United States Constitution

In the early part of the 20th century, this clause was used by the Court to narrow Congress’ ability to tax and spend. In efforts to affect changes in state policy and state law, the federal government attempted to use the stick of taxes and the carrot of spending to incentivize states to comply with some federal program. For example, Congress wanted to regulate child labor laws. But, as far as the Constitution is concerned, no provision authorizes Congress to regulate in this area. As a governmental body of limited, enumerated powers, Congress could theoretically not make laws to affect such change. It is the states’ prerogative whether or not to regulate in an area where Congress does not have authority. However, in 1919, Congress passed a law attempting to use its taxing and spending power to incentivize changes in state child labor laws. This law imposed a tax on profits of a company that employed children. But in Bailey v. Drexel Furniture Co. (1922), the Supreme Court held this law to be unconstitutional. Congress was prohibited from using its taxing and spending power to essentially work around a limitation on its authority.

However, there are still contours to the Conditional Spending Power, understood to have generally been established in South Dakota v. Dole (1987). In South Dakota, the Court examined a law passed by Congress that withheld a portion of federal highway money from states whose legal drinking age was below 21. Holding this law to be constitutional, the Court delineated the following: (1) that the exercise of the spending power be able to be defined as for the “general welfare,” (2) that the Court substantially defer to the judgment of Congress as to whether something is for the general welfare, (3) that the conditional receipt of federal funds be “unambiguous,” (4) that there be some nexus between the condition and the project for which the money is being given, and (5) that other constitutional provisions not independently bar the conditional grant of the funds.

For example, in Rumsfeld v. Forum for Academic and Institutional Rights, Inc. (2006), the Court held the Solomon Amendment to be constitutional. The Solomon Amendment was a law that denied federal funding to any school which did not allow military recruiters the same access to students as other private employers. Law schools sought to not comply with the law because, at the time, the military abided by the ‘Don’t Ask, Don’t Tell’ policy, which the schools labeled discriminatory. However, finding that the conditional spending complied with the South Dakota framework, the Court upheld the law.

Though this healthcare law is vast and complex, the two major provisions dealt with in this case concerned what is called the ‘individual iandate’ (held constitutional under the Taxing and Spending Clause) and an expansion of Medicaid (held partially unconstitutional under the Taxing and Spending Clause). The individual mandate requires every American to have health insurance. Those who cannot afford insurance will be given subsidies to purchase it. Those who can afford insurance, but choose not to do so, will be subject to a fine. The underlying reasoning of this fine is as follows: someone who has the ability to purchase health insurance but doesn’t is burdening the cost of insurance for those who do purchase it. When the uninsured does get sick or injured, he or she has nowhere to turn but the emergency room, where the cost of healthcare is high. Then, this person may be suddenly stuck with a bill that he or she is unable to pay for. But because the hospital is obligated to provide care for all, it still expends the money to care for this patient – but then doesn’t get paid. Therefore, the hospital has no choice but to raise the cost of care for everyone, even those with insurance.

The most popular argument among legal scholars and media pundits, in the days leading up to the Court’s decision on this case, was that the Justices would either strike down the mandate or uphold it under the Commerce Clause. The side arguing that it was unconstitutional said that the federal government did not have the ability to require people to purchase a product (the insurance). The side arguing that it was constitutional said that those with the ability to purchase insurance, but who chose to do so, were impacting interstate commerce detrimentally – the consequences of the decision to forgo health insurance reached beyond themselves.

In the end, the Court did hold that, under the Commerce Clause, the individual mandate was unconstitutional. Congress could not force people to purchase insurance under its power to regulate interstate commerce. However, the Court did find the mandate constitutional under the Taxing and Spending Clause. The aforementioned fine – called a penalty by some – was, in actuality, nothing more than a tax, said the majority of the Court. In fact, it is the Internal Revenue Service that is charged with managing this aspect of the law. This means that, according to the Court. people weren’t being forced, per se, to buy insurance. Rather, those that didn’t were being subject to a tax – it was a simple case of Congress using its Taxing and Spending power to incentivize behavior, which is constitutional.

The Court held that this provision left the realm of conditional spending and incentivizing, and entered the realm of coercion. Under the framework established by the 10th Amendment, as well as the requirements of conditional spending as laid out in South Dakota (see above) and subsequent cases, such usage of the Taxing and Spending Clause is actually unconstitutional. When states have no choice but to comply (as was practically the situation in the face of losing existing Medicaid funding), it is as if Congress is directly regulating in an area in which it has no authority.