Federalism and the taxing power

California Law Review

Volumn 99, Issue 4, 2011, Pages 975-1036

  Mason, Ruth ^a  

^a UNIVERSITY OF CONNECTICUT   (United States)

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EID: 80052428189     PISSN: 00081221     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (230)

1. See South Dakota v. Dole, 483 U.S. 203, 206-07 (1987) (holding that Congress could condition federal highway grants to the states upon states' enactment of a minimum drinking age).
2. Justice Kennedy observed that "the Spending Clause power. . . has the potential to obliterate distinctions between national and local spheres of interest." Davis v. Monroe Cnty. Bd. of Educ., 526 U.S. 629, 654 (1999) (Kennedy, J., dissenting).
3. Extensive scholarly literature addresses the spending power's relation to federalism; a small portion of it, further referenced infra, includes Lynn A. Baker, Conditional Federal Spending After Lopez, 95 COLUM. L. REV. 1911 (1995) [hereinafter Baker, After Lopez].
4. Lynn A. Baker, The Spending Power and the Federalist Revival, 4 CHAP. L. REV. 195, 198 (2001) [hereinafter Baker, Federalist Revival].
5. Erwin Chemerinsky, Protecting the Spending Power, 4 CHAP. L. REV. 89 (2001).
6. David E. Engdahl, The Spending Powef-, 44 DUKE L.J. 1, 56 (1994).
7. Roderick M. Hills, Jr., The Political Economy of Cooperative Federalism: Why State Autonomy Makes Sense and "Dual Sovereignty" Doesn't, 96 MICH. L. REV. 813 (1998).
8. Lewis B. Kaden, Politics, Money, and State Sovereignty: The Judicial Role, 79 COLUM. L. REV. 847 (1979).
9. Thomas R. McCoy & Barry Friedman, Conditional Spending: Federalism's Trojan Horse, 1988 SUP. CT. REV. 85.
10. Ilya Somin, Closing the Pandora's Box of Federalism: The Case for Judicial Restriction of Federal Subsidies to State Governments, 90 GEO. L.J. 461 (2002).
11. Tax scholars have analyzed the regulatory effect of taxation mostly under the term "tax expenditures." See, e.g., STANLEY S. SURREY & PAUL R. MCDANIEL, Tax expenditures (1985).
12. STANLEY S. SURREY, Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Government Expenditures, 83 HARV. L. REV. 705 (1970) [hereinafter Surrey, Tax Incentives]. For criticism of the concept of tax expenditures for vagueness,.
13. see Boris I. Bittker, A "Comprehensive Tax Base" as a Goal of Income Tax Reform, 80 HARV. L. REV. 925 (1967) [hereinafter Bittker, Comprehensive].
14. Boris I. Bittker, Accounting for Federal "Tax Subsidies " in the National Budget, 22 NAT'L TAX J. 244 (1969) [hereinafter Bittker, Subsidies],.
15. See Brian Galle, Federal Fairness to State Taxpayers: Irrationality, Unfunded Mandates, and the "SALT" Deduction, 106 MICH. L. REV. 805 (2008) [hereinafter Galle, The "SALT" Deduction].
16. Louis Kaplow, Fiscal Federalism and the Deductibility of State and Local Taxes under the Federal Income Tax, 82 VA. L. REV. 413 (1996).
17. Kirk J. Stark, Fiscal Federalism and Tax Progressivity: Should the Federal Income Tax Encourage State and Local Redistribution?, 51 UCLA L. REV. 1389(2004).
18. An exception is Professor Peter Engdahl, who addresses the federal taxing power, even though his principal topic is spending. See Engdahl, supra note 3, at 16. Professor David Super also discusses the federalism impact of taxes, but he does not focus on tax expenditures or tax penalties. See David A. Super, Rethinking Fiscal Federalism, 118 HARV. L. REV. 2544 (2005).
19. See Congressional Budget Act of 1974, 2 U.S.C. § 622(3) (2006) (requiring annual publication of a tax expenditure budget that measures the impact of tax expenditures in terms of forgone revenue).
20. U.S. Gov't Accountability Office, GAO-05-690, Tax expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined 35-37 (2005) [hereinafter GAO, tax expenditures], available at http://www.gao.gov/new.items/ d05690.pdf (citing the Treasury Department's outlay equivalent estimates of tax expenditures).
21. GAO, TAX EXPENDITURES, supra note 8, at 35-37. Whether a federal expenditure is "discretionary" or "mandatory" depends on, the Congressional committee that controls it. Appropriations committees control discretionary spending, including annual appropriations, such as those for defense, transportation, national parks, and foreign aid. Discretionary expenses usually have dollar caps and expiration dates. In contrast, authorizing committees control mandatory spending, which is generally uncapped. With mandatory spending, rather than setting forth a precise dollar amount to be spent, Congress describes eligibility criteria for certain government benefits and anyone meeting the eligibility criteria may claim the benefit. Entitlement programs-such as Social Security, Medicare, Medicaid, and unemployment-represent mandatory spending, as does interest on federal debt obligations.
22. For more on budget concepts and tax expenditures, see ALLEN SCHICK, THE FEDERAL BUDGET: POLITICS, POLICY, PROCESS 57-81, 171-73 (3d ed. 2007).
23. Compare Eric Zolt, Deterrence Via Taxation: A Critical Analysis of Tax Penalty Provisions, 37 UCLA L. REV. 343 (1989) (likewise terming such provisions "tax penalties")
24. with J. COMM. ON TAXATION, JCX-37-08, A RECONSIDERATION OF TAX EXPENDITURE ANALYSIS 45 (2008) [hereinafter JCT, Tax expenditures] (referring to "Negative Tax Subsidies").
25. Cf. JCT, TAX EXPENDITURES, supra note 11, at 45 (defining "Negative Tax Subsidies" as tax provisions "that increase the normal tax burden" as compared to "what the general rules would impose"). In contrast with the Joint Committee's "negative tax subsidy" concept, the "tax penalty" concept used in this Article defines tax penalties as deviations from the Schanz-Haig-Simons definition of income, rather than as deviations from a current tax law baseline. For more on the baseline problem, see discussion infra notes 35-40, 69-73 and accompanying text.
26. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 1501(a)(1), 124 Stat. 119 (2010). The Act adds Section 5000A to the Internal Revenue Code. Section 5000A sets forth the "Requirement to Maintain Minimum Essential Coverage, " effective beginning in 2014, and it taxes those who fail to maintain such coverage.
27. The individual mandate has been challenged in over a dozen separate legal actions. For example, Virginia ex rel. Cuccinelli v. Sebelius is currently on appeal to the Fourth Circuit.
28. But see, e.g., Thomas More Law Center v. Obama, 720 F. Supp. 2d 882 (E.D. Mich. 2010) (upholding the individual mandate under the Commerce Clause). The official documents for the cases challenging the PPACA, including complaints, motions, briefs, and amici curiae can be found at the ACA LITIGATION BLOG, http://acalitigationblog.blogspot.com.
29. See Herbert Wechsler, The Political Safeguards of Federalism: The Role of the States in the Composition and Selection of the National Government, 54 COLUM. L. REV. 543 (1954) (arguing that aggressive judicial review of federalism was contrary to the Founders' original intentions).
