mandate makes no sense. If our goal is to recover from economic damage inflicted by COVID-19, then cutting taxes and unleashing private sector growth is the best way to do it.

But the mandate is more than bad policy; it’s also unconstitutional. Last July, Ohio federal Judge Douglas R. Cole so ruled (pdf).

Cole’s decision was based on modern Supreme Court 10th Amendment cases. Those cases say that if Congress wants to impose conditions on a state receiving federal dollars, Congress must lay out those conditions clearly. This enables state officials to understand the program’s costs before they agree to participate.

Cole found that ARPA’s tax mandate wasn’t sufficiently clear and therefore wasn’t enforceable.

This is a good result. But truth to tell, if the Constitution was still fully respected, this sort of litigation would rarely be necessary. It became necessary because of a couple of shameful Supreme Court decisions.

The 2 Cases That Rewrote the Constitution

The years from 1936 to about 1952 were perhaps the Supreme Court’s worst period. You can criticize the present justices, as I sometimes do. But compared to the court from 1936 to 1952, today’s bench is a paragon of judicial competence and virtue.

The two cases that marked the beginning of this sad era were United States v. Butler (1936) (pdf) and Helvering v. Davis (1937) (pdf).

The Butler case adjudicated the constitutionality of a federal agricultural subsidy program. There was no serious doubt the program was unconstitutional. Nothing in the Constitution gives Congress power to regulate agriculture directly. For 140 years, agriculture had been accepted as within state, rather than federal, jurisdiction.

The court ultimately reached the right decision by ruling the federal program invalid. But along the way, it did some mischief: It inserted in its opinion completely unnecessary—and deeply erroneous—cogitations about the Constitution’s taxation clause (Article I, Section 8, Clause 1).

The taxation clause, as its name implies, grants power to Congress to tax. After granting power to tax, the clause restricts that authority by requiring that taxes must be levied only for purposes of debt payment or to “provide for the common Defence and general Welfare of the United States.” But the court theorized that instead of restricting congressional power, this language granted the power to Congress to spendand to spend anything it wanted on almost anything it pleased!

This assertion directly contradicts the Constitution’s text and what leading Founders had said about it. For example:

  • In reading the text, the court ignored 18th-century word definitions. In 18th-century political discourse, “common” and “general” usually meant national rather than regional or special. “Provide” meant “lay up provisions for,” not “spend” (pdf). Thus, the phrase “provide for the common Defence and general Welfare” meant only that taxes were limited to storing up funds for national, rather than local or special-interest, purposes.
  • Immediately after the taxation clause, the Constitution’s text contains a long list of additional congressional powers. Other portions of the document add even more. Of course, all that verbiage would be largely pointless if the taxation clause gave Congress the authority to spend on anything it wants. The court’s conclusion necessarily assumes that the Constitution’s framers, although highly accomplished legal draftsmen, gratuitously inserted enormous blocks of useless script.
  • The text also includes curbs on some of those additional powers. But if the taxation clause had given Congress power to spend whatever it wants on the “common Defence and general Welfare,” then those curbs would be nugatory. Again, draftsmen as accomplished as the framers do not waste language that way.
  • Other constitutional provisions empower Congress to pay debts, fund certain programs, and defend the nation. There’s no need to read the taxation clause as authorizing expenditures.
  • In view of all this, it’s not surprising that during the constitutional debates of 1787–1790, the Constitution’s advocates uniformly affirmed that most spending programs would be administered by the states and would be outside congressional control (pdf).

The only Founding-era source the court marshaled to support its conclusion was a single claim in a single paper written by Alexander Hamilton. But this paper was written after the Constitution was ratified and was sharply at odds with statements that Hamilton—and many other advocates of the Constitution—issued before ratification (pdf). Hamilton’s claim apparently was part of a personal campaign to, in his words, “triumph altogether over the state governments and reduce them into an entire subordination” (pdf). It was not a good-faith interpretation of the Constitution.

Fortunately, the court’s ruminations in Butler weren’t binding authority. They were what lawyers call “dicta”—that is, extraneous material not necessary to the decision of the case.

The Conversion of Dicta Into ‘Law’

Yet, the following year, the bench pretended those dicta were binding authority. Writing for the court in Helvering v. Davis, “progressive” Justice Benjamin Cardozo asserted:

“Congress may spend money in aid of the ‘general welfare.’ … United States v. Butler …; Steward Machine Co. v. Davis, supra. There have been great statesmen in our history who have stood for other views. We will not resurrect the contest. It is now settled by decision. United States v. Butler, supra.”

To put it bluntly, this statement was a lie. The Butler case hadn’t “settled” any such thing. The court’s ruminations on the spending power in the Butler opinion were extraneous to the case ruling, and the ruling effectively contradicted those ruminations.

Cardozo also cited Charles C. Steward Machine Co. v. Davis (pdf), presumably because the court’s opinion in Steward Machine mentioned the Butler dicta. But the issue in Steward Machine involved taxing, not spending. Moreover, Steward Machine was issued the very same day as Helvering and written by the very same justice.

Cardozo’s only “settled” authority was himself.

The truth is that in Butler and Helvering the justices effectively amended our Supreme Law without bothering to consult the people or the states, as the Constitution requires (Article V).

What happened next exemplifies how a single constitutional change can trigger massive long-term consequences. Before these cases were decided, the federal government rarely incurred a peacetime budget deficit. After they were decided, the federal government ran deficits almost every year.

These cases should have been reversed promptly by constitutional amendment, just as bad Supreme Court decisions had been overturned by the 11th and 14th Amendments. But because of the successive crises of the Depression and World War II, that didn’t happen.

So when you assign fault for our unsustainable national debt, don’t limit the blame to spendthrift politicians. Blame also the Supreme Court justices who enabled them.

Robert G. Natelson, a former constitutional law professor and legal historian, is senior fellow in constitutional jurisprudence at Colorado’s Independence Institute and author of “The Original Constitution: What It Actually Said and Meant” (3rd ed., 2015).

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Rob Natelson
Robert G. Natelson, a former constitutional law professor, is senior fellow in constitutional jurisprudence at the Independence Institute in Denver.