The Power to Spend — Is There No Limit?

Congress has tried for a century to impose fiscal responsibility on itself. Every effort has failed.

by Jay Starkman, CPA

[A version of this article (without footnotes) appeared in The Wall Street Journal on September 29, 2022, p. A17, with the title, “Stop Me Before I Spend Again”]

Congress and the Biden administration are on a spending frenzy. President Biden’s unprecedented attempt to forgive student loans by ‘executive action’ could cost as much as $1 trillion. Three new laws—the Infrastructure Investment and Jobs Act of 2021 and the Consolidated Appropriations Act and the Inflation Reduction Act of 2022—provide for massive spending on infrastructure. The laws devote billions of dollars to purely local projects, including half the $6.3 billion cost of adding 1½ miles to New York City’s Second Avenue subway.¹

Such spending once would have been considered unconstitutional. The Constitution authorizes federal spending for ‘common defense’ and ‘general welfare’—first in the preamble and later in the clause setting out Congress’s power to tax. Before the New Deal, ‘general welfare’ was limited to internal improvements, often linked to defense or territorial expansion. A later example is the interstate highway system, built during the Cold War and known as the Dwight D. Eisenhower National System of Interstate and Defense Highways. Mile-long stretches can double as emergency landing strips for military aircraft, and many military bases are located nearby.

The Founding Fathers opposed unlimited spending. James Madison, who wrote the first draft of the Constitution, interpreted ‘general welfare’ in Federalist No. 41 and elsewhere as spending sufficient for defense and a limited government.

Alexander Hamilton, the first Treasury secretary, believed that ‘general welfare’ in the Constitution’s clause on Congress’s power to tax gave the government authority over almost anything that could be defined as such. Yet even Hamilton wrote, in his 1791 ‘Report on Manufactures,’ that such spending must be ‘general and not local.’

In 1833, Justice Joseph Story published a three-volume treatise, ‘Commentaries on the Constitution of the United States,’ in which he dismissed Madison’s strenuous objections. Story accepted Hamilton’s interpretation that ‘general welfare’ was a separate power rather than a limitation on Congress’s taxing power. His opinion was largely ignored for 100 years.

Challenges to government spending are difficult, in part because potential plaintiffs must prove they have standing. In the early years of the republic, few tax-financed internal improvement projects passed Congress and avoided a presidential veto, largely because there was a consensus around Madison’s view of the limits on the spending power. Even when such projects did pass, there was no legal challenge. Only the few people directly concerned and benefiting had standing—meaning they were directly affected by the outcome and could file lawsuits—and they didn’t sue.

The Erie Canal, which opened in 1825, had to be built using state taxes because it was considered a New York project, despite benefiting several states.

Land grants were used to promote railroad construction, given mid-19th century doubts that federal tax revenue could be used for this purpose. The transcontinental railroad was a product of a race between the Union Pacific and the Central Pacific. Congress divided land into blocks, granting 20 miles of public land on each side of odd-numbered blocks of track to the railroads, with right of way on even-numbered blocks.

The railroads could sell the land for capital, and the faster competitor accrued the most land. This was justified for "defense" during the Indian wars and the Civil War, furnishing a cheap and effective mode for the transportation of troops and supplies while binding together the widely separated parts of the country.

Without the railroad, travelers to California faced a variety of unappealing choices: an arduous four-month overland trek from the East, risking yellow fever on a 35-day voyage via the Isthmus of Panama, or a more than four-month voyage around the treacherous Cape Horn.²

In U.S. v. Butler (1936), the Supreme Court ruled that the New Deal’s Agricultural Adjustment Act, which aimed to subsidize hard-hit farmers through a tax on food processors, was unconstitutional. The court held that the act didn’t regulate transactions in interstate or foreign commerce, and Congress couldn’t regulate ‘local’ commerce.

Dismissing Madison's view as “mere tautology,” the decision endorsed Hamilton’s interpretation and Story’s commentary that ‘general welfare’ was a separate power on par with taxation, not a limit on taxation. It was the first Supreme Court decision interpreting the General Welfare Clause. The following year, the high court cited Butler in Steward v. Davis and Helvering v. Davis. These upheld using payroll taxes to fund unemployment insurance and Social Security.

