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Congress's power to “lay and collect Taxes, Duties, Imposts, and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States” (Art. I, sec. 8) is extraordinarily important and controversial.8
The precise meaning of the clause has never been clear. Its peculiar wording and placement in the Constitution have contributed to the problem. One interpretation was that it granted to Congress the broad power to provide for the general welfare. This interpretation assumes that the clause is the first of Congress's enumerated powers (it does immediately precede the long list of enumerated powers in Article I, section 8) and is consistent with a literal reading (see also Implied Powers). Still, this interpretation was inconsistent with the premise that the federal government is one of limited powers and would have rendered the list of enumerated powers redundant. It was never authoritatively accepted and was rejected officially by the Supreme Court in United States v. Butler (1936).
At the other extreme, James Madison and Thomas Jefferson argued that the Taxing and Spending Clause conferred on Congress no additional power whatsoever"that it was merely a summary or general description of the specific powers. Under this view, the clause simply gives to Congress the power to tax and spend to carry out its enumerated powers, which follow immediately afterward. This interpretation was also rejected by the Court in Butler.
A third view was offered by Alexander Hamilton in his 1792 Report on Manufactures. Hamilton argued that the Taxing and Spending Clause conferred on Congress a separate and distinct power and was therefore in addition to, and not limited by, other grants of power under the Constitution. Such a view gives Congress the substantive power to tax and spend for the general welfare over and above its power to tax and spend to carry out its other enumerated powers.
In the Butler case the Supreme Court accepted Hamilton's position. But Justice Owen Roberts made it clear that “the powers of taxation and appropriation extend only to matters of national, as distinguished from local, welfare” (p. 67), and that, in the final analysis, the Supreme Court has the power to determine what constitutes the national welfare. Whether the federal program at issue in Butler did or did not serve the general welfare, however, was never decided, because the Court struck down the statute on Tenth Amendment grounds.
Less than a year later, however, the Court abandoned Butler. In Helvering v. Davis (1937), it held that although Congress's power to tax and spend was limited by the General Welfare Clause, “discretion belongs to Congress, unless the choice is clearly wrong, a display of arbitrary power” (p. 640). No Taxing and Spending Clause statute has ever been invalidated because it did not serve the general welfare, and none is likely to be.
The spending power has raised other constitutional issues as well. Congress is reasonably free to place “noncoercive” restrictions on its expenditures of funds, including requirements that recipients of federal moneys act or refrain from acting in certain ways. This is true whether the recipient is a state government (as, for example, in South Dakota v. Dole, 1987, which required the states to adopt a minimum drinking age of twenty‐one years or forfeit a small portion of their federal highway funds) or a private individual. Congress's power to spend is also limited, of course, by various provisions of the Bill of Rights.
The taxing aspects of the clause have also produced controversy. Prior to the adoption of the Sixteenth Amendment, Congress was required to “apportion” all direct taxes (head taxes, for example). Excises, however, need only be “uniform,” which, the Supreme Court decided in 1900, required only geographic uniformity (Knowlton v. Moore). Thus there was an advantage to having certain taxes classified as excises, in which case they would not be considered direct taxes. The Sixteenth Amendment, in 1913, ended most of this controversy. It granted Congress the power to levy taxes on incomes “from whatever source derived” and “without apportionment.”
The Taxing Clause, like the Spending Clause, gives Congress a separate power in addition to its other powers. If a tax were for regulatory as opposed to revenue purposes, however, it is possible that it would not be justified under the taxing power and would have to be justified under some other congressional power, such as the commerce power. Since the New Deal, however, the Court has interpreted the taxing power generously, and, in any event, its recent broad view of congressional power under the Commerce Clause makes the distinctions at this point purely academic.