30. Larry D. Kramer, Putting the Politics Back into the Political Safeguards of Federalism, 100 COLUM. L. REV. 215 (2000) (providing historical evidence that the Founders expected the boundaries of federalism to be policed by popular political action, not judicial review).
31. Larry D. Kramer, Understanding Federalism, 47 VAND. L. REV. 1485 (1994) (arguing that the modem political safeguards of federalism include political parties and a shared administrative bureaucracy and that these institutions create co-dependency among state and federal officials that has the byproduct of maintaining federalism).
32. See also Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985).
33. (rejecting Court's prior attempt, in National League of Cities v. Usery, 426 U.S. 833 (1976), to define state regulatory immunity in terms of "traditional governmental functions").
34. For arguments that the values of federalism are overrated, see, e.g., Edward L. Rubin & Malcolm Feeley, Federalism: Some Notes on a National Neurosis, 41 UCLA L. REV. 903 (1994). (Pubitemid 24794307)
35. South Dakota v. Dole, 483 U.S. 203, 206-07 (1987).
36. See United States v. New York, 505 U.S. 144, 171-72 (1992) (affirming the limits on conditional spending announced by Dole and Penhurst).
37. Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1 (1981) (holding that the challenged federal grant did not clearly create private rights of action against states for failure to implement the grant's terms).
38. See, e.g., Helvering v. Davis, 301 U.S. 619, 640 (1937) (holding that Congress, not the courts, determines what advances general welfare). The spending power also is not constitutionally limited by balanced budget or deficit-control measures.
39. (quoting Brief for the National Conference of State Legislatures et al. as Amici Curiae, in Support of Petitioner, 1987 WL 880310 at *19).
40. South Dakota v. Dole, 483 U.S. 203, 206-07 (1987).
41. see also Oklahoma v. U.S. Civil Serv. Comm'n, 330 U.S. 127 (1947) (upholding a federal grant conditioned on the requirement that states end partisan political activities by certain state officials, even though Congress could not regulate officials' local political participation directly).
42. cf. New York v. United States, 505 U.S. 144, 188 (1992) (holding that although Congress may use conditional grants to encourage states to adopt regulatory regimes that lie beyond Congress's enumerated powers, Congress may not simply conscript the states into enacting regulatory regimes).
43. Congressional Budget Act of 1974, 2 U.S.C. § 622(3) (2006).
44. To eliminate reliance on a normative net income baseline, the Joint Committee on Taxation recently proposed measuring tax expenditures as deviations from an "identifiable general rule of the present tax law." JCT, TAX EXPENDITURES, supra note 11, at 39.
45. See Daniel I. Halperin, Business Deduction for Personal Living Expenses: A Uniform Approach to an Unsolved Problem, 122 U. PA. L. REV. 859 (1974).
46. But see Daniel N. Shaviro, Rethinking Tax Expenditures and Fiscal Language, 57 Tax L. REV. 187, 207-13 (2004) (attempting to surmount the baseline problem by proposing a more flexible approach that would idenitfy tax expenditures as primarily allocative provisions contained in an otherwise primarily distributional tax system).
47. The Schanz-Haig-Simons definition of income is "consumption plus (or minus) the net increase (or decrease) in value of an individual's assets during the taxable period." See Bittker, Comprehensive, supra note 4, at 929.
48. Although even the Treasury Department and the Joint Committee on Taxation calculate their tax expenditure budgets using slightly different baselines, there is general agreement that the government uses the tax law for regulatory purposes in addition to revenue-raising purposes. JCT, TAX EXPENDITURES, supra note 11, at 4.
49. OFFICE OF MGMT. & BUDGET, ANALYTICAL PERSPECTIVES, BUDGET OF THE U.S. GOVERNMENT, FISCAL YEAR 2009, at 298 tbl. 19-3 (listing the mortgage deduction as the second costlicst tax expenditure in 2009, and estimating its revenue loss at $100.8 billion).
50. See OMB, ANALYTICAL PERSPECTIVES, supra note 41, at 298 tbl. 19-3 (estimating the revenue loss from employer-provided health insurance at $168 billion, from the charitable contribution deduction at $58 billion, and from retirement plans, such as IRAs, Keoghs, and 401(k) plans at $76 billion for 2009).
51. James J. Fishman, Stealth Preemption: The IRS's Nonprofit Corporate Governance Initiative, 29 VA. TAX REV. 545 (2010).
52. Anne C. Dailey, Federalism and Families, 143 U. PA. L. REV. 1787, 1821-26 (1995) (arguing that the assignment of the sphere of family law to the states can be seen as more a product of Congressional self-restraint than judicial assignment to the states of exclusive legislative competence over family law).
53. See also IRS PUB. 502, MEDICAL AND DENTAL EXPENSES 5-14 (2009). That tax deductions for family planning expenses can be understood to regulate both family choices and healthcare choices highlights another aspect of the tax expenditure definition problem. Not only may it be difficult to identify which tax provisions have regulatory (as opposed to income-defining) effects, but the same tax expenditure may pursue multiple policy goals, some of which, like healthcare, fall within the competence of both the states and federal governments, and others of which, like the family, represent traditional state competences. Because the motives for tax expenditures may be mixed, it would be difficult for courts to review them without entangling themselves in essentially legislative questions.
54. Most commentators would regard filing statuses (single, married, etc.) as so-called structural provisions of the tax code, rather than as "tax expenditures." For more on the difference between structural provisions and tax expenditures, see Linda Sugin, Tax Expenditure Analysis and Constitutional Decisions, 50 HASTINGS L.J. 407, 409-10 (1999). From a federalism perspective, however, what matters is the tax law's regulatory effect on marriage, not whether a particular tax provision constitutes a "tax expenditure" or not.
55. See, e.g., OMB, ANALYTICAL PERSPECTIVES, supra note 41, at 288-91 tbl. 19-1.
56. For a discussion of the challenges inherent in the tax expenditure estimation process, see GAO, TAX EXPENDITURES, supra note 8, at 92-98. The most serious challenge facing tax expenditure estimation is lack of a universally accepted baseline against which to measure "deviations" or tax expenditures.
57. Finally, although the GAO sums estimates for particular tax expenditures in order to approximate aggregate annual tax expenditures, potential interactions between individual tax expenditures render such aggregate figures inexact. See GAO, TAX EXPENDITURES, supra, at 35-37.
58. Without attempting to remedy any of these flaws, Figure 1 simply aggregates and reproduces tax expenditure data published in the appendix to the annual federal budget for individual fiscal years 1980 to 2007. See, e.g., OMB, ANALYTICAL PERSPECTIVES, supra note 41 at 288-91 tbl. 19-1 (providing, inter alia, data on Fiscal Year 2007 tax expenditures).
59. GAO, TAX EXPENDITURES, supra note 8, at 4-5 (measuring tax expenditures on an outlay equivalent basis).
60. Federal and state outlay data is from the 2010 U.S. budget. See OFFICE OF MGMT. & BUDGET, HISTORICAL TABLES, BUDGET OF THE U.S. GOVERNMENT, FISCAL YEAR 2010, at tbls.15.3, 15.5. Tax expenditure data is from the Analytical Perspectives appendix to the U.S. budget for individual fiscal years 1980-2007.
