In Defense of Federalism

In Defense of Federalism: An Originalist Case for a Limited Interpretation of the General Welfare Clause
By Spencer McAvoy

Ever wonder why, as a legal adult, one is empowered to join the armed forces, marry, and purchase firearms, but not to drink in a single one of our fifty states? Whether one is a twenty-year-old marine with a family who is not allowed into a bar, or just a college student who wants to legally buy a beer, one should be aware that the “New Deal” Court is to blame. In three separate decisions decided between 1936-1938, the Court used a broad interpretation of the “General Welfare Clause,” of Art. 1 Sec. 8 of the Constitution to radically expand the taxing, spending, and regulatory powers of Congress. As a result of United States v. Butler (1936), Steward Machine Co. v. Davis (1937) and Helvering v. Davis (1937), the principle of federalism is given only fleeting lip-service. The combination of the political pressure levied by President Roosevelt via his court-packing scheme, and massive public support for the “New Deal” programs, corralled the Court into a compromise far more destructive than the potential harm that it averted. In these three landmark cases, the Supreme Court not only dealt a significant blow to the federalist system, but also legalized the national subsidizing of special interest groups.  Because of Butler, Steward, and Helvering, our government now subsidizes everything from albino squirrels[1] to mohair farming[2]. Moreover, the decision in South Dakota v. Dole (1987), which allowed the federal government to withhold funding to induce states to adopt legislation rested on the precedent, was set by these three General Welfare cases.

James Madison believed that the General Welfare Clause was simply part of the introduction to the enumerated powers, and, therefore, conferred no powers independent of those listed. Arguing this interpretation, he wrote in Federalist No. 41, “Nothing is more natural nor common than first to use a general phrase, and then to explain and qualify it by a recital of particulars. But the idea of an enumeration of particulars which neither explain nor qualify the general meaning, and can have no other effect than to confound and mislead, is an absurdity.” Moreover, both the Ninth and Tenth Amendments expose the dearth of logic in claiming that the General Welfare Clause represents a standalone power. The Ninth stipulates that, “The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people” (italics my own). And the Tenth reads, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The former suggests a significant discontinuity in assuming that unenumerated powers exist for the Federal Government. That the Framers felt they needed to specify that enumerated rights did not preclude the existence of other rights implies that without explicit contravention, enumeration has a definite prohibitory nature. Similarly, the Tenth Amendment clearly demonstrates the intent to confer limited federal power.

The flaws of a broad reading of Art. 1 Sec. 8 are further exposed by the historical incompetence demonstrated by the Court in defining what sort of issues are of national or general concern. This supposed limiting standard, cited by Cardozo in Steward, was established in Butler, in which the Hoosac Mills Corporation challenged the Agricultural Adjustment Act (AAA) of 1933. Writing for the majority, Justice Roberts also became the first to establish the broad interpretation of the General Welfare Clause as legal precedent.^[3] The court struck down the act, not because of General Welfare or taxing objections, but because of the regulatory aspect of the AAA. Roberts paid close attention to the intent of the Act, and the tax, which was clearly regulatory, an issue which would also arise in Steward and Helvering. Roberts also wrote, however, that, “The power to tax and spend is not without constitutional restraints. One restriction is that the purpose must be truly national. Another is that it may not be used to coerce action left to state control.”[4] In Steward,[5] and Helvering,[6] unemployment and care for the elderly are held up as examples of national issues. But it is unclear how these are not local issue. For, while unemployment, as well as care of the elderly, is a ubiquitous issue, these populations vary significantly from state to state[7].

Although these statistics are more recent, the National Bureau of Economic Research published a study in 1960 demonstrating the vast disparities in population, per capita income, and proportion of agricultural and industrial labor force between the various states in the 1930′s.[8] These discrepancies demonstrate wide variation in living standards between different states and regions in the 19^th and earth 20^th centuries, suggesting deviation in population composition and economic well-being. This is exactly why the federalist system exists in the first place. Local governments are more accountable to their voters, better acquainted with the precise needs of their constituents, and are less likely to get away with unnecessary spending and regulation. Examples of truly national concerns are the coinage of money, the provision of a standing army, patent laws, tariffs, and immigration legislation. It is not a coincidence that these powers are among those enumerated in Art. 1 Sec. 8.

