The Taxing and Spending Clause

Taxing and Spending for the General Welfare

Helvering v. Davis (1937)

301 U.S. 619 (1937)

Decision: Reversed
Vote: 7-2
Majority: Cardozo, joined by Hughes, Brandeis, Stone, Sutherland, Van Devanter, and Roberts
Dissent: McReynolds, joined by Butler

MR. JUSTICE CARDOZO delivered the opinion of the Court.

The Social Security Act … is challenged once again …

Titles VIII and II are the subject of attack. Title VIII lays another excise upon employers in addition to the one imposed by Title IX (though with different exemptions). It lays a special income tax upon employees to be deducted from their wages and paid by the employers. Title II provides for the payment of Old Age Benefits, and supplies the motive and occasion, in the view of the assailants of the statute, for the levy of the taxes imposed by Title VIII …

This suit is brought by a shareholder of the Edison Electric Illuminating Company of Boston, a Massachusetts corporation, to restrain the corporation from making the payments and deductions called for by the act, which is stated to be void under the Constitution of the United States … The expected consequences are indicated substantially as follows: the deductions from the wages of the employees will produce unrest among them, and will be followed, it is predicted, by demands that wages be increased. If the exactions shall ultimately be held void, the company will have parted with moneys which, as a practical matter, it will be impossible to recover … The prediction is made also that serious consequences will ensue if there is a submission to the excise. The corporation and its shareholders will suffer irreparable loss, and many thousands of dollars will be subtracted from the value of the shares. The prayer is for an injunction and for a declaration that the act is void …

A petition for certiorari followed … We were asked to determine: (1) “whether the tax imposed upon employers by § 804 of the Social Security Act is within the power of Congress under the Constitution,” and (2) “whether the validity of the tax imposed upon employees by § 801 of the Social Security Act is properly in issue in this case, and if it is, whether that tax is within the power of Congress under the Constitution … ”

The purge of nationwide calamity that began in 1929 has taught us many lessons. Not the least is the solidarity of interests that may once have seemed to be divided … Spreading from State to State, unemployment is an ill not particular, but general, which may be checked, if Congress so determines, by the resources of the Nation … But the ill is all one, or at least not greatly different, whether men are thrown out of work because there is no longer work to do or because the disabilities of age make them incapable of doing it. Rescue becomes necessary irrespective of the cause. The hope behind this statute is to save men and women from the rigors of the poor house, as well as from the haunting fear that such a lot awaits them when journey’s end is near.

Congress did not improvise a judgment when it found that the award of old age benefits would be conducive to the general welfare. The President’s Committee on Economic Security made an investigation and report, aided by a research staff of Government officers and employees, and by an Advisory Council and seven other advisory groups. Extensive hearings followed before the House Committee on Ways and Means, and the Senate Committee on Finance. A great mass of evidence was brought together supporting the policy which finds expression in the act …

Whether wisdom or unwisdom resides in the scheme of benefits set forth in Title II it is not for us to say. The answer to such inquiries must come from Congress, not the courts. Our concern here, as often, is with power, not with wisdom. Counsel for respondent has recalled to us the virtues of self-reliance and frugality. There is a possibility, he says, that aid from a paternal government may sap those sturdy virtues and breed a race of weaklings … The issue is a closed one. It was fought out long ago. When money is spent to promote the general welfare, the concept of welfare or the opposite is shaped by Congress, not the states. So the concept be not arbitrary, the locality must yield …

Title II being valid, there is no occasion to inquire whether Title VIII would have to fall if Title II were set at naught …

The tax is not invalid as a result of its exemptions …

The decree of the Court of Appeals should be reversed, and that of the District Court affirmed.

Reversed.


Flemming v. Nestor (1960)

363 U.S. 603 (1960)

Decision: Reversed
Vote: 5-4
Majority: Harlan, joined by Frankfurter, Clark, Whittaker, and Stewart
Dissent: Black
Dissent: Douglas
Dissent: Brennan, joined by Warren, and Douglas

MR. JUSTICE HARLAN delivered the opinion of the Court.

