In Helvering v Davis, 301 U.S. 619 (1937), the U.S. Supreme Court upheld the constitutionality of the Social Security Act of 1935. The Court ruled that the Social Security Program to provide old age benefits did not violate the Tenth Amendment because Congress is permitted to spend for the general welfare.
A shareholder of the Edison Electric Illuminating Company sought to restrain the corporation from making the tax payments and the deductions from wages required by the Social Security Act. He sought an injunction and a declaration that the Social Security Act was unconstitutional.
As described by the Supreme Court, Title II of the Social Security Act provides for “Federal Old-Age Benefits” for persons who have attained the age of 65. It creates an “Old-Age Reserve Account” in the Treasury and authorizes future appropriations to provide for the required old-age payments, but, in itself, neither appropriates money nor brings any money into the Treasury. Meanwhile, Title VIII imposes an “excise” tax on employers, to be paid “with respect to having individuals in their employ,” measured on the wages, and an “income tax on employees,” measured on their wages, to be collected by their employers by deduction from wages.
The U.S. First Circuit Court of Appeals held that Title II of the Social Security was void as an invasion of powers reserved by the Tenth Amendment to the states or to the people, and that Title II, in collapsing, carried Title VIII along with it. As an additional reason for invalidating the tax upon employers, the court held that it was not an excise as excises were understood when the Constitution was adopted.
By a vote of 7-2, the Supreme Court reversed. It held that “[t]he scheme of ‘Federal Old-Age Benefits’ set up by Title II of the Social Security Act does not contravene the limitations of the Tenth Amendment.” It further held that tax on employers “is an excise tax and thus within the power conferred upon [given to] Congress by . . . the Constitution.”
In reaching its decision, the Court emphasized that Congress may spend money in aid of the “general welfare.” As Justice Benjamin N. Cardozo wrote on behalf of the Court:
The line must still be drawn between one welfare and another, between particular and general. Where this shall be placed cannot be known through a formula in advance of the event. There is a middle ground, or certainly a penumbra, in which discretion is at large. The discretion, however, is not confided to the courts. The discretion belongs to Congress, unless the choice is clearly wrong, a display of arbitrary power, not an exercise of judgment. This is now familiar law.
The Court further concluded that the concept of “general welfare” is not static, but adapts itself to the crises and necessities of the times. Moreover, the “problem of security for the aged, like the general problem of unemployment, is national, as well as local.”
As Justice Cardozo explained, “the ill is . . . not greatly different whether men are thrown out of work because there is no longer work to do or because the disabilities of age make them incapable of doing it.” He added that the “laws of the separate states cannot deal with it effectively . . . States and local governments are often lacking in the resources that are necessary to finance an adequate program of security for the aged.”
