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The power of legislatures to tax and spend.
Spending power is conferred to state and federal legislatures through their constitution. Judicial review of legislative spending varies from state to state, but the law of federal spending informs courts in all states.
The power of the U.S. Congress to tax and spend for the general welfare is granted under Article I, Section 8, Clause 1, of the U.S. Constitution: "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." This clause is known as the Spending Power Clause or the General Welfare Clause. The Spending Power Clause does not grant to Congress the power to pass all laws for the general welfare; that is a power reserved to the states under the Tenth Amendment. Rather, it gives Congress the power to control federal taxation and spending.
Before 1913, federal spending was relatively minuscule and was generally reserved for military support in time of war. Federal revenues were generated through tariffs on imports, excise taxes on certain activities and professions, and state and local property taxes. In 1913, the States ratified the Sixteenth Amendment to the Constitution, which guaranteed to Congress the power to lay and collect income taxes on individuals. The federal income tax, hailed for its uniformity and fairness, paved the way for a massive expansion in the scope of the federal government.
Federal spending increased dramatically in the 1930s. Congress created new federal agencies and spending programs to manage the economic effects of the Great Depression, and the U.S. Supreme Court was forced to decide a spate of challenges to federal spending programs.
In 1936, the Court construed the Spending Power Clause as giving Congress broad power to spend for the general welfare (United States v. Butler, 297 U.S. 1, 56 S. Ct. 312, 80 L. Ed. 477). According to the Butler decision, under the Spending Power Clause Congress was not limited to spending money to carry out the direct grants of legislative power found elsewhere in the Constitution; rather, it could tax and spend for what it determined to be the general welfare of the country. Because Congress has discretion to determine what is the general welfare, no court since Butler has ever invalidated a federal spending program on the ground that the general welfare of the country was not being promoted.
There are circumstances, however, when congressional spending power receives serious scrutiny. One example is when Congress seeks to withhold federal funds from states that refuse to enact laws consistent with federal mandates. Incident to the Spending Power Clause, Congress may condition a state's receipt of federal revenues on the fulfillment of certain criteria. For example, assume Congress wants all schoolteachers to obtain a master's degree. The Constitution does not grant Congress the power to pass a law to that effect. However, Congress may appropriate federal money that states can obtain if they enact legislation requiring a master's degree.
When Congress allocates conditional funding, it must do so unambiguously, so that states and other affected parties are adequately advised of their choices and are aware of the consequences of noncompliance. Conditional federal spending must relate to a national interest, as opposed to state, local, or individual interests. Finally, conditional spending may be invalidated if it is excessively coercive. For example, withholding of an excessively high percentage of federal funds may be invalidated by a court.
According to many constitutional scholars, conditional federal spending is a violation of state sovereignty over matters reserved to the states. Without a meaningful check on conditional federal spending, Congress can withhold federal benefits from states under the Spending Power Clause on any rational condition it desires. This has the effect of creating one central government, a system that was repugnant to the Framers of the Constitution when not properly balanced with the rights of state governments. Indeed, Thomas Jefferson predicted that the Spending Power Clause would reduce the Constitution "to a single phrase, that of instituting a Congress, with power to do … whatever evil they pleased." Proponents of conditional federal funding argue that it does not force states to change their laws, and that states are free to forgo the receipt of some federal funds in order to retain their autonomy.
Nevertheless, conditional federal spending has been used in a number of ways to persuade states to change their laws. For example, Congress frequently uses highway funds to encourage changes in traffic-safety related statutes. In South Dakota v. Dole, 483 U.S. 203, 107 S. Ct. 2793, 97 L. Ed. 2d 171 (1987), the U.S. Supreme Court reviewed a federal statute authorizing the U.S. secretary of transportation to withhold a percentage of federal highway funds from states that refused to raise the legal drinking age to 21. According to the Court, the federal government's interest in a uniform drinking age related to highway safety because, in part, young persons in states with higher drinking ages were driving to border states with lower drinking ages. The conditional spending was upheld because it had a federal purpose (improving interstate highway safety) and the condition (establishing a uniform legal drinking age) was related to the spending purpose.
Congress has also enacted spending schemes favorable to minority small-business owners, in an effort to combat the effects of racial discrimination. In Adarand Constructors v. Peña, 515 U.S. 200, 115 S. Ct. 2097, 132 L. Ed. 2d 158 (1995), the U.S. Supreme Court reviewed a federal spending program designed to provide federal highway construction contracts to disadvantaged business enterprises. Under the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA) (Pub. L. No. 100-17, 101 Stat. 132), Congress appropriated certain funds to the transportation department (DOT). The DOT was obliged to spend not less than 10 percent of those funds on businesses certified as "owned and operated by socially and economically disadvantaged individuals" (§ 106(c)(1)). These individuals were defined by STURAA as members of racial minorities and women.
Despite submitting the lowest bid for a subcontract to build guardrails for the Central Federal Lands Highway Division (part of the DOT), Adarand Constructors lost the contract to a business certified as disadvantaged. Adarand brought suit against Frederico F. Peña, secretary of transportation, arguing that the spending scheme violated the equal protection component of the Fifth Amendment Due Process Clause. The district court granted summary judgment to the secretary, and the court of appeals affirmed, but the Supreme Court vacated the judgment. According to the Court, federal spending based on racial classifications should be subject to strict scrutiny to determine whether the means employed by the spending scheme were narrowly tailored to achieve a compelling federal interest. This decision overruled precedent, and signaled a greater willingness of the Court to examine the way in which Congress and states exercise their spending power.
Some constitutional provisions expressly prohibit certain federal spending. Under the First Amendment, Congress may not spend federal money in the aid of religion. Under Article II, Section 1, Clause 7, Congress may not increase or decrease the salary of a president during his or her term. Under the Fourteenth Amendment, Congress may not spend money on "any debt or obligation incurred in aid of insurrection or rebellion against the United States."
Congressional spending limits also may be found in the Constitution. If, for example, Congress allocates federal funding for libraries on the condition that all libraries ban certain literature, the spending scheme may run afoul of the First Amendment guarantee of free speech.
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Klein, William J. 1995. "Pressure or Compulsion? Federal Highway Fund Sanctions of the Clean Air Act Amendments of 1990." Rutgers Law Journal 26.
Lambro, Donald. 2003. "Spending Growth Upsets Conservatives." Washington Times (June 30).
Rosentahl, Albert J. 1987. "Conditional Federal Spending and the Constitution." Stanford Law Review 39.
Segatol-Islami, Jahan. 1994. "Mr. Jefferson Must Be Smiling: How State Challenges to Immigration Policy May Prompt Re-Evaluation of Federalism as a Core Concept of Our Republic." University of Miami Inter-American Law Review 26.
Sky, Theodore. 2003. To Provide for the General Welfare: A History of the Federal Spending Power. Newark: Univ. of Delaware Press.
Squire, Ryan C. 1998. "Effectuating Principles of Federalism: Reevaluating the Federal Spending Power as the Great Tenth Amendment Loophole." Pepperdine Law Review 25.
Zietlow, Rebecca E. 2002. "Federalism's Paradox: The Spending Power and Waiver of Sovereign Immunity." Wake Forest Law Review 37.