61. Whether tax expenditures constitute spending as a constitutional matter, however, is less clear. Regan v. Taxation with Representation, 461 U.S. 540, 544, 549 (1983) (stating that "[a] tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income" and that "appropriations are comparable to tax exemptions and deductions" in that both are legislative choices that warrant judicial deference).
62. citing Walz v. Tax Comm'n, 397 U.S. 664 (1970)). In Walz, the Court held that New York's exemption of religious organizations from property taxes did not violate the Establishment Clause because "[t]he grant of a tax exemption is not sponsorship since the government does not transfer part of its revenue to churches but simply abstains from demanding that the church support the state."
63. For scholarly discussion of the equivalence of tax expenditures and direct expenditures for constitutional law purposes, see Donna D. Adler, The Internal Revenue Code, the Constitution, and the Courts: The Use of Tax Expenditure Analysis in Judicial Decision Making, 28 WAKE FOREST L. REV. 855 (1993).
64. Edward A. Zelinsky, Are Tax "Benefits" Constitutionally Equivalent to Direct Tax Expenditures?, 112 Harv. L. REV. 379 (1998). In the recent debate over the constitutionality of the individual mandate in the PPACA, mostcommentators seem to discuss tax expenditures as if they are taxes, rather than spending.
65. See, e.g., Ryan Lirette, The Health Insurance Mandate: If It Must Be, Let It Be a Tax, 128 TAX NOTES 415, 423 (2010) (discussing tax expenditure provisions as taxes).
66. Surrey, Tax Incentives, supra note 4, at 722.
67. Stanley S. Surrey, Federal Income Tax Reform: The Varied Approaches Necessary to Replace Tax Expenditures with Direct Governmental Assistance, 84 HaRV. L. REV. 352, 395-408 (1970).
68. Surrey, Tax Incentives, supra note 4, at 717.
69. An exception is Zolt, supra note 11 (discussing the effectiveness of penalties enacted through the tax law).
70. Denial of standard deductions and personal exemptions represents a tax penalty because the standard deduction and personal exemption generally are considered to be part of the "normal" tax baseline. See OMB, ANALYTICAL PERSPECTIVES, supra note 41, at 298. In contrast, phase-outs of tax expenditures, such as credits for payments of college tuition (and the like), while also increasing the progressivity of the tax system, would be regarded as reductions in tax expenditures, rather than tax penalties. This characterization reminds us that tax penalty and expenditure analysis raises thorny baseline questions. See supra notes 35-40 and accompanying text.
71. See United States Model Income Tax Convention of November 15, 2006, art. 10, available at http://www.treasury.gov/press-center/press-releases/Documents/ hp16801.pdf.
72. AM. LAW INST., FEDERAL INCOME TAX PROJECT: INTERNATIONAL ASPECTS of UNITED STATES INCOME TAXATION II 13 (1992) ("[B]y imposing withholding tax rates higher than deemed appropriate, " the United States secures "a 'bargaining chip' to bring potential treaty parties to the negotiating table.").
73. Greg Hitt & Aaron Lucchetti, House Passes Bonus Tax Bill: 90% Hit Would Affect Major Banks; Senate Mulls Similar Action AmidAIG Furor, WALL ST. J., Mar. 20, 2009, at Al.
74. For the argument that the individual mandate exceeds Congress's enumerated powers and unconstitutionally invades the reserved powers of the states, see Randy E. Barnett, Commandeering the People: Why the Individual Health Insurance Mandate Is Unconstitutional, 5 N.Y.U. J.L. & Liberty 581 (2010).
75. This effect is different from the usual federalism effect attributable to federal taxation, namely, that federal taxation crowds out state taxation of the same base. For critical discussion of that question, see, e.g., Galle, The "SALT" Deduction, supra note 5.
76. Cf. Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J. POL. ECON. 416 (1956) (presenting model predicting that perfect local mobility would reveal voters' hidden political and fiscal preferences).
77. Gregory v. Ashcroft, 501 U.S. 452, 458 (1991).
78. Michael W. McConnell, Federalism: Evaluating the Founders ' Design, 54 U. CHI. L. REV. 1484, 1509(1987).
79. New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting).
80. THE FEDERALIST NO. 51, at 320 (James Madison) (Clinton Rossiter, ed., 1961).
81. Todd E. Pettys, Competing for the People's Affection: Federalism's Forgotten Marketplace, 56 VAND. l. REV. 329 (2003) (quoting the federalist no. 17 (Madison)) (describing Madison's view of vertical federalism and how the federalism decisions of the Rehnquist Court can be seen as supporting that vision).
82. For criticism of the Supreme Court's expansive interpretation of the spending power, see Baker, After Lopez, supra note 3.
83. See, e.g., Baker, Federalist Revival, supra note 3, at 212-13.
84. see United States v. Butler, 297 U.S. 1, 65 (1936) (interpreting the clause to confer upon Congress the power to tax and spend).
85. See, e.g., Erik M. Jensen, The Apportionment of "Direct Taxes": Are Consumption Taxes Constitutional?, 97 COLUM. L. REV. 2334, 2339 (1997) (rejecting this "pervasive" view). The taxing power, although broad, is unlike exclusive federal powers such as the power to regulate immigration. For example, although Congress has preempted certain state taxes, such as airline taxes and certain taxes on out-of-state companies selling into a state via the Internet, Congress could not, for example, preempt all state income taxation, even though as an empirical matter federal taxation of income may diminish states' abilities to tax the same base. Thus, even on a very broad interpretation of the federal taxing power that allows Congress to use taxes to regulate areas it could not regulate directly, the federal taxing power would not properly be labeled plenary.
86. See, e.g., License Tax Cases, 72 U.S. (5 Wall.) 462, 471 (1867) ("[T]he power of Congress to tax is a very extensive power.... [I]t reaches every subject, and may be exercised at discretion.")
87. United States v. Kahriger, 345 U.S. 22, 28 (1953) ("It is axiomatic that the power of Congress to tax is extensive and sometimes falls with crushing effect.... As is well known, the constitutional restraints on taxing are few.")
88. Steward Machine Co. v. Davis, 301 U.S. 548, 581 (1937) ("The subject matter of taxation open to the power of the Congress is as comprehensive as that open to the power of the states.")
89. United States v. Ptasynski, 462 U.S. 74, 82 (1983) (internal quotation marks omitted).
90. See Erik M. Jensen, The Taxing Power, the Sixteenth Amendment, and the Meaning of "Incomes, " 33 ARIZ. ST. L.J. 1057, 1067-80 (2001).
91. But see Murphy v. I.R.S., 493 F.3d 170, 184 (D.C. Cir. 2007) (expressing doubt that certain taxes that have been held to be (indirect) excise taxes, such as estate taxes, can be shifted).
92. See also Erik M. Jensen, The Individual Mandate and the Taxing Power 24-38 (Case Research Paper Series In Legal Studies, Working Paper No. 2010-33, 2010), available at http://ssrn.com/abstract=1683462 [hereinafter, Jensen, Individual Mandate].
