Also known as: tax and spend power · tax-and-spend powers · taxing-and-spending power · spending power · taxing and spending clause
Written by attorneys — see sources below.
A constitutional authority granted to Congress to lay and collect taxes and to spend the resulting revenue for the general welfare of the United States. The power permits Congress to attach conditions to federal grants provided the conditions promote the general welfare, are unambiguous, relate to the federal interest in the funded program, and do not require states to engage in independently unconstitutional conduct.
State X permits persons age 19 to purchase low-alcohol beer. Congress enacts a statute offering states highway construction grants only if they raise the drinking age to 21. State X refuses to change its law and the federal agency withholds the funds. State X sues, arguing the condition exceeds the tax-and-spend power.
Congress imposes a payroll tax on employers and employees to fund old-age benefits. Employer Davis refuses to pay, claiming the tax-and-spend scheme exceeds federal authority. The Court sustains the tax because the revenue is spent for the general welfare through a national insurance program.
The Social Security Act was enacted on August 14, 1935. Title VIII of the Act imposes an income tax on employees measured by wages paid during the calendar year and an excise tax on employers with respect to having individuals in their employ, also measured by wages. Both taxes start at one percent for 1937 to 1939 and increase by one-half of one percent every three years thereafter up to three percent. It exempts agricultural labor, domestic service, government service, and persons over age 65. Wages in excess of $3,000 per year are excluded from the computation. Title II of the Act creates an Old-Age Reserve Account in the Treasury and authorizes annual appropriations to it beginning with the fiscal year ending June 30, 1937. The amount is determined on a reserve basis using actuarial principles and a three percent interest rate. It provides for monthly pensions beginning in 1942 to persons who have attained age 65, worked at least one day in each of five separate years since December 31, 1936, earned at least $2,000 since that date, and are not receiving wages from regular employment. Benefits do not exceed $85 per month and are measured by a percentage of wages that decreases as wages increase, as well as certain lump sum payments in specified contingencies. A shareholder of the Edison Electric Illuminating Company of Boston brought suit in the United States District Court for the District of Massachusetts to enjoin the corporation from making the payments and deductions required by the Act. The bill alleged that the corporation had decided to obey the statute despite the shareholder's protests. Compliance would cause employee unrest, demands for increased wages, and irreparable loss to the corporation and its shareholders from which recovery would be impossible as a practical matter. The corporation appeared and answered without raising any issue of fact. The United States Commissioner of Internal Revenue and the United States Collector for the District of Massachusetts intervened as defendants. The District Court held that the tax upon employees was not properly at issue and that the tax upon employers was constitutional. It denied the injunction and dismissed the bill. The Circuit Court of Appeals for the First Circuit reversed the decree. The intervening defendants petitioned for a writ of certiorari. The petition presented two questions: whether the tax imposed upon employers by section 804 is within the power of Congress under the Constitution, and whether the validity of the tax imposed upon employees by section 801 is properly in issue and if so whether that tax is within the power of Congress under the Constitution. The Supreme Court granted certiorari.
View caseCongress offers states federal funds to build radioactive waste disposal sites but requires states to take title to waste if they fail to meet federal deadlines. State officials argue the take-title provision commandeers state legislatures rather than using the tax-and-spend power. The Court distinguishes permissible conditional spending from impermissible commandeering.
Low-level radioactive waste is generated by many sources and must be isolated from humans for long periods. Historically the Nation relied on a small number of disposal sites. Concern about declining disposal capacity prompted Congress initially to adopt the Low-Level Radioactive Waste Policy Act of 1980. That statute declared a federal policy that each State is responsible for providing for disposal of waste generated within its borders. It authorized States to enter into regional compacts. That Act contained no penalties for nonparticipation. By 1985, with few operational sites and a looming crisis, Congress enacted the 1985 Amendments. The amendments were based largely on proposals of the National Governors' Association. They embodied a compromise among sited and unsited States. The 1985 Act directs each State to be responsible for disposal of low-level radioactive waste generated within the State. It authorizes States to enter into interstate compacts. For an additional seven years the three existing disposal sites were required to make capacity available for waste from any source. Sited States were permitted to exact graduated surcharges on out-of-region waste. After the transition period approved compacts could exclude out-of-region waste. The Act provides three types of incentives to encourage States to comply with its requirements. The monetary incentives authorize sited States to impose surcharges on out-of-state waste. They require the Secretary of Energy to collect a portion of the surcharge into an escrow account. They permit distribution of that fund to States that achieve the statutory milestones. The access incentives authorize sited States and regional compacts to increase and ultimately deny access to their sites to waste from States that do not meet federal deadlines. The take title provision requires a State that fails to provide for disposal by January 1, 1996. Upon request of the generator or owner of waste, the State must take title to and possession of the waste and be liable for damages suffered by the generator or owner as a result of the State's failure to take possession. The petitioners, New York and two of its counties, sought a declaratory judgment that the three incentives are inconsistent with the Tenth Amendment and with the Guarantee Clause of Article IV, § 4. The District Court dismissed the complaint. The Court of Appeals affirmed.
View caseAfter a final judgment against a company in a securities case, Congress enacts a statute directing federal courts to reopen certain settled cases and apply new spending-related rules. The company argues the statute violates separation of powers by directing courts how to apply previously appropriated funds. The Court holds Congress cannot use its tax-and-spend authority to reopen final judgments.