Despite his interpretation of the General Welfare Clause, Justice Roberts’s opinion for United States v. Butler demonstrated a certain level of restraint completely absent from Steward, Helvering, or Dole. Though the Court did not strike down the Agricultural Adjustment Act for all of the right reasons, wherever it opposed the AAA its reasoning was sound. The verdict was centered on the power to regulate, and thus tangential to the debate about the taxing powers granted in Art. 1 Sec. 8. But Roberts wrote that the regulation could not be separated from the tax, and that, furthermore, “A tax, in the general understanding of the term, and as used in the Constitution, signifies an exaction for the support of the Government. The word has never been thought to connote the expropriation of money from one group to another.”[9] Though Roberts cites only one case[10] in support of this claim, the extent to which precedent supported his interpretation of taxation is evident in the fact that income transfers simply did not exist on a national scale prior to the New Deal. Roberts continued, “We may concede that the latter sort of imposition is constitutional when imposed to effectuate regulation of a matter in which both groups are interested and in respect of which there is a power of legislative regulation. But manifestly no justification for it can be found unless as an integral part of such regulation. The exaction cannot be wrested out of its setting, denominated an excise for raising revenue, and legalized by ignoring its purpose as a mere instrumentality for bringing about a desired end”[11] (italics my own). Not only did the Court chose to ignore this warning, it did not even acknowledge that it was creating a new definition of taxation when deciding Steward Machine Co. v. Davis.

Justice Cardozo’s opinion in Steward had many flaws, but his development of the meaning of coercion was particularly egregious. In this case, the Social Security Act was upheld by a vote of 5-4. The Court dismissed the challenge by an Alabama corporation to Titles IX and II, which detailed unemployment benefits and a tax and credit measure. This measure would allow employers in states that established their own unemployment legislation to credit away up to 90% of the excise. Plainly, the intent of the Act was not revenue, but compulsion. Writing for the majority, Cardozo held that, “…to hold that motive or temptation is equivalent to coercion is to plunge the law in endless difficulties.”[12] In writing this, he was referencing a portion of the opinion written the previous year for Butler. He took this idea of coercion, mentioned only twice by Roberts and never as a crucial criterion, and ignored the rest of Roberts’s writing on the relationship between taxation and regulation. For example, Roberts wrote, “The farmer, of course, may refuse to comply, but the price of such refusal is the loss of benefits. The amount offered is intended to be sufficient to exert pressure on him to agree to the proposed regulation. The power to confer or withhold unlimited benefits is the power to coerce or destroy.”[13] Clearly, the point of contention for Roberts is the idea that the government may incentivize certain behavior using taxes or subsidies. Furthermore, Justice Butler wrote a dissent for Steward in which he claimed, “…as federal demands similarly conditioned [to the Social Security tax and credit scheme] may be increased from time to time as Congress shall determine, possible federal pressure in that field is without limit.”[14] Not only are Federal incentive schemes inherently coercive, but Cardozo’s claim that the Act, as written, does not represent coercion is specious. Once the Social Security Act’s tax and credit scheme was declared constitutional, Congress was free to increase the tax as much as necessary to impel the states to submit.