93. Pollock v. Farmers' Loan & Trust Co., 158 U.S. 601 (1895) (holding that a tax on income from real or personal property was a direct tax that must be apportioned).
94. See also Murphy v. I.R.S., 493 F.3d 170, 181 (D.C. Cir. 2007) ("Only three taxes are definitely known to be direct: (1) a capitation, (2) a tax upon real property, and (3) a tax upon personal property.") (internal citations omitted). In contrast, (indirect) excise taxes include, but are not limited to, "taxes on consumable items,. .. the sale of corporate stock, doing business in corporate form, gross receipts from the 'business of refining sugar, ' the transfer of property at death, gifts, and income from employment."
95. U.S. CONST, amend. V ("[N]or shall private property be taken for public use, without just compensation."). For how to distinguish taxes from takings, see, e.g., Eric Kades, Drawing the Line Between Taxes and Takings: The Continuous Burdens Principle, and Its Broader Application, 97 NW. U. L. REV. 189 (2002).
96. See, e.g., Helvering v. Davis, 301 U.S. 619, 640 (1937) ("The line must still be drawn between one welfare and another, between particular and general.... The discretion, however, is not confided to the courts. The discretion belongs to Congress.").
97. South Dakota v. Dole, 483 U.S. 203, 207 (1987). This reasoning can be traced to Butler, in which the Court first explicitly endorsed Hamilton's view that the spending power constitutes an independent Congressional power not limited by its other enumerated powers.
98. See United States v. Butler, 297 U.S. 1, 66 (1936) ("[Tjhe 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.").
99. see also Oklahoma v. United States Civil Serv. Comm'n, 330 U.S. 127 (1947) (upholding conditioning of federal funds on state's prohibition of certain state officials' participation in partisan political activities).
100. Commentators have relied on the placement of the taxing and spending powers in the same clause of the Constitution to argue that the powers should be interpreted coextensively. See, e.g., Brief for Constitutional Law Professors in Support of Motion to Dismiss as Amicus Curiae at 7, Virginia ex rel. Cuccinelli v. Sebelius, 728 F. Supp. 2d 768 (E.D. Va. 2010) (No. 3-10CV188-HEH) [hereinafter Con Law Professors' Brief] ("Given [the taxing and spending powers'] grounding in the same portion of the Constitution's text, it would be anomalous to say the least if the taxing power did not similarly extend beyond Congress's enumerated areas of regulatory authority.")
101. Brian Galle, Conditional Taxation and the Constitutionality of Health Care Reform, 120 YALE L.J. ONLINE 27, 30 (2010), http://www.yalelawjournal.org/ images/pdfs/889.pdf [hereinafter Galle, Health Care Reform] ("[B]ecause [taxing and spending] derive textually from the same words, it would be odd for those words to be limited in one setting and not in another.").
102. See, e.g., Pace v. Bogalusa City Sch. Bd., 403 F.3d 272, 278 n.22 (5th Cir. 2005) (stating that "Congress's spending power, like its power to tax, is 'to provide for the general welfare, ' and is therefore untrammeled by the specific grants of legislative power found elsewhere in Article I, Section 8" (citation omitted).
103. (citing United States v. Lipscomb, 299 F.3d 303, 319 (5th Cir. 2002)). The Fifth Circuit in Lipscomb cited Butler for the proposition that Congress's taxing and spending powers are co-extensive.
104. United States v. Butler, 297 U.S. 1, 65 (1936).
105. See, e.g., Veazie Bank v. Fenno, 75 U.S. (8 Wall.) 533, 548 (1869) (upholding tax on state bank notes).
106. McCray v. United States, 195 U.S. 27, 59 (1904) (upholding high tax on oleomargarine dyed to look like butter, even if Congress's intention in imposing tax was to destroy or restrict oleomargarine industry, because "the motive or purpose of Congress in adopting the acts in question may not be inquired into").
107. Flint v. Stone Tracy Co., 220 U.S. 107, 167 (1911) (upholding federal corporate tax, even if consequence may be to destroy corporations, because "right to select the measure and objects of taxation devolves upon the Congress and not upon the courts").
108. United States v. Doremus, 249 U.S. 86, 93 (1919) (upholding challenge to federal tax on unregistered sale of narcotics against a challenge that it invaded state police power because "fact that other motives may impel the exercise of federal taxing power does not authorize the courts to inquire into that subject").
109. Hammer v. Dagenhart, 247 U.S. 251 (1918).
110. The Court made much of the scienter requirement in the tax provision. See Bailey v. Drexel Furniture Co. {ChildLabor Tax Case), 259 U.S. 20, 37 (1922) ("Scienter is associated wii penalties not with taxes.").
111. See Child Labor Tax Case, 259 U.S. at 41-44.
112. Hill v. Wallace, 259 U.S. 44 (1922).
113. citing Child Labor Tax Case, 259 U.S. at 20.
114. United States v. Constantine, 296 U.S. 287 (1935).
115. U.S. v. Butler, 297 U.S. 1 (1936).
116. For example, the Court upheld a regulatory tax on liquor after it decided the Child Labor Tax Case, but before it decided Butler. See United States v. One Ford Coupe Auto., 272 U.S. 321, 328 (1926) (upholding continued validity of federal tax on sale of liquor, even after liquor sales were prohibited because "[a] tax on intoxicating liquor does not cease to be such because the sovereign has declared that none shall be manufactured, and because the main purpose in retaining the tax is to make law-breaking less profitable").
117. Steward Machine Co. v. Davis 301 U.S. 548 (1937).
118. Similarly, in 1937 in Helvering v. Davis the Supreme Court upheld as valid exercises of Congress's power to spend for the "general welfare" other portions of the Social Security Act of 1935 that provided old age pensions. 301 U.S. 619, 640 (1937).
119. Sonzinsky v. United States, 300 U.S. 506, 512 (1937).
120. United States v. Sanchez, 340 U.S. 42, 44 (1950) (upholding federal Marihuana Tax Act that taxed unregistered transfers of marijuana even though the tax served a federal regulatory purpose in addition to a revenue-raising purpose).
121. Bailey v. Drexel Furniture Co. (Child Labor Tax Case), 259 U.S. 20, 38 (1922). The Supreme Court in the Child Labor Tax Case held that the 10 percent tax on the net profits of businesses knowingly employing child labor was not an exercise of the taxing power at all because exactions for departures from "a detailed and specified course of conduct in business" were penalties rather than taxes.
122. see also United States v. Kahriger, 345 U.S. 22, 31 (1953) (upholding a federal tax on wagering against a challenge that Congress did not have the authority to regulate wagers and stating that "[u]nless there are provisions extraneous to any tax need, courts are without authority to limit the exercise of the taxing power").
123. The Court also gave the taxing power a broad reading in cases decided before the Lochner era. See, e.g.. License Tax Cases, 72 U.S. (5 Wall.) 462, 470-71 (1867) (upholding federal license taxes on (intrastate and interstate) sales of lottery tickets and liquor even though at that time the Supreme Court's view was that Congress had no power to authorize or regulate intrastate sales).
