All Commentary
Thursday, February 1, 1996

Taking Taxes: The Case for Invalidating the Welfare State

Funding Social Welfare Programs with Tax Dollars Violates the Takings Clause

Mr. Kochan is a student at Cornell Law School and an adjunct scholar with the Mackinac Center for Public Policy Research in Midland, Michigan.

As attempts to downsize the welfare state continue, reformers are relying primarily on practical arguments—that transfer programs waste taxpayers’ funds and hurt the poor, for instance. They do, but there is a more fundamental issue: social programs have no constitutional warrant. Even if such outlays fell under an enumerated power, they would still run afoul of the Takings Clause of the Fifth Amendment.

“Nor shall private property be taken for public use without just compensation” runs this critical protection in the Bill of Rights.[1] Properly interpreted, this clause prohibits taxing citizens to fund programs for the benefit of others, for doing so violates the requirements that any taking of “private property” be for “public use” and that the property owner receive “just compensation.”

Negative Liberty

The nation’s founding was based on the concept of negative liberty: law exists to protect against coercive intrusions and not as a means for compelling action. Tort law expressly holds that an individual cannot be forced to give up a portion of his liberty to benefit another, no matter how little the cost. The common law “Good Samaritan Rule,” for instance, states that no one is legally obligated to provide any level of help to another in need.

As men consent to be governed, they agree to transfer certain enforcement powers, formerly held privately, to public law as a means of promoting efficiency and order. Thus, the constitutional compact merely shifts the enforcement of certain private law obligations to the State; it does not create new duties, with no pre-existence in the private law, except where expressly stated. Explained constitutional commentator Joseph Story: “A man has a perfect right to life, to his personal liberty, and to his property; and he may by force assert and vindicate those rights against every aggressor. But he has but an imperfect right to . . . charity . . . even if he is truly deserving it.” These imperfect rights “may not be asserted by force of law, but are obligatory only on the conscience of parties.”

Takings and Taxings

It is true that Article I, Section 8, of the Constitution grants Congress the power to lay taxes. The Sixteenth Amendment expanded this power by allowing the federal government to tax income. Obviously the government is given the power to tax.

In private law, however, C never has a claim to take A’s property merely because C desires (or “needs”) it. There is no reason to believe that the Founders intended to grant C the power to employ the State to the same ends. Added to this is the fact that one of the most important goals of the Constitution was to guarantee property rights. This protection, defined broadly, was seen as the critical justification for government. Given this legal and philosophical backdrop, the restrictions of the Takings Clause should not be viewed lightly.

Granting government the power to tax does not release it from its obligations under the Fifth Amendment to spend such revenues only on those purposes of government which are for public use and provide compensation to all whose incomes are taken. Money is to be seized only to support the commonly understood function of government: the protection of individual rights from intrusion by the State or other members of society. This obligation forms the core of the Fifth Amendment.

Thus, the Takings Clause screens out illegitimate seizures by forcing all such actions to meet two criteria: (1) property is taken only for “public use”; and (2) “just compensation” is rendered to those whose property is taken. Transfer payments violate both of these limitations on the eminent domain power. Social programs transfer money from A (the taxpayer) to B (the government) for redistribution to C (the program beneficiary). In this case, government has taken private property from A for the private use of C. A derives no benefit, for C retains an undivided interest in A’s property; therefore it is inconceivable that A is compensated at all, let alone justly.

The purpose of the State, and the Constitution’s delineation of enumerated powers, clearly limits the federal government from acting as anything other than a public functionary. Accordingly, it is vital to define what constitutes a “public use” as a proper exercise of the government’s power.

Eighteenth-century dictionaries help distinguish between public and private purposes. One source defines “public” as that which is “belonging to a state or nation; . . . regarding not private interest, but the good of the community.”[2] The usual understanding is that “public” involves those things in which all individuals have a common interest, not those in which certain people, in exclusion of others, have a specific interest.

The word “use” also indicates the narrowness of allowable takings. By including “use” instead of “purpose,” “interest,” “rationale,” “reason,” “benefit,” or similar term, the Framers chose a stricter test to judge the legitimacy of government action. All of these alternates would allow uses of any kind so long as the government could claim that the ultimate effect would prove worthwhile. Such constructs would leave the Takings Clause empty: Congress could contend that any action provided some subjective benefit or interest to society.