In the 1960s, President Lyndon Johnson and his Great Society campaign ushered in decades of government spending on state and local programs. Despite Supreme Court challenges, no social spending program thus far has been overturned. A trilogy of cases challenging Obamacare failed to overturn it. Plaintiffs in the third Obamacare case were ruled as lacking standing.³

Permanent massive deficit spending has been embraced by both Democratic and Republican Congresses and administrations. Unfortunately, challenges to government spending are difficult because potential plaintiffs must prove they have "standing" to bring a lawsuit.

Congress has made many unsuccessful attempts to impose fiscal responsibility, beginning with the Budget and Accounting Act of 1921, which established the General Accounting Office (now the Government Accountability Office). Other efforts include President Nixon’s impoundment of congressionally appropriated funds; creating House and Senate Budget Committees and the Congressional Budget Office in 1974; numerous balanced budget acts including five-year and 10-year budget resolutions; the presidential line-item veto; and presidential signing statements.

Though concurring with the majority in ruling the line item veto unconstitutional, Justice Anthony Kennedy lamented, “A nation cannot plunder its own treasury without putting its Constitution and its survival in peril.”

At the Constitutional Convention, Alexander Hamilton proposed a clause, “The Legislature of the United States shall have power to pass all laws which they shall judge necessary to the common defence and general welfare of the Union.”⁴ Though rejected by the delegates, Congress and the President today act as if this rejected clause has somehow been adopted into the Constitution, and Congress can indeed pass virtually any law under the guise of general welfare.

The best hope for reining in overspending lies with the Supreme Court. Fortunately, it gave itself an opening to revisit the limits of ‘general welfare’ when Justice Benjamin Cardozo wrote in the 1937 Social Security decision, “discretion belongs to Congress, unless the choice is clearly wrong.”⁵

The court may have an opportunity to act by granting standing to a broader public—perhaps represented by one or more state attorneys general—when Mr. Biden’s student-debt forgiveness is litigated. The justices may be able to define ‘clearly wrong,’ and save the nation by forcing restrictions on the scope of ‘general welfare’ spending.

FOOTNOTES

¹ P.L. 117-58, §§21201-21201. “Will East Harlem Ever Get its Long-Delayed Subway?” NY Times, 31 Jan 2022; “The Most Expensive Mile of Subway Track on Earth,” NY Times, 28 Dec 2017; Other subway systems received lesser grants, eg, “MARTA gets $25M for Five Points Station Overhaul,” Atlanta Intown Paper, September 2022, 11. The law is 1,039 pages with $1.2 trillion funding for roads and bridges, broadband, drinking water resources, airports, electrical vehicles and more, with pork spending for each of the 50 states, some detailed at www.transportation.gov/briefing-room/usdot-releases-state-state-fact-sheets-highlighting-benefits-bipartisan. An additional $200M of local transit grants were buried in the 1,068 page Consolidated Appropriations Act of 2022 (P.L. 117-103) listed at www.transit.dot.gov/sites/fta.dot.gov/files/2022-04/fy-2022-full-year-apportionment-table-20-Community-Project-Funding-TIG.xlsx.

² Leo Sheep Company v. U.S., 440 U.S. 668 (1979).

³ National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012) upheld Medicaid expansion, but severed as unconstitutional coercion threatening States with the loss of their existing Medicaid funding if they declined to comply with the expansion. King v. Burwell, 576 U.S. 473 (2015). California v. Texas, 593 U.S. ___ (2021)

⁴ Max Farrand, The Records of The Federal Convention of I787 (Yale Univ. Press, 1911) v3, 627. Hamilton’s speech at Farrand, v1, 294-301.

⁵ Helvering v. Davis, 301 U.S. 619, 640 (1937). “The line must still be drawn between one welfare and another, between particular and general. Where this shall be placed cannot be known through a formula in advance of the event. There is a middle ground, or certainly a penumbra, in which discretion is at large. The discretion, however, is not confided to the courts. The discretion belongs to Congress, unless the choice is clearly wrong, a display of arbitrary power, not an exercise of judgment.”

END OF FOOTNOTES

A version of this article (without footnotes) appeared September 29, 2022, on page A17 in The Wall Street Journal with the title, "Stop Me Before I Spend Again."