Today in 1936: U.S. v. Butler is decided

January 6, 2012

Today in Legal History76 years ago today, the U.S. Supreme Court decided U.S. v. Butler, striking down the Agricultural Adjustment Act of 1933 as unconstitutional.

It was a significant decision at the time it was made, and, despite its age, the case continues to be significant today.

Its importance in 1936 stems from the context in which the Supreme Court made the decision.

The Agricultural Adjustment Act (AAA) was part of President Franklin Roosevelt’s New Deal, and it was intended to artificially increase crop prices, which had plummeted in the early 1930s.

It did this by paying farmers subsidies for essentially agreeing to grow fewer crops.

The problem, at least according to the Supreme Court, was that the subsidies were exclusively funded by taxes levied against agricultural processors (i.e. the ones purchasing the crops from the farmers).

The Court held that Congress, through this program, was using constitutional means – taxing and spending – for an unconstitutional purpose – regulating agricultural production.

Regulation of agricultural production was viewed as unconstitutional in Butler because the Supreme Court reasoned that it was a power delegated exclusively to the states, and thus it was in violation of the Tenth Amendment.

Obviously, this isn’t the case today, since farm bills such as AAA are commonplace today (they just don’t provide funding in the exact same way as the 1933 Act).

Still, Butler has never been explicitly overturned.

However, it was one of the last Supreme Court cases to strike down one of FDR’s New Deal programs.

In fact, it was one of the last decisions to limit Congress’s regulatory power at all until 1995’s U.S. v. Lopez.

Even Lopez, though, only limited Congress’s power under the Commerce Clause, not the Taxing and Spending Clause, as Butler did.

Indeed, the Supreme Court has yet to again limit Congress’s power under the latter clause.

That, combined with more recent decisions such as 1987’s South Dakota v. Dole arguably granting even broader regulatory Taxing and Spending Clause powers to Congress than those at issue in Butler, has led to the widespread belief that Congress has almost unlimited powers under that clause.

That is relevant today because of 2010’s Patient Protection and Affordable Care Act (PPACA or ACA).

Supreme Court BuildingAs many know, that law has been met with numerous legal challenges since it was first signed into law.

The two primary grounds for the challenge rest on the infamous “individual mandate,” which levies a tax penalty against those who do not carry health insurance, and the Medicaid expansion, which significantly expands Medicaid eligibility, and forces states to follow suit.

The Medicaid expansion question easily falls within the purview of the Spending Clause, and it’s because of this that no court opinion reviewing the issue has yet to strike it down as unconstitutional (I go into more detail about it and my prediction on the Supreme Court’s ruling here).

The dispute over the individual mandate is a little more complicated.

Despite the fact that the penalty levied is a tax and collected by the IRS, challengers have gone to great lengths to argue that it is, in fact, not an exercise of Congress’s Spending Clause power, but rather of its Commerce Clause power.

This is simply because the challenges would have little or no chance of success if the mandate were attacked as an unconstitutional use of Taxing Clause powers.

The only decision that ruled it unconstitutional under that theory made extensive use of Butler, but quite honestly, the argument wasn’t very convincing and appeared 75 years out of date (and it was overruled on appeal for lack of standing).

So while Butler is the most recent decision limiting congressional Taxing and Spending Clause power, and it has never been explicitly overturned, subsequent legal developments have rendered it irrelevant to current jurisprudence on the topic.

Given the eagerness of the ACA’s challengers to shift the constitutional argument to the Commerce Clause field, Congress’s Taxing and Spending Clause power is unlikely to return to the days of Butler.