Helvering v. Davis

Summary

The Social Security Act of 1935 created, among other programs, a national system of old-age benefits. Title VIII levied an excise on employers and an income tax on employees, both measured by wages and paid into the Treasury like other revenue. Title II, separately, authorized monthly payments to qualified workers after they reached sixty-five, drawn from an Old-Age Reserve Account funded by congressional appropriations. George P. Davis, a shareholder of the Edison Electric Illuminating Company of Boston, sued to stop the company from paying the taxes and withholding them from wages, contending that the scheme was void. The federal district court in Massachusetts dismissed his suit, but the Court of Appeals for the First Circuit reversed, holding that Title II invaded powers reserved to the states by the Tenth Amendment and that the taxes fell with it. Guy T. Helvering, the Commissioner of Internal Revenue, sought review. Davis's side argued that Congress has no enumerated power to provide pensions, that the taxes and benefits were parts of one plan to regulate the employment relation, and that the Court had held a similar tax-and-spend arrangement unconstitutional in United States v. Butler (1936). The government answered that the taxes were valid excises, that the benefits were paid from general funds under the power to spend for the general welfare, and that the needs of the aged had become a national problem beyond the capacity of the states. On 24 May 1937 the Court reversed, seven to two. Justice Cardozo first noted that he personally would have denied relief because the shareholder had not shown a proper case for an injunction, but that the majority, at the government's urging, chose to decide the constitutional question. On the merits he held that Congress may spend for the general welfare, that the reading of that clause advanced by Hamilton and Story had prevailed over Madison's narrower one, and that the line between particular and general welfare is for Congress to draw unless its choice is clearly arbitrary. The Depression, he wrote, had shown that the problem of old age was national, and benefits offered in one state but not another would draw the aged and discourage the states from acting at all. Having upheld Title II, the Court sustained the employer tax as a valid excise on employment and found its exemptions reasonable. Justices McReynolds and Butler stated in one sentence that the provisions violated the Tenth Amendment and would have affirmed. The library text is the full majority opinion, notes removed; there is no written dissent to include. The companion case, Steward Machine Co. v. Davis, upheld the act's unemployment tax the same day. Helvering remains the leading authority for the breadth of the spending power, and later disputes, including National Federation of Independent Business v. Sebelius (2012), have returned to the limits Cardozo described.

Top Lessons

• Hamilton and Madison on the general welfare

  The Constitution lets Congress tax to provide for the general welfare. Madison read the phrase as a summary of the enumerated powers that follow; Hamilton read it as an independent power to spend for national purposes. Cardozo accepted Hamilton's view, as Story had, while keeping a judicial check against arbitrary choices.

• Who decides what is general?

  Cardozo held that the line between particular and general welfare must be drawn, but that Congress draws it unless its choice is clearly wrong. Critics of this deference argue that it leaves almost no judicial limit on federal spending; defenders reply that such questions of policy are suited to elected representatives.

• Federalism and the race among the states

  Cardozo argued that a state which taxed its employers to pay pensions would put them at a disadvantage and might attract the aged from other states, so that local action alone could not solve the problem. The dissenters saw the act instead as federal entry into a field the Tenth Amendment reserved to the states.

• Power, not wisdom

  Cardozo stressed that the Court's task was to decide whether Congress had power, not whether the plan was wise. The distinction recurs throughout constitutional law and asks students to separate their judgment of a policy from their judgment of its legality.

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Medical Lens

The case concerns taxation and federal spending for old-age benefits; the opinion speaks of the needs of the aged in economic rather than medical terms.