Lecture 37 The Power to Tax and Spend Part 4: General Welfare- Part II: Republican Era Cases

This Lecture We finish up the section on taxing and spending for the general welfare We move to the Republican Court Era National-state fiscal tensions Cases on drinking age and health care Pages 557-568

South Dakota v. Dole (1987) South Dakota v. Dole (1987) Background In 1984, Congress gives the Secretary of Transportation the ability to withhold a portion of federal highway funds from states that did not raise their drinking age to 21 Many states including New York had lower drinking ages It was designed to reduce the number of underage drinkers and highway fatalities South Dakota allowed the sale of near-beer (3.2) to those at 19 It was not an outlier on this- most states had not adopted a 21 drinking age Question Did Congress exceed its spending powers, or violate the Twenty-first Amendment, by passing legislation conditioning the award of federal highway funds on the states' adoption of a uniform minimum drinking age?

South Dakota v. Dole- II Arguments For South Dakota (law is unconstitutional) States have long had the local police power to control alcohol within its borders The 21st Amendment gives them additional powers States are not merely subdivision of the federal government Federal regulation of the state drinking age violates both the 10th and 21st Amendment

South Dakota v. Dole- III Arguments For Elizabeth Dole and the United States This was passed in response to alcohol related deaths by underage drivers This does not set a minimum drinking age for states this is only a financial incentive to do so It is within the authority of Congress to place conditions on the awarding of federal funds The amount of federal funds withheld under this law is minimal for those that choose not to comply and is therefore not coercive

South Dakota v. Dole- IV Chief Justice Rehnquist writes for a 7-2 majority Congress can attach strings to spending to states “The power of Congress to authorize expenditure of public monies for public purposes is not limited by the direct grants of legislative power found in the Constitution” The power is not unlimited under the spending power and these limitations are set The spending must promote "the general welfare"; The condition must be unambiguous; The condition should relate "to the federal interest in particular national projects or programs"; The condition imposed on the States must not in itself be unconstitutional; and The condition must not be coercive

South Dakota v. Dole- V More from Rehnquist The first three are undisputed for the federal government The purpose of the law was safe interstate travel This was frustrated by varying state drinking ages The 21st Amendment does not pose a problem either This is indirect If South Dakota raises its drinking age, who is harmed? This is also not coercive It loses only 5% of its highway funds for non-compliance This is more encouragement than coercion

South Dakota v. Dole- VI Two differing dissents O’Connor, J. dissenting This is more of a congressional attempt to regulate liquor, which is prohibited This is barred by the 21st Amendment Congress cannot insist on highway safety for states to change their laws Could this power be used to make states move their capitals? This is not an enumerated power She looks to the Butler case Brennan, J. dissenting He bases his dissent on the 21st Amendment overriding this

National Federation of Independent Business v. Sebelius (2012) Background This decision is back (for us) This involves the individual mandate and the Medicaid expansion States that did not expand Medicaid would lose all their Medicaid money The expansion would cover eventually 90% of the new enrollees Individuals not exempted that did not have insurance must pay a fine on their taxes Questions: Was the penalty for not having insurance a tax exceed its Taxation Power? Did the Medicaid expansion provision violate principles of federalism? There was also a severability issue as well

National Federation of Independent Business v. Sebelius- II Arguments For the NFIB (overturn the ACA) A penalty is not a tax One cannot uphold the unconstitutional mandate by calling it a tax Congress intended this to be a penalty and not a tax Congress may not use the spending power to commandeer the legislative power of states The ACA is an abuse of the spending power Approval of the ACA would mean the spending power has no bounds

National Federation of Independent Business v. Sebelius- III Arguments For Sebelius and the Obama Administration (uphold the law) It is a tax because it raises revenue and is enforced by the IRS It is based in part on income level Taxes can have regulatory objectives as well as revenue raising The fact that the word penalty is used do not mean that it is not a tax Congress may fix the terms which it appropriates federal funds Congress has changed the Medicaid system several times since enactment The Medicaid expansion is so generous that most states will choose to participate, making it non-coercive

National Federation of Independent Business v. Sebelius- IV Chief Justice Roberts, ruling for the Court 5-4 on the tax provision, 7-2 on the Medicaid expansion First the penalty for not having insurance It is administered by the IRS and could generate $4 billion by 2017 Just because it is called a penalty does not mean it may not be a tax Fees and surcharges can be part of the taxation power In Drexel Furniture, the tax was 10% a heavy burden punitive and enforced by the Department of Labor, not the IRS so this was a penalty In this case, the penalty is far less than the cost of purchasing insurance It is enforced by the IRS, but is not allowed the power of criminal prosecution to enforce it

National Federation of Independent Business v. Sebelius- V More from Chief Justice Roberts More on the tax provision This is designed to affect individual conduct and this is allowed He mentions the high cost of tax in cigarettes While it tries to induce those to purchase insurance but without negative legal consequences for not doing so Four million are estimated to pay the tax rather than buy insurance But none will be declared “outlaws”

National Federation of Independent Business v. Sebelius- VI More from Roberts He then addresses the apportion issue Article 1, Section 9, Clause 4 on head and direct taxes required to be apportioned among states in proportion of their population Roberts says it is not a direct tax it is based on income The federal government has the power to impose a tax for those that fail to buy health insurance

National Federation of Independent Business v. Sebelius- VII More from Roberts He moves onto the Medicaid expansion (This is a 7-2 decision) The penalty for not complying with the expansion is loss of all Medicaid funds Congress can impose conditions on spending but may not coerce or commandeer states Pressure cannot turn into compulsion states must have to have a legitimate choice Forcing states to do this would be against the federal nature of our system One must worry when Congress uses its spending power to implement a federal policy it could not impose directly under its enumerated powers South Dakota v. Dole only involved taking away 5% of highway funds Medicaid makes up over 20% of most state budgets, funded 50%-83% by the feds Congress cannot penalize states with threat of all their Medicaid money States have to have a legitimate choice on whether to implement the Medicaid expansion This made Medicaid expansion optional the remainder is constitutional, without this penalty

National Federation of Independent Business v. Sebelius- VIII Justice Ginsburg, concurring in part, concurring in judgment in part, and dissenting in part Joined by Sotomayor, and Kagen and Breyer in part (not on Medicaid provision) This focuses on the Medicaid expansion She would uphold the Medicaid provision This applies only to Medicaid money, not threats to take away others She thinks the get things backwards Congress is the one tasked with the spending power, not the states States have no right to these funds to start with She does agree with him on the severability provision

National Federation of Independent Business v. Sebelius- IX Joint dissent of Scalia, Kennedy, Thomas, Alito They would throw out the entire law The disagree on the tax provision They accuse the Court of re-writing the statute it is a penalty they call it that Medicaid issue The taking away all Medicaid money as a penalty goes too far It would have to find a way to make up 20% of its budget This is coercion and commandeering of states to implement this program no choice

Next lecture Restrictions on Revenue Powers of States Pages 568-583 This finishes the chapter and unit