124. See, e.g., Texas Monthly, Inc. v. Bullock, 489 U.S. 1 (1989) (holding that an exemption from state sales and use tax for religious periodicals was a content-based distinction that violated the Establishment Clause).
125. McGlotten v. Connally, 338 F. Supp. 448 (D.D.C. 1972) (holding that granting tax-exempt status to nonprofit and fraternal organizations that excluded nonwhites from membership was sufficient government action to invoke both the Fifth Amendment's Due Process Clause and the 1964 Civil Rights Act).
126. See generally JEROME R. HELLERSTEIN & WALTER HELLERSTEIN, STATE TAXATION HI 4.01-26 (3d ed. 1999 & Supp. 2009) (discussing in detail the Supreme Court's decisions under the dormant Commerce Clause in cases involving state taxation).
127. The Supreme Court has interpreted the dormant Commerce Clause to restrain state taxation in other important ways, including by requiring that state taxes be fairly apportioned. See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (setting forth requirements of nondiscrimination, nexus, fair apportionment, and reasonable relation to the government services provided).
128. Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564 (1997).
129. Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984).
130. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994) (striking down a tax on both in-state and out-of-state milk dealers when the proceeds of the tax were distributed only to in-state dairy farmers).
131. The Court stated:Nondiscriminatory measures, like the evenhanded tax at issue here, are generally upheld, in spite of any adverse effects on interstate commerce, in part because '[t]he existence of major in-state interests adversely affected. .. is a powerful safeguard against legislative abuse....' However, when a nondiscriminatory tax is coupled with a subsidy to one of the groups hurt by the tax, a State's political processes can no longer be relied upon to prevent legislative abuse, because one of the in-state interests which would otherwise lobby against the tax has been mollified by the subsidy. Id. at 200 (citations omitted) (quoting Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 473 n.17 (1981).
132. See generally Dan T. Coenen, Business Subsidies and the Dormant Commerce Clause, 107 YALE L. J. 965 (1998).
133. Dan T. Coenen & Walter Hellerstein, Suspect Linkage: The Interplay of State Taxing and Spending Measures in the Application of Constitutional Antidiscrimination Rules, 95 MICH. L. REV. 2167 (1997) (offering guidelines for when the Supreme Court should strike down state subsidies).
134. (quoting New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 278 (1988)).
135. Compare Edward A. Zelinsky, Restoring Politics to the Commerce Clause: The Case for Abandoning the Dormant Commerce Clause Prohibition on Discriminatory Taxation, 29 OHIO N.U. L. REV. 29 (2002) (arguing that because the Court cannot meaningfully distinguish subsidies from discriminatory taxes, it should abandon its dormant Commerce Clause review of state taxes altogether).
136. with Peter D. Enrich, Saving the States from Themselves: Commerce Clause
137. Modern behavioral economics, however, may provide a basis for distinguishing the two. Empirical studies of loss aversion show that people prefer avoiding losses to making gains. See, e.g., Daniel Kahneman, et al., Experimental Tests of the Endowment Effect and the Coase Theorem, 98 J. POL. ECON. 1325 (1990) (providing experimental evidence of the endowment effect, under which people ascribe more value to assets they own than assets of equivalent objective value that they do not own).
138. As a result of loss aversion, a taxpayer may value avoiding a $10 tax more than securing a $10 refundable tax credit. Thus, loss aversion may make the incentive effect of tax penalties more powerful than the incentive effect of tax subsidies. This difference could be significant for purposes of interpreting the Taxing and Spending Clause if we take seriously Justice Rehnquist's dictum in Dole that the Constitution precludes Congress from using its spending powers coercively. South Dakota v. Dole, 483 U.S. 203, 211 (1987).
139. ("[I]n some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which 'pressure turns into compulsion.'") (quoting Steward Machine Co. v. Davis 301 U.S. 548, 590 (1937)).
140. If Congress may not use the spending power to coerce the states in areas outside its enumerated powers, perhaps Congress also may not use the taxing power to coerce private taxpayers in areas outside its enumerated powers. Due to loss aversion, taxes may become coercive sooner than an equivalent dollar amount of direct spending. See United States v. Butler, 297 U.S. 1, 81 (1936) (Stone, J., dissenting) ("Threat of loss, not hope of gain, is the essence of economic coercion.").
141. See, e.g., Con Law Professors' Brief, supra note 127, at 2 (The Supreme Court has "specifically and repeatedly affirmed that the taxing power is not limited to subjects within Congress's other enumerated powers").
142. Galle, Health Care Reform, supra note 127, at 28 (The "best reading [of existing doctrine] is that courts will not impose any substantive limits on the uses to which Congress may put its taxing authority.").
143. Jensen, Individual Mandate, supra note 117, at 23 (concluding that "[d]espite the deferential post-Child Labor Tax Case authority, the distinction between a tax and a penalty has not disappeared").
144. See, e.g., Con Law Professors' Brief, supra note 175, at 11 (arguing that the cases' "continued validity is doubtful. To begin with, they are the products of the Lochner era, the heyday of the Supreme Court's hostility to economic regulation, including a highly restrictive view of Congress's commerce and spending powers. Those doctrines have been repudiated.").
145. See United States v. Darby, 312 U.S. 100, 115 (1941). (overruling Hammer v. Dagenhart and holding that Congress could regulate workplace conditions under the Commerce Clause).
146. see also John Buchovecky, Comment, The Future of Leverage Contract Trading Under the Futures Trading Act of 1986, 37 Am. U. L. REV. 157, 167 (1987) (noting that only one yearafter Hill "Congress enacted substantially similar legislation in the Grain Futures Act and the Supreme Court upheld the law under the commerce clause").
147. in Board of Trade of Chicago v. Olsen, 262 U.S. 1, 33-38 (1923)).
148. Wickard v. Filburn, 317 U.S. Ill (1942) (upholding as valid exercise of the commerce power crop quotas imposed under the Agricultural Adjustment Act of 1938).
149. For example, while upholding the challenged tax, the Court in the following cases distinguished the Child Labor Tax Case; Sonzinsky v. United States, 300 U.S. 506, 513 (1937) (upholding federal tax on firearms dealers and distinguishing tax on goods produced with child labor on the grounds that the tax on firearms dealers was not a "penalty resorted to as a means of enforcing the regulations").
150. United States v. Kahriger, 345 U.S. 22, 34 (1953) (upholding federal gambler's occupation tax as non-punitive).
151. overruled on other grounds by Marchetti v. U.S., 390 U.S. 39 (1968) (holding that compliance with federal gambler's occupational tax violated taxpayer's right against self-incrimination).
152. Bob Jones Univ. v. Simon, 416 U.S. 725, 741 n.12 (1974) (holding that revoking a private letter ruling that acknowledged a university's tax-exempt status constituted a "tax" for purposes of the Anti-Injunction Act) (citing Sonzinsky, 300 U.S. at 513).
153. In CF & I Fabricators, the Supreme Court was interpreting whether a particular liability constituted an "excise tax" entitled to higher priority than a "penalty" under the federal bankruptcy code. It stated that "[a] tax is an enforced contribution to provide for the support of the government; a penalty, as the word is here used, is an exaction imposed by statute as punishment for an unlawful act." United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 224 (1996).
