1. Lecture 36 The Power to Tax and Spend
Part 3: General Welfare- Part I:
New Deal Cases

2. This lecture We look at taxing and spending for the general welfare
We will go into the New Deal cases this time
More on to the Rehnquist and Roberts Courts next time
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3. United States v. Butler (1936)
Background
Agriculture was hard hit during the economy due to overproducing
The Agricultural Adjustment Act of 1933 sought to remedy this by trying to reduce the amount of land farmed by paying rents to farmers for acres not planted
This was paid for by an excise tax on the processing of agricultural products
These companies objected, they lost at the district level, but won at the circuit level
Farm groups supported the law, industry opposed it
Question:
Did Congress exceed its constitutional taxing and spending powers with the Act?

4. United States v. Butler- II
Arguments
For the United States (uphold the law)
These are excises, subject only to the limit of uniformity geographically
The power to tax is broad and can be used for the general welfare
The question of the general welfare should be left to Congress
This is a power to tax and spend only, nothing impinges on the rights of states or the people under the 10th Amendment

5. United States v. Butler- III
Arguments
For Butler and the manufacturers (strike down the law)
This is merely an attempt to regulate agricultural production, which is reserved under the 10th Amendment
This is confiscation of property from one group to another
The general welfare clause should not be construed as to regulate in areas beyond federal control by way of taxation
This act is really not a temporary measure either

6. United States v. Butler- IV
Justice Roberts writes for a 6-3 Court
The power to provide for the general welfare qualifies the taxation power
The power to tax is not unlimited by grants in the Constitution
However, he does think the power is broad, agreeing with Hamilton and Story
To allow it would be to let Congress subvert state power
This is really a plan to regulate and control agricultural production, something reserved to the states
It is to affect an unconstitutional end
No power to regulate agriculture is given, so it is prohibited
Congress has had to go further in the Bankhead Cotton Act to compel farmers
Some saw this as a potential for later change by it adopting the broader reading
 It results that the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution.

7. United States v. Butler- V
Justice Stone, dissenting
The power to strike down a statute should be guided by two principals
Courts are to be concerned with only the power to enact statutes, not their wisdom
They must be subject to judicial restraint
The power to tax agricultural goods is not questioned
This is for the general welfare, as found by Congress
There is no question of the variable tax presented

8. Steward Machine Co. v. Davis (1937)
Background
In 1935, Congress passes the Social Security Act, part of which established an unemployment system shared by the federal and state governments
Employers paid an excise tax based on payroll to fund the system, but could get 90% back if they contributed to the state system
States had to meet federal standards
The plaintiff here paid the tax but contested it, for $46.14 refund
He lost at the district and circuit levels
Question:
Was this a tax in Congress’s purview of taxation?

9. Steward Machine Co. v. Davis- II
Arguments
For Steward Machine Company (overrule it)
Congress lacks power here and is seeking to coerce states by forcing their citizens to pay millions to the federal government to administer the program
The use of the tax power does not give the Congress the right to regulate an area reserved for the states
Exempting small employers and others make it violate due process
For Davis (uphold it)
This is a valid use of the tax power for the general welfare
This is a tax not a penalty the taxpayer pays the same amount, whether or not the state participates
Congress is not attempting to regulate the employer-employee relationship
There is no coercion this promotes cooperation states can refuse if they wish

10. Steward Machine Co. v. Davis- III
A 5-4 opinion by Justice Cardozo
This is another case that rejects the anti-New Deal posture of the Court
This power to tax has not been denied to the federal government
It meets its only requirement uniformity
The exemptions are allowed
This does not involve coercion of states the same money is paid whether the states participate or not the goal is that they work together
One has to look at this law in light of national conditions
None of the conditions in Butler v. United States is implicated

11. Steward Machine Co. v. Davis- IV
There were multiple dissents
McReynolds, J. dissenting
He thinks it exceeds Congress power
Sutherland, J. dissenting
He has 10th Amendment issues with the administrative provisions
Butler, J. dissenting
He echoes similar sentiments

12. The next lecture We finish up the part on the general welfare
We move to the Republican Court eras
Federal-State Fiscal tensions
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