“Purpose” could prove more limiting in that it would require government to prove that it was exercising a legitimate role of government as found in the Constitution. “Purpose” alone, however, is somewhat ambiguous, and would allow transfer payments if such transfers arguably served some end of government in the long run. “Use,” however, incorporates the limitations of “purpose” while narrowing the field of legitimate actions even further. “Use” has retained the meaning of “employing with a purpose.”[3] This requires that the public entity actually exercise the use for which property is taken. The most appropriate correlation today would be the economic term “public goods.” A public good involves a government action for the indivisible benefit of all members of society.

Taken together, “public” and “use” can be further defined through three tests which distinguish between public and private uses. Genuine public uses must be inclusive, dividing equally the interest and surplus among all those in society; provide universal access; and be necessary, that is, address problems not susceptible to private solutions.

Inclusivity requires that no citizens be excluded from the benefits of the government’s action. The court system, police power, and national defense all satisfy this requirement. Funding a program to protect one individual provides that protection to all. The benefits are not discriminately provided to only certain members of society. No one is excluded from satisfying a claim to the use of his property; rather, everyone retains access to the courts and police, for instance. It is necessary for government to fund national defense because individuals cannot protect themselves individually from foreign intruders. Redistributive programs, however, fail all of these tests.

Even if social welfare programs satisfied the “public use” portion of the Takings Clause, they would fail the “without just compensation” component. In cases where taxes constitute the taking in question, compensation can only be derived from the government function provided from spending such funds, since to require monetary compensation would leave the state’s coffers empty and consequently defeat the purpose of taxation.

The 1755 edition of Johnson’s Dictionary of the English Language defines “just” as “exact; proper; accurate; . . . equally retributed” and “compensation” as “something equivalent; amends.” Blackstone spoke of just compensation as “a full indemnification and equivalent for the injury thereby sustained.” This notion of equivalency is precisely that understood by the Framers when crafting the Takings Clause.

In most takings, the equivalency is paid in cash, but this is not the only means. The idea that taxes would be used to “provide for the common Defence and general Welfare”[4] indicates that takings for these purposes would be compensated by fulfilling the state’s duty to protect individual rights.

Thus, the “just compensation” component follows the “public use” requirement. If universal access is missing, then some surrender taxes without receiving any or adequate compensation. Even if one argues that the term “public use” is not restrictive in itself, in relation to taxation only those uses that are public will offer sufficient compensation. Funding entitlement programs for which the taxpayer is ineligible violates this requirement.

Some might argue that indirect benefits from redistributive programs constitute compensation, just as they argue that “use” involves any effect of a taking which proves beneficial. However, the Founders likely chose “compensation” instead of “benefit” in anticipation of such arguments. “Compensation” is not the same as “benefit”; nondiscriminatory access to the actual use is the only means by which just compensation for taxes is possible.

Additionally, genuine compensation must be directly linked to the taking. It requires that the property seized be replaced by something equally valuable. Positive externalities resulting from the taking, even if real and measurable, are mere consequences of the use. They are not compensation.

End of the Welfare State?

Social Security, unemployment benefits, corporate subsidies, farm programs, ordinary welfare, and countless other manifestations of the welfare state all represent uncompensated takings redistributed for private use. Thus, all violate the protections afforded property in the Fifth Amendment.

Unfortunately, the courts today hardly remember that the Takings Clause even exists. And, admittedly, the welfare state has become so much a part of American society that it cannot be easily removed. The fact many people have come to rely on the welfare state, however, does not justify continuing to ignore the Constitution. Observed University of Chicago Law Professor Richard Epstein in his book Takings, “A correct theory at the very least can lead to incremental changes in the proper direction. . . . When the stakes are high, any shift in course has important consequences.”

It is time for defenders of liberty to appeal to constitutional principle as well as practical consequence. The Constitution requires no less.

1. U.S. Constitution, Amendment V. The correct interpretation of this clause also limits the power of the states through similar clauses in each state constitution.

2. Johnson, A Dictionary of the English Language (2d Ed., 1755).

3. Roger Clegg, Reclaiming the Text of the Takings Clause, 46 S.C.L. Rev. 531:, 543 (Summer 1995).

4. U.S. Constitution, Article I, Section 8.