Common Interpretation

The Spending Clause

The Spending Clause gives Congress the power to “lay and collect Taxes, Duties, Imposts, and Excises, to pay the Debts and provide for the common Defence and the general Welfare of the United States.” Beginning in the 1790s, there has been a longstanding debate over the scope of the spending power and the meaning of “general welfare.” James Madison and other Democratic-Republicans argued that the Clause authorizes spending only when it implements other powers granted to Congress in Article I of the Constitution. Alexander Hamilton and the Federalists took a broader view. Hamilton famously argued that the Clause authorized spending, so long as “the object, to which an appropriation of money is to be made, must be general, and not local; its operation extending in fact, or by possibility, throughout the Union, and not being confined to a particular spot.” While Hamilton did not advocate a completely unbounded interpretation of “general welfare,” under which Congress could spend money for virtually any object it considers beneficial, he and the Federalists did believe that the Clause authorized a wide range of spending for purposes that go beyond Congress’s other enumerated powers, so long as they were sufficiently “general.”

The debate between the Madisonian and Hamiltonian views continued throughout much of the nineteenth and early twentieth centuries. As a general rule, Democratic presidents and members of Congress tended to adopt positions similar to Madison’s, or slightly broader. Thomas Jefferson, Madison, James Monroe, James Polk, James Buchanan, and Grover Cleveland all opposed bills authorizing spending on local infrastructure and disaster relief projects, citing constitutional objections. By contrast, the Federalists, the Whigs, and the Republicans tended to take a broader view of congressional power, closer to Hamilton’s position. Whig leader Henry Clay, for example, argued that the Clause authorized his proposal for a wide-ranging “American System” of canal and roadbuilding.

For most of this time, federal grants to state governments were relatively rare, and only a small portion of state finances. The grants that were enacted were mostly—though not entirely—for purposes that could be readily defended even on Madisonian grounds, such as national defense and relief of state debts incurred in the Revolutionary War. Federal grants to state governments became more important in the twentieth century, and the constitutional controversies over them became more significant—especially when it comes to “conditional” grants, which require states to comply with federal dictates of various kinds in order to qualify for their share of the funds. States today rely heavily on federal spending to provide public services; federal funds account for just under a third of the average state’s budget. The more conditions Congress can place on the receipt of federal funds, the more control Congress can exercise over the operation of state governments. 

In two 1923 cases, Massachusetts v. Mellon and Frothingham v. Mellon, the Supreme Court sharply limited the ability of state governments and individual citizens to challenge such grants. The Court ruled that challengers lacked standing unless the spending conditions inflicted “some direct injury suffered or threatened.” Applied expansively, this principle might make it almost impossible for either states or individual citizens to challenge most conditional spending programs. However, the Court has allowed challenges to some conditional programs in cases where states and individuals demonstrate sufficient potential “injury” to satisfy the Justices.

The Court’s first key case on the scope of the Spending Clause came in 1936. In United States v. Butler (1936), the Court invalidated the first Agricultural Adjustment Act (AAA), a statute that paid farmers to reduce their crop production. The Court expressly took Hamilton’s side of the debate with Madison. It declared, “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.” 

Nonetheless, the Court held the AAA unconstitutional on the ground that “[t]he act invades the reserved rights of the states.” Under the Commerce Clause doctrine of the time, evidenced in cases like United States v. E. C. Knight Co. (1895), Congress lacked the power to reduce agricultural production directly. The Court concluded that Congress could not pay farmers to achieve the same ends indirectly. Although the Butler Court said it was adopting the Hamiltonian position, a strong case can be made that its decision was more consistent with the logic of the Madisonian position.

Since Butler, the Court has repeatedly endorsed Hamilton’s position—and has arguably gone beyond Hamilton in broadly deferring  to Congress’s determination of what expenditures serve the “general welfare,”  as in South Dakota v. Dole (1987). Butler’s invalidation of the AAA, by contrast, is now an outlier.

The judiciary’s focus has turned to evaluating the conditions federal spending statutes place on state governments. The Court has invoked three possible constraints on federal grants, with mixed results. First, the Court has required that the federal government make its conditions clear at the time the states accept the grants. Arlington Central School District v. Murphy (2006). This rule makes it harder to impose grant conditions by requiring precise drafting. But it does not actually stop Congress from imposing any conditions it wants, so long as they are clear enough. The Court has, in a few cases, ruled against the federal government in grant cases, because the condition in question wasn’t sufficiently clear. 

Second, the Court said that a condition might be unconstitutional if it was too loosely related to the purpose of the grant to which it was attached. But a grant’s purpose can typically be described broadly enough to ensure that the relatedness doctrine imposes few meaningful limitations. In South Dakota v. Dole, for example, the Court upheld a law conditioning receipt of federal highway funds on states’ raising their drinking ages to 21, because both the funding and the condition promoted “safe interstate travel.”