The challenged section [of the Social Security Act] provides for the termination of … insurance benefits payable to, or in certain cases in respect of, an alien individual who, after September 1, 1954 (the date of enactment of the section), is deported under § 241(a) of the Immigration and Nationality Act …

Appellee, an alien, immigrated to this country from Bulgaria in 1913, and became eligible for old-age benefits in November, 1955. In July, 1956, he was deported pursuant to § 241(a)(6)(C)(i) of the Immigration and Nationality Act for having been a member of the Communist Party from 1933 to 1939. [A]ppellee’s benefits were terminated soon thereafter, and notice of the termination was given to his wife, who had remained in this country. Upon his failure to obtain administrative reversal of the decision, appellee commenced this action in the District Court … [T]he District Court ruled for appellee, holding § 202(n) unconstitutional under the Due Process Clause of the Fifth Amendment in that it deprived appellee of an accrued property right …

We think that the District Court erred in holding that § 202(n) deprived appellee of an “accrued property right.” Appellee’s right to Social Security benefits cannot properly be considered to have been of that order …

Payments under the Act are based upon the wage earner’s record of earnings in employment or self-employment covered by the Act, and take the form of old-age insurance and disability insurance benefits inuring to the wage earner (known as the “primary beneficiary”), and of benefits, including survivor benefits, payable to named dependents (“secondary beneficiaries”) of a wage-earner … Of special importance in this case is the fact that eligibility for benefits, and the amount of such benefits, do not in any true sense depend on contribution to the program through the payment of taxes, but rather on the earnings record of the primary beneficiary.

The program is financed through a payroll tax levied on employees in covered employment, and on their employers …

The Social Security system may be accurately described as a form of social insurance, enacted pursuant to Congress’ power to “spend money in aid of the general welfare,'” Helvering v. Davis …

The “right” to Social Security benefits is in one sense “earned,” for the entire scheme rests on the legislative judgment that those who in their productive years were functioning members of the economy may justly call upon that economy, in their later years, for protection from “the rigors of the poor house as well as from the haunting fear that such a lot awaits them when journey’s end is near.” Helvering. But … treatment of the manifold specific problems presented by the Social Security program demands more than a generalization. That program was designed to function into the indefinite future, and its specific provisions rest on predications as to expected economic conditions which must inevitably prove less than wholly accurate, and on judgments and preferences as to the proper allocation of the Nation’s resources which evolving economic and social conditions will of necessity in some degree modify.

To engraft upon the Social Security system a concept of “accrued property rights” would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands … Congress included in the original Act, and has since retained, a clause expressly reserving to it “[t]he right to alter, amend, or repeal any provision” of the Act …

This is not to say, however, that Congress may exercise its power to modify the statutory scheme free of all constitutional restraint. The interest of a covered employee under the Act is of sufficient substance to fall within the protection from arbitrary governmental action afforded by the Due Process Clause …

Particularly when we deal with a withholding of a noncontractual benefit under a social welfare program such as this, we must recognize that the Due Process Clause can be thought to interpose a bar only if the statute manifests a patently arbitrary classification, utterly lacking in rational justification. Such is not the case here. The fact of a beneficiary’s residence abroad — in the case of a deportee, a presumably permanent residence — can be of obvious relevance to the question of eligibility. One benefit which may be thought to accrue to the economy from the Social Security system is the increased over-all national purchasing power resulting from taxation of productive elements of the economy to provide payments to the retired and disabled, who might otherwise be destitute or nearly so, and who would generally spend a comparatively large percentage of their benefit payments. This advantage would be lost as to payments made to one residing abroad. For these purposes, it is, of course, constitutionally irrelevant whether this reasoning in fact underlay the legislative decision, as it is irrelevant that the section does not extend to all to whom the postulated rationale might in logic apply …

We need go no further to find support for our conclusion that this provision of the Act cannot be condemned as so lacking in rational justification as to offend due process …

Judicial inquiries into Congressional motives are, at best, a hazardous matter, and when that inquiry seeks to go behind objective manifestations, it becomes a dubious affair indeed. Moreover, the presumption of constitutionality with which this enactment, like any other, comes to us forbids us lightly to choose that reading of the statute’s setting which will invalidate it over that which will save it …

[W]e cannot with confidence reject all those alternatives which imaginativeness can bring to mind, save that one which might require the invalidation of the statute.

