What was the US Supreme Court 1936 decision about the New Deal Agricultural Adjustment Act?

Answer 1

In 1933, Congress established the Agricultural Adjustment Administration and passed the Agricultural Adjustment Act which levied taxes against certain farm commodity processors to fund a program designed to increase farmers' profits on their products by paying the farmers not to grow crops. This was intended as a direct control of supply and demand designed to restore economic prosperity under Roosevelt's New Deal.

The government initially allocated $100,000,000 from the Treasury to support the program.

Butler, the respondent in this case, was the receiver for Hoosac Mills Corporation. The company was presented with an assessment for "processing and floor taxes" on cotton purchased subsequent to the Act. The receiver advised the mill not to pay the tax, on the theory it was constitutionally invalid.

Butler filed for relief in District Court, but the Court found in favor of the government. Butler then petitioned the US Court of Appeals for the First Circuit, which agreed the tax was unconstitutional and reversed the lower court decision.

The United States appealed the First Circuit's reversal to the US Supreme Court, claiming the processors didn't have standing to question taxes levied against them by Congress. They also argued Article I, Section 8, Clause 1 of the Constitution provides Congress has the power "to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States."

The Court held that the Processors had standing to question validity of the tax, and that the Act invaded the powers reserved to the States under the 10th Amendment. Regulation and control of agricultural production properly belonged to the States and were beyond the reach of the federal government.

The Act was considered an attempt to regulate farmers' activities through economic coercion. The federal government, while empowered to levy taxes, cannot appropriate and spend money when the end result is unconstitutional.

The Court ruled Congress did not have a right to ratify the Agricultural Adjustment Act of 1933*, and affirmed the Circuit Court ruling, finding in favor of Butler.

*(Although the case was decided in 1936, the basis for the decision was made on the Act as passed in 1933 and not on the 1935 amendment to the Act.)

Subsequent Legislation

Congress responded to the Supreme Court decision by passing the Soil Conservation and Domestic Allotment Act, which paid benefits for planting soil-building crops, rather than staples.

This was followed by the Agricultural Adjustment Act of 1938, which made loans to farmers of in years of high yield to store surplus, which it could then sell in years of low yield. The 1938 Act was in effect until World War II, when it became necessary to increase food production.

Case Citation:

United States v. Butler, 297 US 1 (1936)