On Friday, September 8, 2017, the United States public debt passed the twenty-trillion-dollar mark. I didn’t know it until later. However, my wife and I dined that evening at a restaurant called “Rubicon,” which I now see as an omen: that day the nation crossed a line. The national debt doubled in less than ten years, but few noticed or cared. It now exceeds 100% of the nation’s Gross Domestic Product.
How did we amass so much debt? Although the pace has recently accelerated, there is a long history. I will focus on spending, and rather less on taxation, because, without spending there could be no debt. I will not focus on the merits of any particular item of spending. Some have been essential. Some have done good. Many federal projects have been well-intentioned. Many, though, have been the result of rent-seeking lobbying. Most have had unintended results. The focus here is on the history of the so-called Spending Power of our federal government.
The Constitution of the United States gives Congress eighteen (18) “enumerated” powers in Article I, section 8. The first clause of section 8 says that Congress shall have power:
To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
This clause is the Taxing Power. It limits federal taxation to three purposes: paying debt and providing for the defense and general welfare of the United States.
These are important limits. Paying debts and providing for defense are easy to understand. The “general welfare of the United States” also sets limits. Taxation under this clause has to be for “general,” not targeted, “welfare,” and it has to be for that of the United States. E.g., Congress could not tax Lutherans to support an Anglican national church. Congress could not tax you to pay my individual debts. Congress could not tax any of us to pay for cathedrals in France or mosques in Istanbul. None of these things would fall within the limited purposes of taxation.
In 1788, when Americans were debating whether to ratify the Constitution, the Federalists (who wanted the Constitution) assured the people that the federal government would have only those powers given it in that document. All residual powers of government, they said, would remain with the states.
Nevertheless, some anti-Federalists feared that the reference to “general welfare” would allow Congress not just to tax, but to spend unlimited sums on whatever it considered to be for the common good, which, in turn, would cause taxes to increase. If this had generally been believed to be true, it would undoubtedly have killed the Constitution’s narrow chances of ratification. Americans had fought the Revolutionary War over taxation. If there were to be no limit on spending, there would be no limit on taxation.
James Madison calmed these fears in The Federalist No. 41, assuring people that the phrase “common Defense and general Welfare of the United States” was just a short-hand reference to the enumerated powers. Six of those powers involve national defense. The remaining eleven would constitute the matters of “general welfare” to be delegated to the federal government. Most people accepted that the new federal government would need unlimited power to tax for national defense. Who knew what threats Great Britain, Spain or other powers could pose? But, as for “the general welfare,” there had to be limits, which Madison explained were the remaining delegated powers.
Spending for the exercise of those other delegated powers would have to be “Necessary and Proper,” as the eighteenth clause of section 8 provides.
A grammatical look at the Taxing Power clause confirms that the phrase “to pay the Debts and provide for the common Defense and general Welfare of the United States” limits the purposes of taxation, rather than empowering spending. Try diagramming the sentence, if you are old enough to have learned that, and you will see what I mean. If the phrase is a separate power from the preceding phrase, there would be a semi-colon after “Excises” and a paragraph break, just as there is for all the other enumerated powers. And the phrase “but all Duties, Imposts and Excises shall be uniform throughout the United States;” would have been part of the first phrase, which authorizes laying and collecting taxes, instead of being tacked on at the end of the clause.
Alexander Hamilton, who authored many of the Federalist Papers, in collaboration with Madison and John Jay, stayed silent on the issue of the power to spend. He neither responded to Madison in another number of The Federalist, nor addressed the issue in the New York ratifying convention, where he was a delegate. New York ratified the Constitution by a mere 3 votes.
After the states ratified the Constitution and the new federal government was organized, many Federalists, other than Madison, showed their true colors. Madison, like Hamilton, had wanted a stronger federal government, but, when Madison didn’t get it in the Philadelphia Convention, he stuck by the Constitution’s principles of a national government of limited, enumerated powers. Other Federalists, including Hamilton, saw the constitutional framework as a chance to grab the power they had abjured during the ratification debates.
The First Congress was overwhelmingly Federalist. It enacted the nation’s first pork-barrel spending bill: the Lighthouse Act of 1789. This measure gave Treasury Secretary Hamilton discretion to buy and to build lighthouses, docks and other port facilities in coastal states. You can imagine the lobbying to get some of that bacon in a state or congressional district. Washington signed that bill, and others, that promoted development. He owned vast vacant tracts in the west and favored federal development projects.
In 1791, without any analysis of the Constitution, Hamilton said that the “general welfare” limit on the Taxing Power was actually not a limit, but a practically boundless spending power. He said this to support the subsidies he proposed to various industries in his Report on Manufactures. Hamilton didn’t bother to try to refute Madison. He just said, without explanation, hey, we can spend money on whatever we like. Hamilton blazed the trail that has led to the massive grants, loans, crony capitalism and tax breaks of today.