Third, the Court indicated that Congress’s “financial inducement” might sometimes be unconstitutionally “coercive.” But the Court never actually ruled that a condition coerced the states until its 2012 decision addressing the Affordable Care Act (ACA), NFIB v. Sebelius. One provision of the ACA required states that participated in Medicaid to expand their Medicaid programs to all adults with incomes up to 133 percent of the federal poverty level. In a ruling endorsed by seven of nine justices, the Court held that the threatened loss of all Medicaid funds to states that refused to expand their programs rendered the offer unconstitutionally coercive. 

Chief Justice Roberts’s pivotal opinion pointed to three aspects of the Medicaid expansion he found crucial. First, an extremely large amount of money was at stake, making the threat a “gun to the head” of states. Federal Medicaid funding accounts for some 10 to 20 percent of the average state’s revenues. Second, the expansion “transformed” Medicaid from the provision of health care for particular categories of needy people (the elderly or those with disabilities or with children) to a universal guarantee of health care for relatively poor. Third, states could not have anticipated, when they entered Medicaid many years ago, that Congress would later condition continued participation in that program on entry into the “dramatically” transformed program created by the ACA. 

NFIB is still the only time that a majority of the Court has invalidated a spending condition because it coerced the states. It remains unclear what, if any, other statutes might prove coercive on the Chief Justice’s analysis, which blended concerns about the uniquely large stakes with aspects of the notice and relatedness requirements. But the Court’s decision does show that there remain some judicially enforceable limits on the conditional spending power.

Further Reading:

Fiscal 50: State Trends and Analysis, PEW Charitable Trusts (July 28, 2016).

Matters of Debate

For a Broad Spending Power

The New Deal and Great Society, and the mark they placed on the shape of American government, would not have been possible without the Spending Clause. The Social Security Act, and all of its component programs—old age, survivors’, and disability insurance; unemployment insurance; the old Aid to Families with Dependent Children program and its successor, Temporary Assistance for Needy Families; Medicare; Medicaid; the Children’s Health Insurance Program; and more—all find their source of constitutional authority in the Spending Clause.

So too with key federal education programs, such as the Elementary and Secondary Education Act (which offers aid to states to provide to their schools), the Higher Education Act (which, among other things, supports financial aid for college students), and the Individuals with Disabilities Education Act (which guarantees an education to children with disabilities). Federal housing and employment programs also rest on the Spending Clause, as do the vast federal investments in our transportation infrastructure that took off when President Eisenhower signed the Federal-Aid Highway Act in 1956. And some of the most far-reaching and important civil rights statutes—Title VI of the Civil Rights Act of 1964, which prohibits race discrimination; Title IX of the Education Amendments of 1972, which prohibits sex discrimination in education; and Section 504 of the Rehabilitation Act of 1973, which prohibits disability discrimination—were adopted under Congress’s spending power as well.

Despite the efforts of some influential academics—and lawyers for states who have brought litigation based on those academics’ theories—the Supreme Court has done very little to limit Congress’s exercise of its power to attach conditions to federal funds under the Spending Clause. Even the 2012 NFIB v. Sebelius decision—which represents the one time the Court has invalidated a federal spending condition as coercive—involved such an extreme statute that it is unlikely to impose much of a limitation on Congress’s power. 

Another Perspective

This essay is part of a discussion about the Spending Clause with Ilya Somin, Professor of Law, Antonin Scalia Law School, George Mason University. Read the full discussion here.

One’s attitude about the failure of the courts to impose more meaningful limits might well depend on how one feels about the vast expansion of the American federal government since the 1930s. It is no surprise that those who, like me, are largely comfortable with the Court’s jurisprudence are also generally supportive of the changes that the New Deal and Great Society made to the shape of American government. Nor is it a surprise that those who seek more judicially-imposed limits on the spending power are skeptical of the New Deal and Great Society. 

I believe that the Court has acted sensibly in refusing to place more significant limits on Congress’s use of the spending power. There are two reasons for this conclusion. First, since the New Deal our constitutional system has settled on the position that it is for Congress—not the courts—to determine what is in the public interest. If the Supreme Court were to reject spending laws on the ground that those laws did not fit the Court’s understanding of the “general welfare,” it would subvert that important protection of democratic decisionmaking.