154. (quoting United States v. La Franca, 282 U.S. 568, 572 (1931)). Both CF & I Fabricators and La Franca were interpreting the difference between two categories-"tax" and "penalty"- that appeared in the federal bankruptcy statute and received different priorities in bankruptcy.
155. The Court has also declined to extend the reasoning in Butler. See, e.g., Pace v. Bogalusa Sch. Bd., 403 F.3d 272, 286 (5th Cir. 2005).
156. (quoting LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL Law § 5-b, at 836 (3d ed. 2000), for the proposition that the Supreme Court has "effectively ignored Butler in judging the limits of congressional spending power").
157. Horn Farms, Inc. v. Veneman, 319 F. Supp. 2d 902, 917 n. 13 (N.D. Ind. 2004) ("[T]he reasoning in Butler has not been followed in any subsequent Supreme Court case. . . . ").
158. Kansas v. United States, 214 F.3d 1196, 1200 n.6 (10th Cir. 2000) (noting that Butler "relied on an overly narrow view of Congress' enumerated powers to determine that Congress had overstepped its authority. The analysis in Butler has been discredited as flawed and unworkable, and has not been followed.").
159. Judge Hudson of the Eastern District of Virginia recently held that the individual mandate of the health care reform act was not an exercise of Congress's taxing power, in part because Congress expressly evoked the commerce, but not the taxing, power when implementing it and because Congress labeled it a "penalty" rather than a "tax." Judge Hudson reasoned that since itwas a penalty, rather than a tax, it had to be supported by one of Congress's other enumerated powers. Judge Hudson did not rule on whether Congress would have possessed the power to enact the provision if it had evoked the taxing power and labeled the provision a tax. This decision is on appeal. See Commonwealth of Virginia v. Sebelius, No.: 3:10-cv-188 (E.D. Va. Dec. 13, 2010).
160. New York v. United States, 505 U.S. 144, 166 (1992).
161. Horn Farms, Inc. v. Veneman, 319 F.Supp.2d 902, 916 (N.D. Ind. 2004) (internal citations omitted).
162. See Horn Farms, Inc. v. Johanns, 397 F.3d 472, 476-77 (7th Cir. 2005) (holding that the federal program was not coercive). The Seventh Circuit further reasoned that "[t]he sort of argument Horn Farms presses would demolish, not the Swampbuster legislation, but the whole system of agricultural subsidies, and indeed all federal legislation (including tax credits and deductions) linking financial rewards to the satisfaction of conditions."
163. New York, 505 U.S. at 181 (quoting Coleman v. Thompson, 501 U.S. 722, 759 (1991) (Blackmun, J., dissenting)).
164. For example, in Butler, the Supreme Court struck down a tax-and-subsidy scheme applicable to private farmers precisely because the scheme constituted "coercion by economic pressure." See U.S. v. Butler, 297 U.S. 1, 70-72 (1936).
165. Cf. Evan H. Caminker, State Sovereignty and Subordinacy: May Congress Commandeer State Officers to Implement Federal Law?, 95 COLUM. L. REV. 1001, 1002-03, 1012 (1995) (arguing that federal commandeering may preserve a greater role for states than preemptive direct federal regulation).
166. See Laura Saunders, State Death Taxes Are the Latest Worry, WALL ST. J., Oct. 31, 2009, at B1 (noting that 23 states and the District of Columbia still have estate or inheritance taxes).
167. Congress occasionally expressly preempts state taxation, as in the case of airline taxes. For discussion of federal legislation that expressly preempts state tax authority, see HELLERSTEIN & HELLERSTEIN, supra note 167, 1 4.25[1].
168. David E. Wildasin, Pre-emption: Federal Statutory Intervention in State Taxation, 60 NAT'L TAX J. 649 (2007).
169. The Supreme Court rarely has held federal regulation to impliedly preempt state taxation. Compare Xerox Corp. v. Cnty. of Harris, 459 U.S. 145, 153 (1982) (state tax on imported goods stored in customs-bonded warehouses and bound for further transshipment outside the United States was impliedly preempted by Congress's comprehensive regulation of customs duties that included a waiver of such duties; the federal customs waiver was designed to preference merchants' use of American ports for storage over the ports of other countries, and the state tax interfered with that goal because it "was large enough. .. to offset substantially the very benefits Congress intended to confer by remitting the duty").
170. with R.J. Reynolds Tobacco Co. v. Durham Cnty., 479 U.S. 130 (1986) (finding no implied preemption of state tax on imported goods stored in customs-bonded warehouses where goods were to be sold domestically, rather than transshipped).
171. Suppose, for example, that the federal government allows individual taxpayers a deduction for installing certain green technologies in their homes. A state's failure to mirror the federal deduction does not necessarily undermine the federal policy, since the federal purpose arguably is to subsidize green technologies to the tune of the taxpayer's marginal federal tax rate. That leaves the states free to increase the subsidy by adopting the deduction, or not. See Mobil Oil Corp. v. Comm'r of Taxes, 445 U.S. 425, 448 (1980) ("Absent some explicit directive fromCongress, we cannot infer that treatment of.. . income at the federal level mandates identical treatment by the States.").
172. see also HELLERSTEIN & HELLERSTEIN, supra note 167, H 4.25[2][b] (noting that the "mere fact that Congress has adopted a particular policy towards taxation of income at the federal level... does not require the states to adopt similar policies for state income tax purposes").
173. Congress has not expressly preempted the hypothetical Virginia tax considered in the text, and the Court is unlikely to hold that the federal government has occupied the field of health regulation, such that states cannot regulate health concurrently with the federal government. Thus, the preemption inquiry would focus on the degree of conflict between the individual mandate and the hypothetical refundable tax credit issued by Virginia. It is not impossible for a taxpayer to satisfy both statutes. She would pay the federal tax penalty for violating the individual mandate and then receive a refundable state tax credit from Virginia for the same amount. But unlike the example discussed in supra note 195, where I argued that a state's refusal to conform its tax base with the federal base created no conflict because the federal goal was to subsidize the purchase of green technologies by the amount of the taxpayer's marginal federal tax rate, in the case of the PPACA, if Congress's goal is to impose a specific monetary penalty, a refund or reduction of the penalty by a state would frustrate federal goals. See Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248 (1984) (state law "actually conflicts" with federal law "where the state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress").
174. Another interesting question is whether, in addition to frustrating federal health policy, such a state tax provision would also conflict with the clearly stated federal policy in Section 162 that denies federal tax deductions for fines and penalties. I.R.C. § 162(f) (2006). See also Tank Truck Rentals, Inc. v. Comm'r, 356 U.S. 30, 33-36 (1958) (approving disallowance of federal deduction for fines assessed for violation of state truck weight limits because such deduction would "frustrate sharply defined national or state policies proscribing particular types of conduct" by "reducing the 'sting' of the penalty prescribed by the state legislature").
175. New York v. United States. 505 U.S. 144, 166-77 (1992) (contrasting constitutionally permissible conditional grants, under which if "a State's citizens view federal policy as sufficiently contrary to local interests, they may elect to decline a federal grant" with unconstitutional commandeering, under which a "State may not decline to administer the federalprogram. No matter which path the State chooses, it must follow the direction of Congress.").