In Steward, Cardozo referenced his belief that the states were incapable of providing the necessary relief for the unemployed. But in Helvering, which involved Title VIII or transfer payments to the elderly and retired, he explained his rationale more thoroughly. Cardozo claimed that, “States and local governments are at times reluctant to increase so heavily the burden of taxation to be borne by their residents for fear of placing themselves in a position of economic disadvantage as compared to their neighbors or competitors.”[15] Here, as in Steward, Cardozo reveals his lack of respect for federalism. His assessment of the effects of disparate tax burdens is entirely unfounded, as tax burdens at the time varied greatly from state to state, and the disparities have only increased with time.[16] In 1932, just five years before Cardozo wrote for Steward and Helvering, only fifteen of the forty-eight states even had an income tax, and states that did not have income tax did not necessarily have higher property taxes.[17]  There is no indication in the data that states were overly worried about imposing higher tax rates than other states in their region, or even their neighbors. Utah, for instance, had an income tax, despite also having higher property taxes, as a percent of total property value, than its neighbor Colorado.[18] Currently, the highest state tax burden for a family of three with an income of $50,000 is roughly five times the lowest state tax rate.[19] It is doubtful that states would have enlarged disparities in their taxing schemes if such differences truly put them at an economic disadvantage. So, if states lacked such legislation, it was because their constituents did not demand it. This is not a fault; this is federalism at its finest.

Not only did Butler, Steward, and Helvering, deal a significant blow to federalism, but they set the precedent that allowed the verdict in South Dakota v. Dole. Citing all three of those cases frequently, the Court held that the Federal government had the power to withhold highway funds from South Dakota unless the state changed its drinking age. Specifically, South Dakota faced a 5% reduction in funding for maintenance of interstate highways if it refused to raise its drinking age to twenty-one. The Court did not even question whether or not Congress had the right to pursue such a strategy under the power granted by the General Welfare Clause. In fact, in a remarkable display of circular logic, Chief Justice Rehnquist wrote, “We can readily conclude that the provision is designed to serve the general welfare, especially in light of the fact that ‘the concept of welfare or the opposite is shaped by Congress. . . .’”(internal citation omitted). The quote at the end is from Helvering v. Davis. Congress, therefore, can promote the general welfare, and the general welfare consists of whatever causes Congress chooses to promote. Ultimately, the Court held that the 5% funding penalty was not significant enough to be considered coercive. The states, the Court argued, still had a choice of whether or not to change their drinking age.  The fine implies that Congress has the power to pass regulations governing consumption of alcohol, and that South Dakota has violated these regulations; this is patently untrue. Under the U.S. Constitution, the people of South Dakota have the right to live much of their lives outside of the federal domain. They have the right to a local, accountable, and empowered state government. South Dakota v. Dole was a blow not only against states rights, but against the rights of U.S. citizens as well.

Thus, over the course of just two years the Court set the precedent for the erosion of state’s power to control their own legislation and legalized Federal transfer payments to special interest groups. In the Constitution, Congress is given neither the power to transfer income from one group to another, nor to impel the states to do so, yet there are thousands of examples of legislation that exist despite this fact. Americans pay taxes that subsidize mohair farmers, corn farmers, albino squirrels, and thousands of other objects of congressional benevolence, because of Butler, Steward, and Helvering. Citizens have lost much of the power of their voices because their state cannot determine the drinking age within its borders, its speed limit, or its own educational policy. Because of Butler, Steward, and Helvering No Child Left Behind imposed significant, and ineffective sanctions on  48% of our public schools this past year.[20] The federalist system is not functioning as was intended. It is one thing to treat the Constitution as a living document—this is productive and necessary. However, it is entirely insupportable to pervert constitutional language, such as the General Welfare Clause, to destroy systems the document was written to protect. It may be that Americans are no longer as distrustful of the Federal Government, and we desire an expansion of federal power, but this must be done through the amendment process in a way that clearly defines the federal domain. State legislatures were given a role in ratifying amendments for a reason, and this check must be respected. If it is not, the states will continue to lose these battles, as state governments are not capable of exercising the level of political pressure that President Roosevelt levied in the 1930′s. This is clearly what has occurred, for states have been losing for the past one-hundred years. And whenever the Court bypasses the amendment process and expands the federal government in an unconstitutional manner, not only do the states lose, but United States citizens lose as well.

Spencer McAvoy is a first-year at the College.