Second, conditional federal spending affirmatively advances the goals of dual federalism. There are many policies that people in most if not all states would prefer to implement, but that collective-action dynamics keep any individual state from implementing on its own. That is the point Justice Cardozo made in the Steward Machine Co. v. Davis (1937) case that upheld the federal unemployment insurance program under the Spending Clause: many states wanted to adopt unemployment insurance systems, but they feared that if they imposed the taxes necessary to pay for such systems they “would place themselves in a position of economic disadvantage as compared with neighbors or competitors.” A federal program that gave all states an incentive to participate overcame that collective-action dynamic and facilitated adoption of a policy that was welcomed in all corners of the Nation. The original Medicaid program, in which the federal government offered states money to provide health insurance for poor people, helped to overcome a similar dynamic.

It would be perfectly possible for the federal government simply to bypass the states and provide services like these itself. But providing these services through the mechanism of conditional grants serves important purposes. By giving states key responsibilities for implementing federal policies, conditional spending helps to ensure that programs will be administered by officials who are geographically closer and more politically responsive to local concerns than are officials in the Nation’s Capital. States can mold aspects of their implementation to adapt to unique local conditions or experiment with new administrative approaches—and state officials can seek, and in recent years have often obtained, waivers of federal program rules to do so.

Critics of conditional spending worry that Congress will use the Spending Clause to bypass the limitations on its power to regulate under the Commerce Clause, the Reconstruction Amendments, and other constitutional provisions. But the conditional-spending power contains its own built-in limit—Congress cannot enlist a state’s participation unless it is willing to pay what the state demands. Given the realities of modern federal budget politics, that built-in limit gives states key leverage in negotiating the terms of state-federal cooperative programs—and states have proved remarkably sophisticated in using that leverage. (Take a salient recent example: under the ACA’s Medicaid expansion, Congress agreed that the federal government would pay 100 percent of the states’ costs initially, dropping to 90 percent after a few years—an extraordinarily generous offer for a program that provides important services to state residents.) When a federal program relies on the conditional spending power, then, it is especially likely to take a form that is respectful of state interests.

The Spending Clause serves important purposes in our federal system, and Congress has used its power under that Clause to address significant public interests. The Supreme Court has been correct to give Congress a wide berth to do so.

Further Reading:

Lynn A. Baker & Mitchell N. Berman, Getting Off the Dole: Why the Court Should Abandon Its Spending Doctrine, and How a Too-Clever Congress Could Provoke It to Do So, 78 Ind. L.J. 459 (2003).

Samuel R. Bagenstos, The Anti-Leveraging Principle and the Spending Clause After NFIB, 101 Geo. L. J. 861 (2013).

Samuel R. Bagenstos, Spending Clause Litigation in the Roberts Court, 58 Duke L. J. 345 (2008).

Samuel R. Bagenstos, Federalism by Waiver After the Health Care Case, in The Health Care Case: The Supreme Court's Decision and its Implications (2013).

Lynn A. Baker, Conditional Federal Spending After Lopez, 95 Colum. L. Rev. 1911 (1995).

Erin Ryan, Negotiating Federalism, 52 B.C.L. Rev. 1 (2011).

Matters of Debate

Putting the 'General' Back in the General Welfare Clause

The Spending Clause authorizes Congress to raise taxes and spend money “to pay the Debts and provide for the common Defence and the general Welfare of the United States.” These words cannot possibly justify the modern doctrine that the term “general welfare” authorizes Congress to spend money for virtually any purpose it wants.

If, as the Supreme Court has held since the 1930s, the General Welfare Clause gives Congress the power to spend for almost any purpose it considers beneficial, there would have been no need to give it the authority to spend for “the common Defence” or to pay federal debts. Both purposes are obviously beneficial to the Nation. And both are rendered superfluous by the modern interpretation of “general welfare.”

The modern approach runs counter to the original meaning of the Constitution, as well as the text. It makes a mockery of the Federalists’ repeated assurances that the Constitution sets strict limits on federal power, including the power to spend. In The Federalist No. 41, for example, James Madison emphasized that the phrase “general welfare” was limited by the enumeration of other powers of Congress, and did not give it “a power to legislate in all cases whatsoever.”

Even Alexander Hamilton’s broader construction of the Clause, which held that it authorized spending for all objects that are “general, and not local; . . . and not being confined to a particular spot,” falls well short of the modern approach. Grants to specific state and local governments are, almost by definition, confined to a “particular spot.” In any event, however, Hamilton’s theory is itself flawed, because it too tends to make the power to spend for defense and debt payments redundant, especially the latter. Such spending is almost always “general” in his sense of the term.

Defenders of the modern approach to the spending power usually focus on pragmatic “living constitution” considerations, rather than text and original meaning. They claim that a virtually unlimited spending power is necessary for effective policymaking in the modern world. Even if we assume that it is proper for courts to consider such policy considerations, they are dubious on their own terms.