Reversed.


Sabri v. United States (2004)

541 U.S. 600 (2004)

Decision: Affirmed
Vote: 9-0
Majority: Souter, joined by Rehnquist, Stevens, O’Connor, Ginsburg, Breyer, and Kennedy and Scalia (all but Part III)
Concur: Kennedy, joined by Scalia
Concur: Thomas

Justice Souter delivered the opinion of the Court.

The question is whether 18 U. S. C. §666(a)(2), proscribing bribery of state, local, and tribal officials of entities that receive at least $10,000 in federal funds, is a valid exercise of congressional authority under Article I of the Constitution. We hold that it is.

Petitioner Basim Omar Sabri is a real estate developer who proposed to build a hotel and retail structure in the city of Minneapolis. Sabri lacked confidence, however, in his ability to adapt to the lawful administration of licensing and zoning laws, and offered three separate bribes to a city councilman, Brian Herron …

Count 1 of the indictment charged Sabri with offering a $5,000 kickback for obtaining various regulatory approvals, and according to Count 2, Sabri offered Herron a $10,000 bribe to set up and attend a meeting with owners of land near the site Sabri had in mind, at which Herron would threaten to use the city’s eminent domain authority to seize their property if they were troublesome to Sabri. Count 3 alleged that Sabri offered Herron a commission of 10% on some $800,000 in community economic development grants that Sabri sought from the city, the MCDA, and other sources.

The charges were brought under 18 U. S. C. §666(a)(2), which imposes federal criminal penalties on anyone who

“corruptly gives … anything of value to any person, with intent to influence or reward an agent of [the] government, or any agency thereof, in connection with any business, transaction, or series of transactions … involving anything of value of $5,000 or more … ”

Before trial, Sabri moved to dismiss the indictment on the ground that §666(a)(2) is unconstitutional on its face for failure to require proof of a connection between the federal funds and the alleged bribe, as an element of liability …

We granted certiorari … to resolve a split among the Courts of Appeals over the need to require connection between forbidden conduct and federal funds …

Congress has authority under the Spending Clause to appropriate federal monies to promote the general welfare, Art. I, §8, cl. 1, and it has corresponding authority under the Necessary and Proper Clause, Art. I, §8, cl. 18, to see to it that taxpayer dollars appropriated under that power are in fact spent for the general welfare, and not frittered away in graft or on projects undermined when funds are siphoned off or corrupt public officers are derelict about demanding value for dollars … Section 666(a)(2) addresses the problem at the sources of bribes, by rational means, to safeguard the integrity of the state, local, and tribal recipients of federal dollars.

It is true, just as Sabri says, that not every bribe or kickback offered or paid to agents of governments covered by §666(b) will be traceably skimmed from specific federal payments, or show up in the guise of a quid pro quo for some dereliction in spending a federal grant … But this possibility portends no enforcement beyond the scope of federal interest, for the reason that corruption does not have to be that limited to affect the federal interest. Money is fungible, bribed officials are untrustworthy stewards of federal funds, and corrupt contractors do not deliver dollar-for-dollar value. Liquidity is not a financial term for nothing; money can be drained off here because a federal grant is pouring in there … It is certainly enough that the statutes condition the offense on a threshold amount of federal dollars defining the federal interest, such as that provided here, and on a bribe that goes well beyond liquor and cigars …

No piling is needed here to show that Congress was within its prerogative to protect spending objects from the menace of local administrators on the take. The power to keep a watchful eye on expenditures and on the reliability of those who use public money is bound up with congressional authority to spend in the first place, and Sabri would be hard pressed to claim … that §666(a)(2) “has nothing to do with” the congressional spending power …

We remand for proceedings consistent with this opinion. The judgment of the Court of Appeals for the Eighth Circuit is

Affirmed.


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