The economic crisis of the past two years has focused new attention on old ideas. Specifically, it has revived interest in the New Deal, in all its frenzied, discordant, and sometimes misguided glory. Predictably, it also has raised the profile of New Deal critics, including six skeptical jurists who dealt the New Deal a body blow in January 1936.
From the outset, New Dealers worried about the judicial threat to New Deal programs. In May 1935 their fears were realized when the Supreme Court unanimously voted to overturn the National Recovery Act, a centerpiece of President Roosevelt's nascent recovery program. Less than nine months later, six of the same justices took a second swing at the New Deal in United States v. Butler, a decision invalidating the Agricultural Adjustment Act (AAA).1
Today, some critics of the Obama administration are looking to Butler as they frame a challenge to the Patient Protection and Affordable Care Act.2 As Tony Cardona has written, "Butler is back."3
The AAA was a key achievement of Roosevelt's first 100 days, the legislative frenzy that followed his 1933 inauguration. The law was designed to solve a festering problem: chronically depressed agricultural prices. Since at least the 1920s, lawmakers and presidents had struggled to rescue farmers from a vicious cycle of overproduction and plunging prices, to no avail. Previous efforts often focused on spurring consumption; the AAA took a different approach by trying to limit production. With the stated aim of returning prices to the levels of 1909-1914 -- a period of relative prosperity for American farmers -- the AAA paid farmers to curtail production. The cash incentives were financed by a new tax on commodity processors.4
In many respects, the AAA worked, bolstering farm prices at a key moment. But it also engendered considerable opposition. Some critics objected to any effort that curtailed food production in the face of widespread hunger brought on by the Great Depression. Sharecroppers and tenant farmers also complained that landowners were not sharing federal incentive payments with those who actually farmed the land, despite legal requirements to do so. And some processors objected to the funding mechanism used to underwrite the entire venture (although others welcomed the larger benefits accruing to the agricultural sector as a whole). So while the AAA as a whole enjoyed considerable support, it was not without its critics.
The Butler case was brought by one of those critics. John W. Lowrance was a lawyer representing creditors of a defunct cotton processor, Hoosac Cotton Mills of North Adams and New Bedford, Mass. Lowrance was a staunch Republican and an ardent foe of the AAA.5
Lowrance and his clients mounted a powerful challenge to the AAA, which eventually reached the Supreme Court. The justices gave Lowrance what he wanted. Writing for the majority, Justice Owen J. Roberts declared that the federal government did not have the constitutional authority to regulate agriculture, a strictly intrastate activity. Therefore, any tax designed to facilitate or accomplish that regulation was invalid.
"The act invades the reserved rights of the states," the Court said. "It is a statutory plan to regulate and control agricultural production, a matter beyond the powers delegated to the federal government. The tax, the appropriation of the funds raised, and the direction for their disbursement are but parts of the plan. They are but means to an unconstitutional end."
Justice Roberts continued: "The power of taxation, which is expressly granted, may, of course, be adopted as a means to carry into operation another power also expressly granted. But resort to the taxing power to effectuate an end which is not legitimate, not within the scope of the Constitution, is obviously inadmissible."
"Congress has no power to enforce its commands on the farmer to the end sought by the Agricultural Adjustment Act," the Court concluded. "It must follow that it may not indirectly accomplish those ends by taxing and spending to purchase compliance."
The decision, issued on a cold and rainy winter morning, sent a chill through Democratic Washington. But Republicans were thrilled, at least initially. The decision confirmed their hopes that New Deal innovation would not proceed unchecked. Indeed, the Court seemed poised to halt Roosevelt's economic experiment in its tracks.
But it was not to be. While Butler certainly created new hurdles for the New Deal, it did not mark its end. In fact, the decision offered New Dealers hope for the future. In rehearsing old arguments over the federal government's power to tax and spend, the Court came down firmly on the side of big government. In a line stretching back to James Madison, conservatives had argued for more than a century that Congress could only spend money (and impose taxes to raise that money) for aims expressly authorized elsewhere in the Constitution. By contrast, Alexander Hamilton and his ideological descendants insisted that the federal government could tax and spend in pursuit of any goal that would advance the general welfare of the nation.6
In Butler, Justice Roberts declared himself a Hamiltonian. "While, therefore, the power to tax is not unlimited, its confines are set in the clause which confers it, and not in those of [section] 8 which bestow and define the legislative powers of the Congress," he wrote. "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."
In 1996 the Cato Institute's William Niskanen underscored the importance of that language. "The direct ruling in United States vs. Butler was that the Agricultural Adjustment Act of 1933, one of the major programs of the early New Deal, was not authorized by the Constitution," he wrote. "The indirect but more enduring effect, however, was to undermine the constitutional restraints on the spending powers of the federal government."7
Even at the time of the decision, observers understood that Justice Roberts had opened the door to activist government. "In short, the AAA decision, instead of being a victory for state rights and conservatism, is believed to point the way toward unprecedented expansion of federal functions," wrote legal scholar John W. Holmes. "Beyond all else, the AAA decision is important as the first authoritative declaration that the federal taxing and spending power is unlimited by the enumerated powers of Congress."8
Butler, then, was a short-term relief to contemporary critics of Roosevelt's New Deal, but a long-term disappointment to later champions of limited government.
1 297 U.S. 1 (1936), available at http://supreme.justia.com/us/297/1/case.html.
2 See John C. Eastman, "Enough Is Enough: Why General Welfare Limits Spending," No. 4 (Jan. 13, 2011), available at http://www.heritage.org/research/reports/2011/01/enough-is-enough-why-general-welfare-limits-spending.
3 "Health Reform: The Tax Man Cometh," Aug. 23, 2010, available at http://health.newamerica.net/node/35744.
4 For a useful summary of the AAA, see Anthony J. Badger, The New Deal, 146-189 (1989).
5 Peter H. Irons, The New Deal Lawyers, 182 (1982).
6 This summary oversimplifies the fundamental argument over the federal authority and neatly sidesteps related debates over the meaning of general welfare, but it captures the essence of the strict construction versus implied powers debate.
7 "Spending Legacy of a 60-Year-Old Ruling," The Washington Times, Jan. 30, 1996, at A19.
8 "The Federal Spending Power and State Rights: A Commentary on United States v. Butler," 34 Mich. L. Rev. 637 (Mar. 1936).
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