Unconstrained federal spending since the 1930s has caused considerable harm. Federal subsidies for local pork barrel projects, such as the notorious “bridge to nowhere,” have wasted resources and skewed public works priorities. Federal grants to state governments and interest groups have often created and enforced cartels that harm consumers, especially the poor. For example, the Agricultural Adjustment Acts of 1935 and 1938— which led to Supreme Court decisions vastly expanding the scope of congressional power—paid farmers to artificially reduce production. This increased the price of food during the Great Depression, at a time when millions of Americans were already having great difficulty making ends meet, or even suffering from malnutrition. Federal farm subsidies and associated production restrictions continue to inflate the price of food to this day, disproportionately harming the poor in the process. The growth of massive entitlement programs poses a severe threat to our fiscal future, often subsidizing the relatively affluent at the expense of the relatively poor.

Advocates of unconstrained spending power contend that it is necessary to prevent collective action problems among the states, enabling them to cooperate in situations where they would otherwise find it impossible. But such power also routinely creates dangerous collective action problems, benefiting powerful special interests at the expense of the less well-organized general public. Individual states acting on their own could never have established nationwide agricultural cartels that fleece consumers. Where genuine interstate collective action problems exist, they can usually be addressed without giving Congress a blank check to spend for whatever purposes it wants.

The widespread use of federal grants to state governments undermines beneficial diversity and competition between state and local governments, which also often helps the poor and oppressed. States and localities that can rely on the federal government for funds have less incentive to innovate and to adopt policies attractive to people “voting with their feet.”

In a nation as large, diverse, and complex as the modern United States, federally imposed standardization of policy—facilitated by conditional spending grants—is often harmful. Indeed, this is more true today than at the time of the Founding, when the nation was smaller and less diverse, and government policy much simpler. In this respect, a pragmatic “living Constitution” approach to constitutional interpretation argues for tightening constitutional limits on federal power, rather than loosening them.

In some instances, states have refused to accept ill-conceived conditional spending grants. But the vast majority of the time, state governments find it hard to resist the temptation of federal funds, especially if they are being taxed to provide similar grants to other states that compete with them. In many cases, widespread voter ignorance makes it hard for the electorate to monitor these complex programs.

Another Perspective

This essay is part of a discussion about the Spending Clause with Samuel R. Bagenstos, Frank G. Millard Professor of Law, University of Michigan Law School. Read the full discussion here.

Even most originalists recognize that the Supreme Court cannot and should not strike down all federal programs that go beyond the text and original meaning of the Spending Clause. Some, most notably Social Security and Medicare, are too well-entrenched to be reversed by judicial action alone. Moreover, it would be unjust to suddenly pull the rug out from under the many people who rely on them. But the Court can still take incremental steps in the direction of enforcing constitutional limits on federal power. For example, it can hold new unconstitutional programs to a higher level of scrutiny than existing well-established ones, on which many people rely. Such a distinction is already implicit in the Court’s ruling in NFIB v. Sebelius (2012), where the Justices invalidated a key part of the Affordable Care Act in part because it was a massive step beyond the existing Medicaid program. It can also strike down at least some of the many blatant cases of special-interest spending that go beyond even the Hamiltonian position.

Enforcement of a tighter conception of “general welfare” is not only practical; it is easier for judges to do than administration of the Court’s current approach to federal grants to state governments, which requires extraordinarily difficult determinations about whether a particular grant condition is “coercive” or insufficiently clear. Unlike “coercion,” the phrase “general welfare” is actually in the Constitution, and can be analyzed using conventional methods of legal interpretation.

From the standpoint of both originalism and pragmatic living constitutionalism, the Court’s Spending Clause jurisprudence is badly flawed. Fortunately, perpetuation of the status quo and complete judicial reversal of the modern approach are not the only two options available. We can and must get beyond this false choice.

Further Reading:

Ilya Somin, Federalism and Collective Action, JOTWELL (June 20, 2011).

Ilya Somin, Foot Voting, Federalism, and Political Freedom, Nomos: Federalism and Subsidiarity (2014).

Ilya Somin, Voting With Your Feet Works for the Poor, Too, The Volokh Conspiracy (Oct. 26, 2013).

Ilya Somin, Democracy and Political Ignorance: Why Smaller Government Is Smarter (Stanford University Press, 2nd. ed. 2016).

Ilya Somin, Closing the Pandora’s Box of Federalism: The Case for Judicial Restriction of Federal Subsidies to State Governments, 90 Georgetown Law Journal 461 (2002).

John Eastman, Restoring the “General” to the General Welfare Clause, 4 Chapman Law Review 63 (2001).

Matters of Debate

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