John Adams, who succeeded Washington, was a Federalist and a spender. But, after his term, there was a see-saw battle, lasting generations, over the power of the federal government to spend for “general welfare.”
Jefferson agreed with Madison on spending. (Although he spent $3 million to purchase the Louisiana Territory from Napoleon, it was directly related to the exercise of the Treaty Power, not to “general welfare.”) In 1817, Madison vetoed the “Bonus Bill,” which would have earmarked revenue to be spent on local “internal improvements,” which, today, we call “infrastructure investments.” His veto message said it was unconstitutional spending. In 1822, Monroe vetoed the Cumberland Road bill, because he did not believe Congress could spend for local or even regional internal improvements. After Monroe left town, Congress resumed its earmarking ways under John Quincy Adams, a fan of federal internal improvements.
In the 1820s and 1830s, the Whig Party coalesced out of the rubble of the Federalists. Led by Henry Clay, the Whigs advocated an “American System,” in which the federal government would protect domestic industries with high tariffs and spend the revenue on internal improvements for “the general welfare.” Jacksonian Democrats opposed the Whig internal-improvements program on constitutional grounds. The Whigs, to my knowledge, never made a constitutional case for what they wanted. They just wanted it.
In 1830, Jackson vetoed the Maysville Road spending bill as unconstitutional. The Maysville Road was entirely within Kentucky and was essentially a low-tech version of the California high-speed rail line to which the Obama Administration recently gave $5 billion. In 1846 and 1847, President Polk vetoed pork-barrel spending bills. His veto messages were prophetic. Congress is still incurring debt for “objects of no pressing necessity” while the country is also borrowing to pay for foreign wars. What he called the “disreputable scramble for the public money” has reached epic heights.
Abraham Lincoln, who was a Whig before becoming a Republican, favored big spending for “internal improvements.” But the fight wasn’t over. In 1887, President Grover Cleveland vetoed a bill appropriating funds to distribute seed to farmers in drought-stricken areas of Texas. He acknowledged that the bill “indulge[d] a benevolent and charitable sentiment.” But he could
find no warrant for such an appropriation in the Constitution, and I do not believe that the power and duty of the General Government ought to be extended to the relief of individual suffering which is in no manner properly related to the public service or benefit. A prevalent tendency to disregard the limited mission of this power and duty should, I think, be steadfastly resisted, to the end that the lesson should be constantly enforced that though the people support the Government the Government should not support the people.
The friendliness and charity of our countrymen can always be relied upon to relieve their fellow-citizens in misfortune. This has been repeatedly and quite lately demonstrated. Federal aid in such cases encourages the expectation of paternal care on the part of the Government and weakens the sturdiness of our national character, while it prevents the indulgence among our people of that kindly sentiment and conduct which strengthens the bonds of a common brotherhood.
Cleveland had constitutional backbone and vision.
In 1913, the nation adopted the 16th Amendment, which authorized the taxation of income from any source, without limit. This had been a plank in Democratic Party platforms since 1896. The tax started out low, but steadily grew, as did spending.
After the “progressive presidents,” Teddy Roosevelt, Taft and Wilson, there was a brief revival of thriftiness under Harding and Coolidge. When the Depression of 1920 hit, Harding pursued lower tax and spending policies, which quickly pulled the country out of the doldrums. In contrast, after the stock market crash of 1929, Hoover, a progressive Republican, tried every “stimulus” he could think of, other than following Harding’s policies, all to no avail.
In the 1930s, the New Deal cast aside quaint notions of thriftiness in government. With FDR leading the way, members of Congress joined in the fun of earmarking and dishing out favors from the seemingly bottomless pork barrel. It has continued to this day.
The New Deal suffered a temporary setback on its program of taxing and spending in the Supreme Court. The Agricultural Adjustment Act of 1933 imposed a tax on processing farm commodities. The revenue was distributed to farmers who reduced their acreage. The tax was obviously a special impost on processors, whose taxes would go to a special class, farmers. The tax was not for the “general welfare,” unless you believe that, indirectly, the transfers of money from the pockets of processors to farmers benefited processors and consumers in some way.
The Supreme Court, though, didn’t care about that. In 1936, in U.S. v. Butler, the Court ruled the Act unconstitutional, because it invaded rights reserved to the states, in this case, to regulate agriculture. The Roosevelt Administration did not appreciate it at the time, but it won more than it lost in Butler. The Court used the occasion to reject James Madison’s strict view of spending, opining that Congress was not limited to spending only in the exercise of enumerated powers:
The Congress is expressly empowered to lay taxes to provide for the general welfare. Funds in the Treasury as a result of taxation may be expended only through appropriation. (Art. I, § 9, cl. 7.) They can never accomplish the objects for which they were collected unless the power to appropriate is as broad as the power to tax. The necessary implication from the terms of the grant is that the public funds may be appropriated “to provide for the general welfare of the United States.” These words cannot be meaningless, else they would not have been used. The conclusion must be that they were intended to limit and define the granted power to raise and to expend money. How shall they be construed to effectuate the intent of the instrument?
