Such spending would once have been considered unconstitutional. The Constitution authorizes federal spending for the “common defense” and “general welfare”—first in the preamble and later in the clause establishing Congress’s power to tax. Before the New Deal, “general welfare” was limited to internal improvements, often associated with 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 serve as emergency landing strips for military aircraft, and many military bases are located nearby.
The Founding Fathers were against 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 Secretary of the Treasury, believed that the “general welfare” of the Constitution’s Congressional Power to Tax clause 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 expenses 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 rejected Madison’s strenuous objections. Story accepted Hamilton’s interpretation that “general welfare” was a separate power rather than a limitation on the taxing power of Congress. His opinion was largely ignored for 100 years.
Public spending challenges are difficult, in part because potential plaintiffs must prove they have representation. In the early years of the republic, few tax-financed internal improvement projects passed Congress and avoided a presidential veto, largely because of consensus around Madison’s views on the limits of purchasing power. Even when such projects passed, there was no legal challenge. Only the few people who were directly affected and benefited had standing—meaning they were directly affected by the outcome and could file lawsuits—and they did not sue.
The Erie Canal, which opened in 1825, had to be built using state taxes because it was considered a New York project, despite the fact that it benefited several states. Land grants were used to promote railroad construction, as there was doubt in the mid-19th century that federal tax revenue could be used for this purpose.
IN US v. Butler (1936), the Supreme Court ruled that the New Deal’s Agricultural Adjustment Act, which was intended to subsidize hard-hit farmers through a tax on food processors, was unconstitutional. The court held that the Act did not regulate transactions in interstate or foreign commerce, and Congress could not regulate “local” commerce.
The decision endorsed Hamilton’s interpretation and Story’s comment that “general welfare” was a separate power on a par with taxation, not a limit on taxation. It was the first Supreme Court decision to interpret the general welfare clause. The following year, the High Court cited Butler in Steward v. Davis and Helvering v. Davis. These were maintained using payroll taxes to fund unemployment insurance and social security.
In the 1960s, President Lyndon Johnson and his Great Society campaign initiated decades of public spending on state and local programs. Despite challenges from the Supreme Court, no social spending program has so far been overturned. Permanent massive deficit spending has been embraced by both Democratic and Republican Congresses and administrations.
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 seizure of congressional appropriations; creation of House and Senate Budget Committees and the Congressional Budget Office in 1974; numerous balanced budget legislation, including five-year and 10-year budget resolutions; the president’s line item veto; and the President’s signing statements.
Although he agreed with the majority in holding that the line item’s veto was unconstitutional, Justice Anthony Kennedy lamented, “A nation cannot plunder its own treasury without endangering its constitution and its survival.”
The best hope for reining in overspending lies with the Supreme Court. Fortunately, it gave itself an opening to revise the limits of “general welfare,” as Justice Benjamin Cardozo wrote in the 1937 Social Security decision, “discretion belongs to Congress unless the choice is clearly wrong.”
The court may have the opportunity to act by providing status to a broader public—perhaps represented by one or more attorneys general—when Mr. Biden’s student debt forgiveness is filed. The justices may be able to define “clearly wrong” and save the nation by forcing limits on the amount of “general welfare” spending.
Mr. Starkman is a certified public accountant in Atlanta and the author of “The Sex of a Hippopotamus: A Unique History of Taxes and Accounting.”
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