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The End of Federal Coercion: How the Supreme Court May Have Opened the Door for 21st-Century Federalism

While supporters of the Affordable Care Act are celebrating the late-June decision upholding the constitutionality of the individual mandate, the biggest victory in the decision was for supporters of states’ rights. The sole provision struck down by the Court, Medicaid expansion, marked the first time the Supreme Court halted federal legislation based on the coercion theory. It may be that this somewhat overlooked aspect of the decision will have the greatest impact in future American politics. Coercion theory argues that the federal government can overstep its power by threatening to withhold federal funding if states do not bend to Congress’ will. Since the argument was first used in the 1936, the Court has been largely unwilling to even hear cases citing it as a main argument, and when it has, it has refused to validate the argument. The history of cases argued that cite such alleged coercion sheds much light on this recent decision. By looking closely at the coercion theory, one can see the enormous impact this recently validated argument will have in creating a new, 21st-century federalism.

In 1936, the validity of a tax imposed by the Social Security Act on employers was determined by the Supreme Court. In the case of Steward Machine Co. v. Davis, an Alabama corporation claimed the federal government had levied a tax on employers with the sole purpose of forcing state governments into adopting consistent unemployment compensation legislation. This claim of coercion was based on the fact that if a state established a federally approved unemployment compensation plan, the employer being taxed would have the option to credit up to 90% of the tax to the state unemployment fund, essentially exempting them from the majority of the tax. By so incentivizing the implementation of legislation, the federal government stood accused of overstepping its authority and infringing upon each state government’s sovereign right in an abuse of federal spending power.

In the end, a divided Supreme Court ruled that the federal government was not overstepping its boundaries by offering this incentive. In seeking “to draw the line intelligently between inducement and duress,” the Court maintained that the problem of unemployment “had become national in area and dimension.”[1] Thus it was “too late . . . for the argument to be heard . . . that in a crisis so extreme the use of the moneys of the nation to relieve the unemployed and their dependents is a use for any purpose narrower than the promotion of the general welfare.”[2] Notably, the Court did not attempt to “fix the outermost line” where inducement gives way to coercion, and found it “enough for present purposes that wherever the line may be, this statute is within it.”[3]

In 1987, an accusation of coercion was again brought to the Court’s attention in the case of South Dakota v. Dole. South Dakota’s state government challenged the federal government’s authority to withhold 5% of federal highway funding from states that did not change their drinking age to 21. The Court deemed that “Congress ha[d] offered relatively mild encouragement to the states to enact higher minimum drinking ages than they would otherwise choose.”[4] Thus, because this was a clear-cut case of inducement rather than coercion, the federal government’s action was upheld by the Court.

What distinguishes this most recent case of alleged coercion is that the nature of the supposed inducement is far more extreme than inducement examined in past cases. The program under scrutiny, Medicaid, has greatly benefited from federal inducement in previous decades. Beginning in 1965, state governments had the option to participate in the program, with the guarantee that the federal government would pay 50% of their coverage of the citizens who were most needy and least well off. As time went on, the federal government periodically enticed state governments to widen their coverage by offering them additional compensation. State governments were always given the option to decline the expansion (and the incentives) and continue their own operation of their Medicaid program. This time, however, the federal government demanded that state governments expand coverage to each and every citizen whose income was 138% of the poverty line or less. This would have been the single largest enrollment expansion in the Medicaid’s history. While the federal government would initially pay for this coverage, complying state governments would eventually be held accountable for 10% of the cost. For a state facing already serious budgetary problems, this additional cost could have been catastrophic. And this time, state governments could not so easily decline the federal government’s offer. If states did not expand their coverage, the federal government threatened, for the first time ever, to take away their entire Medicaid funding.