Since the foundation of the Nation, sharp differences of opinion have persisted as to the true interpretation of the phrase. Madison asserted it amounted to no more than a reference to the other powers enumerated in the subsequent clauses of the same section; that, as the United States is a government of limited and enumerated powers, the grant of power to tax and spend for the general national welfare must be confined to the enumerated legislative fields committed to the Congress. In this view, the phrase is mere tautology, for taxation and appropriation are, or may be, necessary incidents of the exercise of any of the enumerated legislative powers. Hamilton, on the other hand, maintained the clause confers a power separate and distinct from those later enumerated, is not restricted in meaning by the grant of them, and Congress consequently has a substantive power to tax and to appropriate, limited only by the requirement that it shall be exercised to provide for the general welfare of the United States. Each contention has had the support of those whose views are entitled to weight. This court has noticed the question, but has never found it necessary to decide which is the true construction. Mr. Justice Story, in his Commentaries, espouses the Hamiltonian position. We shall not review the writings of public men and commentators or discuss the legislative practice. Study of all these leads us to conclude that the reading advocated by Mr. Justice Story is the correct one. While, therefore, the power to tax is not unlimited, its confines are set in the clause which confers it, and not in those of § 8 which bestow and define the legislative powers of the Congress. It results that 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.
This pronouncement was unnecessary to the Butler Court’s holding on the Agricultural Adjustment Act. It was dictum, namely something the Court didn’t have to say, although it wanted to. Dictum is non-binding and does not set a precedent. Yet the dictum in Butler has been followed, while the actual holding in that case has been inconsequential. The Court wanted everyone to know that, in its opinion, the Taxing Power implied a power to spend for the general welfare.
The Court’s reasoning starts with the premise that the words, “to provide for the general welfare of the United States,” cannot be meaningless. I agree. The meaning of the words is to impose a limitation on the taxing power. In fact they made the tax in Butler unconstitutional, because it benefited a special class. This, however, was not where the Court wanted to go. It wanted to say something empowering about spending. So it pretended that the language of the Taxing Clause in the Constitution would be meaningless, unless it conferred spending power.
The Butler Court rejected Madison’s view of the spending power summarily, without explaining its reasoning, other than that it was relying on the personal views of one of its own, Justice Story. The Court essentially said, “trust us, because we’ve studied all the arguments, although we are not going to explain them to you morons.” The public had a right to expect a rationale instead of having the justices simply pick a winner. Judges in a beauty contest do not have to explain. Judges on the bench are obliged to. Butler was a beauty contest.
The Butler Court also overlooked the fact that Justice Story contradicted himself. He did argue, at one point in his treatise, that the power to spend was implied by the three purposes stated in the Taxation Clause. He said:
But then, it is said, if congress may lay taxes for the common defence and general welfare, the money may be appropriated for those purposes, although not within the scope of the other enumerated powers. Certainly it may be so appropriated; for if congress is authorized to lay taxes for such purposes, it would be strange, if, when raised, the money could not be applied to them. That would give a power for a certain end, and then deny the end intended by the power.
Story here treated the limitations placed on the taxing power as being simultaneously an essentially unlimited power to spend.
However, Story insisted earlier in his treatise that the phrase, “to pay the debts and provide for the common defence, and general welfare,” does not “constitute another distinct and general power” from that of laying taxes. His two propositions are irreconcilable. Taxing and spending are two quite different things. Under Madison’s view, Congress was not “denied the end intended” by the taxing power. It had ample room to spend for the common defense in the exercise of its six enumerated powers dealing with military, naval and militia matters. It likewise had ample room to spend in the exercise of its ten domestic powers. Neither Story nor the Butler court addressed this point. Not addressing points that defeat your perferred result, is, of course, a classic judicial obfuscation tactic.
Justice Story was a supporter of a strong central government. (He supported the vile and unconstitutional Fugitive Slave Act.) It was quite expected, therefore, for him to espouse the Hamiltonian view of spending. His argument was essentially that the Hamiltonian doctrine “has been in a great measure borne out by the actual practice of the government . . .” In other words, because the scalawags in Congress kept at it, despite many presidential vetoes, their spending habits had somehow become constitutional.
This is the weakest argument for unbridled spending. Neither the Butler Court nor Justice Story appreciated that cultural acceptance over time is how changes occur under an unwritten constitution, such as Great Britain’s. It is not how one is supposed to amend a written constitution. The lesson learned from Story is that, if you keep violating the Constitution long enough, the country will get accustomed to it and the intellectuals will recognize it as a fait accompli and bless what you want as constitutional.
