In the broadest sense, the ability of the US government to tax and invest impacts more Americans than the power of any other government. Any year, the state, municipal, and local governments raise billions of dollars in taxes. The United States government levies taxes on a wide variety of products, events, and purchases. The federal government, for example, receives revenue on paychecks, annual tax reports, grocery sales, lodging, and excise duties. Furthermore, taxes are levied on imported commodities such as automobiles, plane fares, and equipment.
The American people have mixed emotions towards the government’s collection of taxation and expenditures. Considering the public significance of the taxing and spending by the government, these issues contribute immensely to the US politics. For instance, the US presidential race is always about how to tax and government’s expenditure. There are heated debates on the amount of tax collected as well as the spending mechanisms. The government policies in the presidential campaigns cover the tax collection policies as well as the government spending. The reforms in the taxation policies as well as the spending limits on the Medicaid, Social Security, and Medicare. The people are always debating on the effective methods of increasing the tax collection as well as improving the economy. At other times, the talks are about increasing the governments’ expenditure or cutting down the taxes. Nowadays, the powers of the government to tax and spend is well established, well defined and operated within a clear policy. However, this was not the case before; the government taxation and spending have undergone through a hard constitutional journey to achieve the powers. There have been legal disputes that have crucially shaped economic powers as well as the political institutions in the US. This paper seeks to examine the interpretation of the Supreme Court on the government’s power to tax and spend.
The Constitutionality of the Powers
During the constitutional convention, the power of the state to tax was a fundamental concern. The Article of Confederation made the government ineffective in some areas; this was due to inability to levy taxes. The government operated by requesting funds from the member states. However, the government had no powers to demand the funds in case the states denied to make the payments. The tax authority existed within the states, and the national government had no powers to conduct the public policies. The necessity of the powers for the central government to collect revenue became a reality. Under the new constitution, the states and the central government had the powers of raising taxes.
In the US Constitution Art. I, Sect. 8 gives the federal power. The first power in under this section is the power to tax and spend. It states that the Congress possesses the power to place, as well as collect the Duties, Taxes, Excises, and Imposts. Moreover, it has powers to pay Debts, provide Welfare, and common Defense for the US. The authority is divided into three categories:
-The grant for taxation powers.
-Authority for collecting duties.
-The power of imposing excises.
The second power is the power to spend. The power to spend is extensively covered and involves the use of the collected taxes in the payment of government’s debts, funding the national defense, as well as provision of the state Welfare. However, some people (policy framers) argue that the spending should only involve the constitutionally authorized government activities.
Direct Taxes & Income Taxation Powers
The US constitution uses two standards for federal tax assessment. The geographical uniformity applies to the excise taxes and Duties; all of these levies must be the same across all states. For instance, the excise on a particular import must be similar irrespective of the entry point. The other assessment is the population distribution; the direct tax/ tax per person is related to the general population. The sparsely populated states have constitutionally reduced tax rates (head tax) owing to their low population densities.
Constitutionality of Income Tax
From the 1790s to 1860s, the federal taxation powers remained unaltered. The government funded its projects from import duties and excise taxes. However, the Civil War brought about a significant financial constraint, and the government operated on a sickening deficit. The government was forced to embrace alternative revenue collection method. The first ever income tax was introduced in the Congress in 1864. However, the implementation of the income tax was challenged in the court (Springer v. the United States). The complainant questioned the validity of the income tax. In the argument, the appellant perceived the income tax as a direct tax that was apportioned in the population taxation realm. The jury disagreed with the position and upheld the position that the direct taxes only carried the land taxes and the capitation taxes. To curb the constant battles between the population movement leaders, the Congress enacted the Income Tax Law in 1894. In this law, the constitution provides for a 2% income tax on individual income.
The US constitution Article ONE, Section 9 expresses prohibition on export taxes. The ban seeks to improve the trade via elimination of barriers against the sale of American products to other states. The Congress has categorically imposed the ban on the export taxes. However, there has been legal confrontations against the Congress as a violation of the export taxation ban. For instance, in United States V. United States Shoe Corp.; the plaintiff argued that the HMT (Harbor Maintenance Tax) that the Congress imposed was unconstitutional; it was imposed on an export activity. The ruling by the Supreme Court was somewhat confusing; the court supported the Congress’s position that the HMT was a ‘usage fee’ for the use of the ports within the United States. The HMT operated indiscriminately on the import, exports as well as custom port activities.
Intergovernmental Tax Immunity
The federal government operation is risky due to the possible conflicts in the taxation. In a situation where both the state and the federal authorities have a right to taxation, the conflicts may occur. There is no clear definition of the direct prohibition of the federal government from taxing the state government or vice versa. Therefore, the federal system needs to operate efficiently by avoiding the conflicts in taxation with the state governments.
Taxation as a Tool for Power Regulation
Contrary to the usual perception that a taxation is a funding tool; Marshall’s came up with a new view that it is a power to destroy. Although it had been pointed out earlier that the taxation was usable for other functions other than funding, it was not seen until constitutional questions were raised. The validity of taxation for reasons other than funding, and for regulation was questioned. The introduction of the imports and export taxes were seen as a positive move towards the promotion of the trade between the United States and the other nations. The taxation on the imports also improved the competitive advantages of the American products. However, the Congress has been supported by the legal courts and also the Chief Justice for the use of the taxation for the purposes other than the funding. The taxation has been used in the controlling such as where the regulation of domestic activities is needed. For instance, the regulation of the US economy was achieved via taxation after the decline as a result of the Civil War. The imposition of the federal excise tax was challenged in the case Veazie Bank v. Fenno. However, the Congress imposed a regulatory law for 10% tax on notes given to the chartered banks by the state banks. As a result, the notes became too expensive to issue making it harder for the new banks to compete. The Veazie Bank challenged the imposition of the taxes, but the Supreme Court upheld the taxation in a five against two ruling. The Supreme Court ruled in favor of the Congress; the tax was justified as a means of recovering the US monetary system.
Taxation, Spending and the General Welfare
The United States’ constitution gives the Congress the power to collect taxes and spend to meet the general welfare of the people. The welfare comprises the access to the benefits such as health insurance, defense, and housing assistance. The taxation and spending are meant to regulate the economic status, trade as well as the general comfort in the United States. However, the taxations such as land rates, and tax on agricultural farms have were challenged as methods used by the Congress to control the constitutionality of the state governments. The Supreme Court has upheld the rights of the Congress to impose taxes on the view that the taxes are relevant in supporting the welfare operations. The welfare is a relevant provision in the US Constitution; the people are supported so that they lead an empowering life that drives the US economy.