176. For criticism of this view as contrary to Supreme Court precedent, see Samuel R. Bagenstos, Spending Clause Litigation in the Roberts Court, 58 DUKE L. J. 345, 386-93 (2008) (arguing that the Court "has repeatedly held that conditional spending statutes preempt inconsistent state legislation pursuant to the Supremacy Clause").
177. Steward Machine Co. v. Davis, 301 U.S. 548, 587-88 (1937).
178. See Lily L. Batchelder et al., Efficiency and Tax Incentives: The Case for Refundable Tax Credits, 59 STAN. L. REV. 23, 53 (2006).
179. Surrey, Tax Incentives, supra note 4, at 730.
180. Surrey, Tax Incentives, supra note 4, at 730. Surrey implicitly compares tax expenditures with discretionary direct spending. In contrast, mandatory direct spending (for entitlement programs such as Social Security Insurance and other mandatory programs, such as federal debt service) is likewise immune from annual budget scrutiny.
181. Although governments estimate the cost of tax expenditures prior to passage, those estimates can be highly inaccurate. For example, in 2000, Arizona offered a tax credit for the purchase of alternative fuel cars. The state estimated that the credit would cost $3 to $10 million, but in its first year, it cost $680 million. JASON LEVITIS ET AL., PROMOTING STATE BUDGETACCOUNTABILITY THROUGH TAX EXPENDITURE REPORTING 8 (2009), available at http://www.cbpp.org/files/4-9-09sfp.pdf.
182. Recently, the Joint Committee on Taxation took it upon itself to make tax penalty revenue estimates, but for reasons it did not explain, it excluded from its estimates provisions of the law the principal purpose for which is to enforce general tax rules, or to prevent the violation of other laws. See STAFF OF J. COMM. ON TAXATION, 111 TH CONG., ESTIMATES OF FEDERAL TAX EXPENDITURES FOR FISCAL YEARS 2009-2013, at 5 (Comm. Print 2010), available at http://www.jct.gov/publications.html?fiinc=startdown&id=3642.
183. The Supreme Court expressed concerns about the political accountability of unfunded mandates. It recognized that "where the Federal Government directs the States to regulate, it may be state officials who will bear the brunt of public disapproval, while federal officials who devised the regulatory program may remain insulated from the electoral ramifications of their decision." New York v. United States, 505 U.S. 144, 169 (1992) (striking down the Low-Level Radioactive Waste Policy Amendments Act of 1985, which required states to dispose of or take title to radioactive waste created in their borders).
184. Cf. Cook v. Gralike, 531 U.S. 510, 528 (2001) (Kennedy, J., concurring) ("[F]reedom is most secure if the people themselves, not the States as intermediaries, hold their federal legislators to account-").
185. Veazie Bank v. Fenno, 75 U.S. (8 Wall.) 533, 548 (1869).
186. See also United States v. Kahriger, 345 U.S. 22, 28 (1953) ("The remedy for excessive taxation is in the hands of Congress, not the courts.").
187. Flint v. Stone Tracy Co., 220 U.S. 107, 169 (1911) (upholding the federal corporate tax and noting that the remedy for "disastrous" exercises of lawful legislative power "is in the ability of the people to choose their own representatives").
188. McCray v. United States, 195 U.S. 27, 55 (1904) (upholding high federal tax on artificially dyed margarine and stating that the remedy for exercises of the taxing power and other powers for "a wrong motive or purpose" lies "in the people, upon whom, after all, under our institutions, reliance must be placed for the correction of abuses committed in the exercise of a lawful power").
189. Edward D. Kleinbard, Constitutional Kreplach, TAX NOTES, Aug. 16, 2010, at 757 ("[T]he Constitution can best be understood ascontemplating that the principal remedy for harsh, oppressive, or stupid tax legislation is to vote the rascals out.").
190. Cf. David A, Weisbach, Tax Expenditures, Principal-Agent Problems, and Redundancy, 84 WASH. U. L. REV. 1823, 1837 (2006) (arguing that when Congress distrusts federal agencies, it is more likely to enact tax expenditures, since the 1RS exercises less discretion than do other federal agencies).
191. See, e.g., JEROME R. HELLERSTEIN & WALTER HELLERSTEIN, STATE TAXATION ¶ 7.02 (3d. ed. 1999 & Supp. 2007) (discussing corporate income tax conformity).
192. The extent to which states import federal tax expenditures and penalties into their own tax systems varies from state to state. For example, since the federal "adjusted gross income" amount represents federally-taxable income before deduction or credit for many tax expenditures, by using adjusted gross income, states can avoid importing many federal tax expenditures. In contrast, if states used federal "taxable income, " they would import more federal tax expenditures. Even when they use federal adjusted gross income, however, states import all federal tax expenditures structured as exemptions. For more on this issue, see Ruth Mason, Delegating Up (forthcoming 2012) (on file with the author).
193. See OMB, ANALYTICAL PERSPECTIVES, supra note 41, at 291 tbl. 19-1 (estimating the cost of various such tax expenditures, the largest of which are the deduction for state and local taxes ($37.5 billion), the deduction for state and local property taxes ($19.1 billion), and the exclusion of interest on state and local bonds ($23.5 billion)).
194. OMB, HISTORICAL TABLES, supra note 54, at 326-27 tbl. 15.3 (providing data on state spending from their own resources and federal grants to the states). Tax expenditure estimates come from the relevant year's Analytical Perspectives appendix to the U.S. Budget.
195. Galle, The SALT Deduction, supra note 5 (considering the fairness of the deduction and its partial repeal via the alternative minimum tax).
196. Brian Galle, A Republic of the Mind: Cognitive Biases, Fiscal Federalism, and Section 164 of the Tax Code, 82 IND. L.J. 673 (2007).
197. See Martin S. Feldstein & Gilbert E. Metcalf, The Effect of Federal Tax Deductibility on State and Local Taxes and Spending, 95 J. POL. ECON. 710, 731 (1987) (arguing that the SALT deduction is a tax incentive for state governments to rely more heavily on personal taxes than on other sources of revenue).
198. See Galle, The "SALT" Deduction, supra note 5, at 841.
199. For example, denial of a federal deduction for payment of a state fine imposed on a private party for failure to obey state weight limits on trucks using state roads could be sustained under Congress's power to regulate the instrumentalities of interstate commerce. Cf. Tank Truck Rentals, Inc. v. Comm'r, 356 U.S. 30, 33-36 (1958) (approving disallowance of federal deduction for fines assessed for violation of state truck weight limits).
200. United States v. Constantine, 296 U.S. 287, 288 (1935).
201. South Dakota v. Dole, 483 U.S. 203, 207 (1987) (emphasis added).
202. See, e.g., Virginia ex rel. Cuccinell v. Sebelius, 728 F. Supp. 2d 768, 788 (E.D. Va. 2010) (holding that Congress exceeded its commerce and taxing powers when it enacted the individual mandate and that to hold that the taxing power is unrestrained by Congress's other enumerated powers "would invite unbridled exercise of federal police powers").