Justice Story, nevertheless, believed, as Hamilton did, that there was some limit to spending for the general welfare:
The true test is, whether the object be of a local character, and local use; or, whether it be of general benefit to the states. If it be purely local, congress cannot constitutionally appropriate money for the object. But, if the benefit be general, it matters not, whether in point of locality it be in one state, or several; whether it be of large, or of small extent . . .
The Butler Court agreed with Story’s qualification that even a broad construction of “general welfare” left the power to spend “subject to limitations.” The Court cited Hamilton’s Report on Manufactures, which:
states that the purpose must be “general, and not local.”
. . .
Story says that, if the tax be not proposed for the common defence or general welfare, but for other objects wholly extraneous, it would be wholly indefensible upon constitutional principles. And he makes it clear that the powers of taxation and appropriation extend only to matters of national, as distinguished from local, welfare.
But the Court was just teasing. This was an illusory limitation, as the Court made clear a year later, when it ruled on whether the Social Security program was a system of taxes and payments for the general welfare. In Helvering v. Davis the Court held that Social Security was within the discretion of Congress in providing for the “general welfare.” The Court cited its opinion in Butler for the proposition that spending for the general welfare was in addition to, and not limited by, the other enumerated powers. (Thus sneaking a prior dictum into the status of a binding rule of law. They do this a lot.) The Court added that it intended henceforward to defer to Congress’s judgment as to what might constitute spending for the general welfare, “unless the choice is clearly wrong, a display of arbitrary power, not an exercise of judgment.”
The Court wasn’t even serious about this small reservation. Every year we see spending choices by Congress that are “clearly wrong” and “arbitrary” in that they are for local and special interests. Federal spending has year after year disposed of billions of dollars for projects that were not national, by any test, whether you follow Madison, Hamilton, Story, Jackson or Polk or even the deferential Helvering Court.
Congress gets away with it, because, as the justices knew when they decided Helvering, the Court had earlier refused to allow taxpayers standing to sue to challenge federal spending. In Frothingham v. Mellon, a taxpayer challenged the Maternity Act of 1921, which gave federal grants to states for programs promoting the health of infants and mothers. Among other things, the suit alleged that the spending was not for “the general welfare.” The Supreme Court did not decide the merits of the claim, because it threw the case out on the grounds that the taxpayer lacked “standing.” The Court meant that the taxpayer’s injury was too remote and generalized, given the size and scope of federal spending, for the Court to treat his claim as a real “case or controversy” within the meaning of Article III of the Constitution.
Since the New Deal, most people have assumed that there are no limits on Congress’s powers to spend. Members of Congress, of course, have been happy to agree, as have presidents. Sadly, even some conservative legal scholars have accepted the “general welfare” provision in the Taxing Power as being a “Spending Power.”
But the “Spending Power” does not exist. It’s a lie. However, it’s a Big Bold Lie, repeated so often in high places that it has become dogma. And it is an essential lie to support big government. Both parties in Congress subscribe to the Big Bold Lie. Today’s Democrats have jettisoned the Jacksonian thriftiness of their ancestors. Establishment Republicans are neo-Whigs, still supporting pork-barrel “internal improvements.” Henry Clay would be proud of them. The voices in Congress for frugal, constitutional government are few.
The core truth under the Constitution is that Congress may spend on the direct exercise of its enumerated powers and then may also spend on things not directly exercising one of those powers, as long as the expenditure is “necessary and proper.” In 1788, the word “necessary,” in common usage, meant “indispensable.” Dr. Johnson’s A Dictionary of the English Language said so then. Something is indispensable, if one must have it to accomplish one’s purpose.
This brings us back to Alexander Hamilton. He had big plans for the federal government. For him, the common meaning of “necessary” was too limiting. So he redefined the word broadly to suit his expansive projects. He said that “necessary” meant “more or less related” or merely “convenient.” In 1819, in McCulloch v. Maryland, the Supreme Court adopted his loose meaning. The decision gutted the Constitution’s grant of only limited, enumerated powers to the federal government. It opened boundless opportunities for spending.
“Necessary” still means “indispensable.” That is the dictionary definition today, for every purpose except our Constitution.
As a result of all this, we have now accumulated $20 trillion in national public debt. And the unfunded liabilities of the federal government may exceed $150 trillion for domestic programs. The annual interest owed on the national public debt has grown with the debt. When interest rates rise substantially, the interest on the public debt is likely to crush other essential government functions.
Our status as a debtor nation is traceable to an illogical, politically driven, twisting of the Constitution by Alexander Hamilton and the Supreme Court. If the notion of the Spending Power under which we now live had been advanced by Federalists in 1788, it would have killed ratification of the Constitution. The bottom line is that the federal government is living a lie and running on fumes. It needs intervention to bring it back to the reality of the Constitution.