Social Security Act: Constitutional Or Not?

The Social Security Act of 1935 was enacted into law on 14 August 1935, but its constitutionality was only settled by the Supreme Court in May 1937. The Social Security Act was challenged in three cases heard by the Supreme Court during its October 1936 term. The Court's ruling on the constitutionality of the Social Security Act was significant, as it addressed the question of whether the federal government had the power to implement a social insurance system. This topic raises questions about the interpretation of the Constitution, specifically the reserve clause of the 10th Amendment, and the general welfare clause.

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The Social Security Act was deemed constitutional by the Supreme Court in 1937

The Social Security Act was signed into law by President Roosevelt on August 14, 1935. However, its constitutionality was only settled by the Supreme Court in May 1937, almost two years after it was enacted.

The Social Security Act was unprecedented in American history, and the Social Security Board had to start work before a definitive Supreme Court ruling was issued. This included the issuance of social security numbers, the collection of payroll taxes, and the payment of the first lump-sum benefits—all by January 1937.

The Committee on Economic Security (CES) struggled with the "reserve clause" of the Constitution (the 10th Amendment), which states that powers not specifically granted to the federal government are reserved for the States or the people. The Constitution does not specifically mention the operation of a social insurance system as a power granted to the federal government. The CES ultimately opted for taxing power as the basis for the new program, but it was unclear how the courts would view this choice.

In 1937, three Social Security cases made their way to the Supreme Court. One challenged the old-age insurance program (Helvering vs. Davis) and two challenged the unemployment compensation program of the Social Security Act. The Court issued rulings on all three on the same day.

The Supreme Court upheld the constitutionality of the Social Security Act in two major cases decided in 1937. The rulings produced a "'constitutional revolution in the age of Roosevelt,'" as the Court sustained a series of New Deal legislation.

The taxing power was chosen as the basis for the Act

The Social Security Act was signed by FDR on August 14, 1935, and taxes were collected for the first time in January 1937. The constitutionality of the Act was settled in a set of Supreme Court decisions issued in May 1937.

The Committee on Economic Security (CES) struggled with the fact that the Constitution did not specifically mention the operation of a social insurance system as a power granted to the federal government. They were unsure whether to claim the commerce clause or the broad power to levy taxes and expend funds to "provide for the general welfare," as the basis for the programs in the Act.

Ultimately, the CES chose the taxing power as the basis for the new program, and Congress agreed. This was because the power of Congress to authorize the expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution. This was a major victory for the New Deal, which had suffered a series of setbacks in 1934 when lower courts began overturning major parts of the program.

The taxing power was also chosen as the basis for the Social Security Act because it was the most legally sound option. The Supreme Court had previously ruled that if the legislation enacted has some reasonable relation to the exercise of the taxing authority conferred by the Constitution, it cannot be invalidated because of supposed motives. This was demonstrated in the case of Veazie Bank vs. Fenno, where the Supreme Court upheld the constitutionality of a statute imposing a 10% tax on notes issued by state banks. The purpose of the statute was to tax state bank notes out of existence, and not to collect revenue, and so the tax was a reasonable relation to the exercise of taxing authority.

The Act was upheld as a proper use of the spending power

The Social Security Act was enacted into law on 14 August 1935. However, the country had to wait for the Supreme Court's ruling on its constitutionality. The Committee on Economic Security (CES) was unsure whether to claim the commerce clause or the broad power to levy taxes and expend funds to "provide for the general welfare," as the basis for the programs in the Act. Ultimately, the CES opted for the taxing power as the basis for the new program, and the Congress agreed.

The Supreme Court's ruling on the Agricultural Adjustment Act (AAA) was a major rebuff for the New Deal. However, the same opinion ultimately sided with Hamilton on the larger question of a strict or flexible interpretation of the general welfare clause. The court held 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."

The constitutionality of the Social Security Act was settled in a set of Supreme Court decisions issued in May 1937. The Court would sustain a series of New Deal legislation, producing a "constitutional revolution in the age of Roosevelt." The Court issued rulings on three Social Security cases that had made their way to the Supreme Court during its October 1936 term. One challenged the old-age insurance program (Helvering vs. Davis), and two challenged the unemployment compensation program of the Social Security Act.

The Supreme Court upheld the validity of a federal tax on oleomargarine in the case of United States vs. Davis. The act provided for a very low tax on white oleomargarine and a much higher tax on yellow oleomargarine, as the latter closely resembled butter and was frequently sold as a substitute. The actual intention of Congress was not to provide a new source of revenue but to suppress the sale of oleomargarine as a butter substitute.

The Congressional Budget and Impoundment Control Act of 1974 (ICA) reasserted Congress's power of the purse. Title X of the Act – "Impoundment Control" – established procedures to prevent the President and other government officials from unilaterally substituting their own funding decisions for those of the Congress. The ICA created a process the President must follow if he or she seeks to delay or cancel funding that Congress has provided. An "impoundment" is any action – or inaction – by an officer or employee of the federal government that precludes federal funds from being obligated or spent, either temporarily or permanently.

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The Social Security Act was challenged in three cases that reached the Supreme Court

The first case, Helvering vs. Davis, challenged the old-age insurance program. George P. Davis, a minor shareholder in the Edison Electric Illuminating Company, objected to the company's impending payment of the employers' share of the payroll tax, arguing that this expenditure would rob him of part of his equity. The government intervened on Edison's behalf, with the Commissioner of the IRS (Mr. Helvering) taking on the lawsuit. The Court upheld the constitutionality of old-age insurance.

The second case, Steward Machine Co. vs. Davis, also upheld the Social Security Act as a proper use of the spending power. The Court continued to uphold broad national power to tax employers to pay for benefits under the act and for Congress to use its spending power to push states to pass laws to fund unemployment compensation.

The third case, Carmichael vs. Southern Coal & Coke and Gulf States Paper, was disposed of in short order by Justice Stone. He noted that "Together the two statutes now before us embody a cooperative legislative effort by state and national governments, for carrying out a public purpose common to both, which neither could fully achieve without the cooperation of the other. The Constitution does not prohibit such cooperation."

The Act was challenged on the basis of it being regulatory and not for revenue

The Social Security Act was challenged in the Supreme Court in 1937, with three cases making their way to the Court during its October 1936 term. One of these cases, Helvering vs. Davis, challenged the old-age insurance program. George P. Davis, a minor shareholder in the Edison Electric Illuminating Company, objected to the company's impending payment of the employer's share of the payroll tax, arguing that this expenditure would rob him of part of his equity.

The Social Security Act was not specifically mentioned in the Constitution, and the Committee on Economic Security (CES) struggled to justify its implementation. Ultimately, the CES opted to claim the taxing power as the basis for the new program, a decision that Congress agreed with. However, it was uncertain how the courts would interpret this choice.

The Act was challenged on the basis that it was not intended as a revenue-producing statute, but rather as a regulatory measure. This argument had been made against other tax statutes, but it had generally been given little consideration. An example of this is Veazie Bank vs. Fenno, in which the Supreme Court upheld the constitutionality of a statute imposing a 10% tax on notes issued by state banks. The purpose of this statute was to eliminate state bank notes, not to generate revenue. Despite being on the books for almost three-quarters of a century, this statute has never collected a dollar in revenue, and state bank notes have disappeared.

Another example is United States vs. Doremus, in which the Supreme Court upheld the validity of a Federal tax on oleomargarine. The tax was much higher for yellow oleomargarine than for white because yellow oleomargarine closely resembled butter and was often sold as a substitute. In this case, the actual intention of Congress was not to generate revenue but to suppress the sale of oleomargarine as a butter substitute.

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