Tax & Spend Power

Question 1

Tax & Spend Constitutional Text

Answer 1

Article I § 8 cl. 1: congress shall have power to lay and collect taxes to pay debts and provide for common defense and general welfare

Question 2

Tax Power- Cases

Drexel Furniture

Answer 2

congress passed law that imposed federal excise tax on employers who knowingly(scienter) employed child labor

• congress can’t use their tax power in order to regulate
• this was more like a penalty than a tax
• attempting to regualte behavior is OK as a tax, but this is a penalty
• Tax vs. Penalty considerations
  
  • Rate- too high vs. ok
  • Scienter requirement- applied to everyone the same?
  • corollary spending goal of congress
  • label congress gives doesn’t matter; court to interpret based on functionality

Question 3

Tax Power Cases

NFIB v. Sebelius- ACA

Answer 3

Two issues

Constitutional Avoidance- if there are two possible interpretations of a statute, the court is obliged to adopt the one that raises no constitutional issue

Was the ‘tax’ a penalty; use Drexel analysis

1. Rate- here it was OK; low ‘tax’ if violated
2. Scienter requirment- no scienter req.- you paid the ‘tax’ if you don’t have ins.
3. spending goal of congress- OK

Question 4

Spend Power- Cases

U.S. v. Butler

Answer 4

Agricultural Adjustment Act to stabilize production and prices.

• Congress can’t use its tax and spend powers to coerce citizens to do what it otherwise, under the Constitution cannot compel them to do
• Congress can spend for general welfare, but may not tax to exercise powers retained by states- here tax levied to discourage production- delegated to states

Question 5

Tax Power- Cases

Helvering v. David

Answer 5

Social Security Act challenged

Act was valid because congress can spend money for the general welfare

Congress gets to decide what general welfare is

Question 6

Spending Power- Cases

S.D. v. Dole

Answer 6

5% of highway funds were withheld from states whose drinking age was below 21; SD claimed withholding the 5% was duress

congress can use spending power to induce cooperation by states in areas it cannot necessarily regulate directly

Limitations

• must be in furtherance of general welfare
• must be unambiguous so states can make intelligent, knowing, and conscious choice about participation
• conditions must be related to national projects or programs
• other Const. provisions may bar grant of funds

Question 7

Spending Power- Cases

Steward Machine

Answer 7

i. congress can provide incentives for states to take but they can’t induce them thru duress
ii. if congress gives rebate to states, activity of rebate has to be w/in scope of program
iii. tax is valid b/c congress enacted it primarily to safeguard its own treasury
1. not earmarked for specific group
2. act is directly to end for which congress and states lawfully cooperate
3. condition on receiving tax rebate does not lock state into obligations