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The Federal Power to Tax
The Issues: How far does the power of Congress "to lay and collect taxes"
extend?
Introduction
The United States is a government of
enumerated powers. Congress, and the other
two branches of the federal government, can
only exercise those powers given in the
Constitution.
The powers of Congress are enumerated in
several places in the Constitution. The most
important listing of congressional powers
appears in Article I, Section 8 (see left) which
identifies in seventeen paragraphs many
important powers of Congress. In this
section, we consider how the enumerated
power of Congress "to lay and collect taxes"
has been interpreted.
Article I, Section 8 gives Congress the power
to "lay and collect taxes, duties, imports, and
excises." The Constitution allows Congress to
tax in order to "provide for the common
defense and general welfare." The Court has
flip-flopped on the issue of whether Congress
has the constitutional power to tax in order to
accomplish regulatory goals that would
otherwise be outside of the scope of its
enumerated powers. In Bailey vs Drexel
Furniture (1922), the Court invalidated a 10%
tax on the annual profits of employers who
knowingly employ child labor. The tax,
imposed after an earlier attempt to block the
interstate transportation and sale of products
produced by child labor was struck down in
Hammer, was seen by the Court as an
unconstitutional attempt to make an end-run
around its earlier decision. In 1925, in Linder v
United States, the Court reversed the
conviction of a doctor who had given three
cocaine tablets to a patient to relieve an
addiction. The conviction, based on a law that
imposed a $3 tax on doctors who prescribed
cocaine, rested on the theory that the law
limited the prescription of cocaine to the
treatment of diseases, not addictions, and that
the defendant had given cocaine tablets to an
addict. The Court concluded that the law
could survive only as a revenue measure, and
The power to tax:
Bailey v Drexel Furniture
[Child Labor Tax Case]
(1922)
Linder v United States
(1925)
Steward Machine vs Davis
(1937)
U. S. vs Kahriger (1953)
National Federation of
Independent Business v
Sebelius (2012)["individual
mandate" case]
Key Constitutional Grants of
Powers to Congress
TAXING POWER
The Congress shall have Power To
lay and collect Taxes, Duties,
Imposts and Excises,
to pay the Debts and provide for the
common Defence and general Welfare
of the United States...
Article I, Section. 8.
The Congress shall have Power To lay and collect
Taxes, Duties, Imposts and Excises, to pay the
Debts and provide for the common Defence and
general Welfare of the United States; but all Duties,
Imposts and Excises shall be uniform throughout
the United States;
To borrow Money on the credit of the United
States;
that the Taxing Power gave Congress no
authority to regulate directly the practice of
medicine--that is, to tell doctors who had paid
the required tax what they can or cannot do for
their patients.
The Court reversed its ban on taxes serving
primarily regulatory (rather than revenueproducing) goals in Steward Machine (1937),
which upheld a tax on employers designed to
encourage states to enact unemployment
compensation schemes. In Kahriger (1953),
the Court upheld a law requiring bookies to
register and pay on tax on all wagers--even
though the tax had the regulatory goal of
wiping out bookmaking operations and could
not be expected to produce significant
revenue.
The Affordable Health Care Act ("Obamacare")
survived, mostly, when five justices found "the
individual mandate" to be within the taxing power of
Congress.
In perhaps the most significant taxing power
case ever decided, the Court ruled in National
Federation of Independent Business v
Sebelius (2012) that the so-called "individual
mandate" (generally considered a requirement
that individuals purchase health insurance)
contained in the Affordable Care Act could be
sustained as a tax, even though the
requirement was outside of Congress's power
to regulate commerce. Writing for five
members of the Court, Chief Justice Roberts
held that even though proponents of the Act
consistently said a penalty, not a tax, would
apply to individuals who failed to purchase
insurance, it still operated as a tax and that a
functional analysis should control. The Court
noted that failure to purchase insurance
required a payment to the IRS, that no criminal
penalties attached to failure to purchase
insurance, and that the cost of the tax would,
in most cases, be less than the cost of buying
insurance. In sum, the law did not make it
unlawful to purchase insurance, allowing
individuals a choice of paying a tax
instead. Roberts also reaffirmed that the
Congress may seek to achieve regulatory
goals through its taxing power that it might not
be able to achieve under its other Article I
powers. Justices Kennedy, Alito, Scalia, and
To regulate Commerce with foreign Nations, and
among the several States, and with the Indian
Tribes;
To establish an uniform Rule of Naturalization, and
uniform Laws on the subject of Bankruptcies
throughout the United States;
To coin Money, regulate the Value thereof, and of
foreign Coin, and fix the Standard of Weights and
Measures;
To provide for the Punishment of counterfeiting the
Securities and current Coin of the United States;
To establish Post Offices and post Roads;
To promote the Progress of Science and useful
Arts, by securing for limited Times to Authors and
Inventors the exclusive Right to their respective
Writings and Discoveries;
To constitute Tribunals inferior to the supreme
Court;
To define and punish Piracies and Felonies
committed on the high Seas, and Offences against
the Law of Nations;
To declare War, grant Letters of Marque and
Reprisal, and make Rules concerning Captures on
Land and Water;
To raise and support Armies, but no Appropriation
of Money to that Use shall be for a longer Term
than two Years;
To provide and maintain a Navy;
To make Rules for the Government and Regulation
of the land and naval Forces;
To provide for calling forth the Militia to execute
the Laws of the Union, suppress Insurrections and
repel Invasions;
To provide for organizing, arming, and
disciplining, the Militia, and for governing such Part
of them as may be employed in the Service of the
United States, reserving to the States respectively,
the Appointment of the Officers, and the Authority
Thomas dissented, arguing that the taxing
power could not sustain the mandate.
Other Pages Relating to
the Powers of Congress:
The Necessary and Proper
Clause
The Federal Commerce
Power
The Spending Power
Power to enforce the
protections of the 13th,
14th, and 15th
Amendments
10th and 11th Amendment
Limitations on the Powers
of Congress
The Commerce Clause as
a Limitation on State
Power
of training the Militia according to the discipline
prescribed by Congress;
To exercise exclusive Legislation in all Cases
whatsoever, over such District (not exceeding ten
Miles square) as may, by Cession of particular
States, and the Acceptance of Congress, become the
Seat of the Government of the United States, and to
exercise like Authority over all Places purchased by
the Consent of the Legislature of the State in which
the Same shall be, for the Erection of Forts,
Magazines, Arsenals, dock-Yards, and other needful
Buildings;--And
To make all Laws which shall be necessary and
proper for carrying into Execution the foregoing
Powers, and all other Powers vested by this
Constitution in the Government of the United
States, or in any Department or Officer thereof.
Questions
TAXING POWER-- QUESTIONS
1. Does Congress have the power to tax for a
purely regulatory, non-revenue raising,
goal? Could Congress require all prostitutes
to register and pay a tax if it could not make
prostitution a federal crime directly?
2. Does the Court's decision in National
Federation of Independent Business v
Sebelius suggest that Congress will
increasingly rely on its taxing power to
accomplish goals it may not be able to
accomplish under its commerce power?
3. Do you think that the description of a
mechanism in an act as a "penalty" not a "tax"
should control, or was the Court correct to use
a functional analysis to conclude that the
individual mandate penalty/tax operated as a
tax--no criminal punishment, for example, for
not purchasing health insurance so long as you
make the payment to the IRS (and the amount
paid will generally be less than the cost of
insurance)?