203. Certain post -Dole cases limiting federal power may signal renewed interest in active judicial review of federalism questions. See, e.g., United States v. Morrison, 529 U.S. 598, 617 (2000) (striking down the Violence Against Women Act as beyond congressional commerce power).
204. Printz v. United States, 521 U.S. 898, 914 (1997) (holding Congress could not commandeer state officials to conduct background checks on potential handgun purchasers).
205. United States v. Lopez, 514 U.S. 549 (1995) (striking down the Gun-Free School Zones Act as beyond congressional commerce power).
206. New York v. United States, 505 U.S. 144 (1992) (holding that Congress could not commandeer states by forcing them to take title to radioactive waste produced in their territory). These post -Dole cases represent a revival of what might becalled the "judicial safeguards of federalism."
207. But see Gonzales v. Raich 545 U.S. 1 (2005) (holding that Congress has the power under the Commerce Clause to prohibit in-state possession of home-grown medical marijuana). Professor Bagenstos has argued that the Roberts Court will stake out a middle ground.
208. The ability of states to refuse federal grants is what distinguishes them from impermissible acts of federal commandeering. See New York v. United States, 505 U.S. 144, 168, 176-77(1992).
209. There are many explanations for this effect, including political rhetoric, interest group politics, and cognitive biases (such as loss aversion). For more on this topic, see Deborah H. Schenk, Exploiting the Salience Bias in Designing Taxes Part IV.A-C, 28 YALE J. ON REG. (forthcoming 2011).
210. See Virginia ex rel. Cuccinell v. Sebelius, 728 F. Supp. 2d 768, 786 (E.D. Va. 2010) (finding it probative of whether Congress exercised its taxing power that "[e]arlier versions of the bill... used the more politically toxic term 'tax'" but the final version of the bill substituted the term "penalty").
211. see also Mead v. Holder, No. 10-950, 2011 WL 611139, at *23 (D.D.C. Feb. 22, 2011) (holding that the penalty for violating the individual mandate is not a tax because, inter alia, "Congress specifically rejected the term 'tax' in favor of 'penalty'").
212. Liberty Univ. v. Geithner, 753 F.Supp.2d 611 (W.D. Va. 2010) (holding that the tax penalty for violating the individual mandate is a "penalty" rather than a "tax" for purposes of the Anti-Injunction Act, but upholding it under the Commerce Clause).Whether the individual mandate constitutes a "tax" or a "penalty, " and whether this difference carries constitutional significance, also has been a matter of debate among scholars. Professors Randy Barnett and Erik Jensen separately argue that the individual mandate is not a tax, in part because it was not labeled a tax and Congress did not invoke the tax power when enacting it.
213. Jensen, The Individual Mandate, supra note 117, at 16-18. For arguments that the individual mandate is sustainable independently under the taxing power,.
214. see, e.g., Con Law Professors' Brief, supra note 127.
215. South Dakota v. Dole, 483 U.S. 203, 209-11 (1987).
216. United States v. Sanchez, 340 U.S. 42, 44 (1950) (ruling that a tax does not cease to be valid because it also seeks to regulate, even if "the revenue obtained is obviously negligible" or "the revenue purpose of the tax [is] secondary").
217. Sonzinsky v. United States, 300 U.S. 506, 514 n.1 (1937) (upholding a tax with regulatory effects that produced "some" revenue and noting that only twenty-seven people were subject to the challenged tax in 1934).
218. J.W. Hampton, Jr., & Co. v. United States, 276 U.S. 394, 412 (1928) (upholding federal tax on imported barium dioxide designed to equalize competition with domestic manufacturers because "[s]o long as the motive of Congress and the effect of its legislative action are to secure revenue for the benefit of the general government, the existence of other motives in the selection of the subjects of taxes can not invalidate Congressional action").
219. See also United States v. Kahriger, 345 U.S. 22, 28 n.4 (1953) (comparing favorably the $4 million raised by the Gamblers' Occupational Tax Act, which the Court upheld as a valid tax, to other previously sustained federal tax penalties, including the total of $3, 500 in taxes collected on adulterated butter, the less than $1 million collected on narcotics and other drugs, and the $29, 000 collected under the firearms transfer tax).
220. Cf. Speiser v. Randall, 357 U.S. 513 (1958) (striking down a requirement that veterans swear an oath not to advocate the overthrow of the government as condition of state property tax exemption because such oath violated veterans' freedom of speech).
221. Green v. Connally, 330 F. Supp. 1150 (D.D.C.) affTdsub. nom. Coit v. Green, 404 U.S. 997 (1971) (upholding the IRS's interpretation of the federal tax code to deny charitable tax benefits to racially discriminatory private schools because such schools are not charitable and because allowing such tax benefits would frustrate the federal policy against segregated education).
222. Walz v. Tax Commission of N.Y.C., 397 U.S. 664 (1970) (upholding against an Establishment Clause challenge state tax exemptions for real property owned by churches and used for religious worship because such exemptions avoided excessive government entanglement with religion).
223. McGlotten v. Connally, 338 F. Supp. 448 (D.D.C. 1972) (holding that granting tax-exempt status to nonprofit and fraternal organizations that excluded nonwhites from membership was sufficient government action to invoke the strictures of both the Fifth Amendment's Due Process Clause and the 1964Civil Rights Act).
224. The Supreme Court has also found federal tax penalties to violate individual rights in some cases. See, e.g., Marchetti v. United States, 390 U.S. 39 (1968) (holding that the registration requirement under the federal occupational tax on wagering required the taxpayer to incriminate himself and therefore the privilege against self-incrimination constituted a complete defense to prosecution for failure to pay the tax).
225. See also Dep't of Revenue of Montana v. Kurth Ranch, 511 U.S. 767, 778-79 (1994) (holding that a Montana drug possession tax that was equal to eight times the value of the confiscated drugs and was triggered by the taxpayer's arrest for drug possession constituted a punishment for Double Jeopardy purposes, despite state's argument that the tax could be imposed in addition to criminal sanctions because it was a mere civil penalty).
226. see also New York v. United States, 505 U.S. 144, 171-72 (1992) (holding that the conditional spending provisions of the Low-Level Radioactive Waste Policy Act did not exceed Congressional power and summarizing precedent as providing that conditional federal spending must be for the general welfare, and any attached conditions must be unambiguous, reasonably related to the federal purpose for the expenditure, and not violate any independent constitutional prohibition).
227. Pennhurst State Sch. and Hosp. v. Halderman, 451 U.S. 1, 17 (1981) (holding that in order to bind states, spending conditions must be unambiguous, "enabling] the States to exercise their choice knowingly, cognizant of the consequences of their participation")
228. McCulloch v. Maryland, 17 U.S. (4 Wheat.) 317, 433-34 (1819).
229. McCray v. United States, 195 U.S. 27, 59 (1904) ("Since. .. the taxing power conferred by the Constitution knows no limits except those expressly stated in that instrument, it must follow, if a tax be within the lawful power, the exertion of that power may not be judicially restrained because of the results to arise from its exercise").
230. Austin v. Alderman, 74 U.S. (7 Wall.) 694, 699 (1868) ("The right of taxation, where it exists, is necessarily unlimited in its nature. It carries with it inherently the power to embarrass and destroy.").