In 1987 petitioners filed a civil action in the United States District Court for the Eastern District of Kentucky against respondents. The complaint alleged that respondents had committed fraud and deceit in the sale of stock in 1983 and 1984 in violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The District Court dismissed the action as time barred under the then-applicable Kentucky statute of limitations. While petitioners' appeal was pending in the Court of Appeals for the Sixth Circuit, the Supreme Court decided Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson on June 20, 1991. The next day the Court applied that decision to dismiss another pending appeal. The Sixth Circuit remanded petitioners' case to the District Court for further proceedings in light of Lampf. On August 13, 1991, the District Court dismissed the action with prejudice under the Lampf statute of limitations. Petitioners filed no appeal, and the judgment became final thirty days later on December 18, 1991. On December 19, 1991, the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991. Section 476 of that Act added section 27A to the Securities Exchange Act of 1934. Subsection (b) provides that any private civil action under section 10(b) commenced on or before June 19, 1991, which was dismissed as time barred after that date and which would have been timely under the limitation period provided by the laws applicable in the jurisdiction as such laws existed on June 19, 1991, shall be reinstated on motion by the plaintiff not later than sixty days after December 19, 1991. Petitioners promptly filed a motion under section 27A(b) to reinstate their action. The District Court denied the motion. The Court of Appeals for the Sixth Circuit reversed, and the Supreme Court granted certiorari.
View caseA taxpayer sues to challenge secret CIA appropriations, claiming the expenditures violate the tax-and-spend power because they lack public accountability. The Court denies standing, holding that generalized grievances about federal spending do not present a concrete case or controversy.
Richardson, a United States taxpayer, brought this action in the United States District Court for the District of Colorado challenging the constitutionality of the Central Intelligence Agency Act of 1949. He alleged that the Act's provisions permitting the Agency to account for its expenditures solely on the certificate of the Director of Central Intelligence violate the Statement and Account Clause of Article I, Section 9, Clause 7 of the Constitution. Richardson claimed injury as a taxpayer because the challenged law prevented him from learning how Congress spends public money and from taking steps to correct what he believed to be illegal and unconstitutional uses of public funds. In 1967 Richardson wrote to the Government Printing Office requesting documents published by the Government in compliance with the constitutional clause. The Fiscal Service of the Bureau of Accounts of the Department of the Treasury replied by sending copies of the Combined Statement of Receipts, Expenditures, and Balances of the United States Government along with monthly and daily reports. Richardson then wrote again, quoting part of the CIA Act and asking whether the statute cast reflection upon the authenticity of the Treasury's Statement and how he could receive further information on CIA expenditures. The Bureau replied that it had no other available information. Richardson next asserted that the CIA Act was repugnant to the Constitution and requested that the Treasury Department seek an opinion of the Attorney General, but the Department declined. Richardson's complaint asked the court to issue a permanent injunction enjoining the defendants from publishing their Combined Statement and representing it as the fulfillment of the constitutional mandate until the statement fully complies. The District Court dismissed the complaint on the ground that Richardson lacked standing and that the claim presented a nonjusticiable political question. The Court of Appeals for the Tenth Circuit reversed, holding that Richardson had standing as a taxpayer under Flast v. Cohen and that the claim was justiciable. The Supreme Court granted certiorari.
View caseCongress requires individuals to obtain health insurance or pay a monetary exaction collected by the IRS. Challengers argue the exaction exceeds the tax-and-spend power because it functions as a regulatory penalty. The Court upholds the payment as a valid tax because it is collected through the tax system and raises revenue for the general welfare.
In 2010 Congress enacted the Patient Protection and Affordable Care Act containing hundreds of provisions across ten titles. The Act requires most Americans to maintain minimum essential health insurance coverage beginning in 2014 or else make a shared responsibility payment calculated as a percentage of household income subject to a floor and ceiling. The Act also expands Medicaid by requiring participating states to cover adults with incomes up to 133 percent of the federal poverty level while increasing federal funding but threatening loss of all Medicaid funds for noncompliance. On the day the President signed the Act Florida and twelve other states filed suit in the United States District Court for the Northern District of Florida challenging the individual mandate provisions under Article I. The original plaintiffs were later joined by eighteen additional states several individuals and the National Federation of Independent Business. The District Court held that the individual mandate exceeded congressional power and could not be severed from the remainder of the Act so it struck down the entire statute. The Court of Appeals for the Eleventh Circuit affirmed that the individual mandate exceeded congressional power but held the provision severable from the rest of the Act while unanimously upholding the Medicaid expansion. Other courts of appeals reached conflicting results on the mandate with the Sixth Circuit and the D.C. Circuit upholding it under the commerce power and the Fourth Circuit applying the Anti-Injunction Act to bar review. The Supreme Court granted certiorari to review the Eleventh Circuit judgment on both the individual mandate and the Medicaid expansion and appointed amici curiae to address severability and the Anti-Injunction Act. The penalty for noncompliance with the individual mandate first becomes enforceable in 2014. The present suit seeks to restrain its future collection. The Act describes the payment as a penalty rather than a tax. It directs that the payment be assessed and collected in the same manner as taxes but bars the IRS from using criminal prosecutions or levies to enforce it.
View caseThe conditions must promote the general welfare, be unambiguous, relate to the federal interest in the funded program, and not require states to engage in independently unconstitutional conduct. The test also includes a limit against financial coercion that is not triggered by a single modest grant program.
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Yes. Congress may condition federal grants on state adoption of a uniform minimum drinking age when the condition relates to the federal interest in the funded program, such as campus safety or highway construction. The condition remains valid even though alcohol regulation is traditionally a state matter.
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A monetary exaction functions as a tax when it is collected by the IRS with income tax returns, varies with income or revenue measures, and is expected to raise substantial revenue regardless of congressional label. Practical operation and effect control the classification rather than statutory labels or regulatory motives.
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…one House of Congress to have been guilty. : When Congress grants particular individuals relief or benefits under its spending power, the danger of oppressive action that the separation of powers was designed to avoid is not implicated. Similarly, Congress may authorize the admission of individual aliens by special Acts,…