Since no state government could realistically deal with losing their entire Medicaid funding, they would be forced to comply. Thus they brought suit, claiming coercion. And for the first time, the Supreme Court found in their favor. Justice Roberts opined that, in comparison to the “relatively mild encouragement” the federal government offered states in South Dakota v. Dole, this kind of inducement was not inducement, but rather coercion so extreme it was paramount to “a gun to the head.”[5] While South Dakota was only threatened with losing what equated to less than .5% of their overall budget, states that lost all Medicaid funding would be losing over 10% of their overall budgetary funding.[6]

As in Steward Machine Co. v. Davis, the Court did not see fit to undertake the very tricky process of determining exactly where inducement becomes coercion. In his opinion regarding Medicaid expansion, Roberts stated: “We have no need to fix a line either. It is enough for today that wherever that line may be, this statute is surely beyond it. Congress may not simply conscript state [agencies] into the national bureaucratic army, and that is what it is attempting to do with the Medicaid expansion.”[7]

The impact of this decision could be felt far beyond the realm of health care. The Supreme Court has been very reluctant to even hear arguments concerning coercion, but now that it has stricken down federal legislation citing that very theory, the floodgates may have just been opened. State governments have long felt overshadowed by the towering federal government, and now have precedent to bring suit over any law laden with financial incentives from Washington. Because Roberts chose to forgo the tricky process of establishing an exact line between “inducement and duress,” many state governments may decide to find out exactly where that line is. Now, every law with attached purse strings could potentially be put under the magnifying glass. The more laws found to be laden with such heavy incentives as to be deemed coercive, the more power state governments may claim back from the federal government. In other words, the less money the federal government is allowed to offer the state governments to adopt uniform legislation, the more diverse and truly self-determinant the states can become. The late June decision may, with time, prove to be a big victory for states’ rights.

It is important to note, however, that the concept of states’ rights as discussed by the founders and ante-bellum politicians is long dead. Make no mistake, the debate as to whether the United States is one single nation or a federation of state governments is over and answered. Lincoln and the federal government pounded dissension into submission, and through the smoke and blood of the Civil War declared the Union to be unbreakable, whole, and uniform in morality. Secession and slavery, though born of self-determination of the southern state governments, were overridden and declared void by the federal government.

In such a clear-cut case of morality vs. immorality, the American people applauded Lincoln’s efforts and eventually came to revere him as perhaps the greatest American president. In the context of slavery, Lincoln’s second founding does indeed seem necessary, heroic and modern. Overriding state governments that yield grossly immoral and inhuman practices, even if they were self-determined, appeared to be unquestionably just after the federal government rid the country of slavery. However, Wilson and other progressive era presidents continued this trend through nationally uniform political and social reform. The need for the federal control was further expanded during the Great Depression, with Roosevelt’s ABC’s a prime example of positively viewed nationally uniform legislation. The decision in Steward Machine Co. v. Davis was a final step in solidifying the federal government’s superiority in the 20th century.

Saving the Union, freeing the slaves, and rescuing the country from social and economic peril is an impressive list of accomplishments, and the federal government invokes them to paint itself as the ultimate defender of common citizens and minorities, therefore treating state governments as relics from a racist and regressive past. However, the second half of the 20th century has presented federal and state government with much less clear-cut political and juridical issues. A strong federal government possessing supreme power may have led the United States through great crises, yet this centralization of power is now causing problems that is diminishing American pluralism.

In modern, less black and white issues such as universal health care, the federal government’s attempt to induce (or coerce, in the Court’s opinion) uniform legislation is essentially assimilating various ethical, political and social views into one homogenized approach to each of those topics. And of course, these national definitions are determined by the current majority and prevailing views of the times. John Calhoun, the greatest proponent of ante-bellum state sovereignty, wrote extensively on the perils of the tyranny of the majority, and saw individual state sovereignty as a way to ensure that Americans of all differing beliefs had a state in which their views prevailed.

To be sure, state sovereignty as Calhoun envisioned it is dead and buried under years of irreversible growth of the federal government. However, the Supreme Court may have opened the door for the establishment of a new, 21st-century federalism. By protecting state governments from this obvious example of coercion by the federal government, the Court has opened the door for states to reclaim some of their long lost power of sovereignty. In the aftermath of this decision, it may be possible to increase the plurality of American democracy by allowing state governments more self-determination, even within the framework of a still powerful federal government.

Notes

1. Steward Machine Co. v. Davis 301 U.S. 548 (1937), 591.

2. Ibid., 587.

3. Ibid., 591.

4. South Dakota v. Dole, 483 U.S. 203 (1987), 212.

5. NFIB v. Sebelius 132 U.S. 1161 (2012).

6. Ibid.

7. Ibid.

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