Spending Tax Revenue on the "General Welfare" is Arguably Legal but Spending Borrowed Money for that Purpose Isn’tAndrew Hyman

In October last year, I wrote a blog post titled, There's a Constitutional Limit on Borrowing by Congress Even Without a Balanced Budget Amendment.  Since we’re on the brink of much more federal indebtedness, here are some more thoughts on this subject.   The Constitution gives Congress vastly less discretion about how to spend borrowed money as compared to how tax revenue is spent, and here are the most pertinent clauses:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

There has always been controversy about what Congress can spend tax revenue on, but there's been relatively little discussion about whether congressional power to spend borrowed money is as broad as congressional power to spend tax revenue.  It’s not.

So far, I have found only one scholar who apparently argued that borrowed money can be spent by Congress just as freely as tax revenues can be spent.  That argument was put forth in the Manual of the Constitution of the United States of America by Timothy Farrar (1867) starting at page 315:

Debts must be paid, and defence and welfare provided for, whether taxes are laid and collected or not. Else what is the use of borrowed money, or the proceeds of public lands, or any other sources of revenue?

Of course, the answer to Farrar's question is this: borrowed money is useful for carrying into execution the enumerated powers laid out in the Constitution, but those powers do not include a general power to promote the general welfare.  The Constitution places no limits on how much money Congress can borrow, but it does limit the objects upon which borrowed money can be spent; those limits become weaker when tax money is spent.

Timothy Farrar seems to be an outlier on this issue.  Professor Gary Lawson agrees with Professor David Engdahl that, "the spending allusion in the Taxing Clause does not even colorably reach borrowed sums."  Engdahl has argued that once Congress borrows money, it is generally authorized to spend that money not by the Taxing Clause, but rather by the Property Clause, which lets Congress “dispose of and make all needful Rules and Regulations respecting the Territory or other Property [e.g. borrowed money] belonging to the United States...."  Lawson argues against Engdahl’s position by emphasizing that the Property Clause is located in Article IV, Section 3 instead of in Article I, Section 8 where one would expect to find it if Engdahl were correct.  I agree with Lawson about that.  But Lawson and Engdahl are both right that, assuming the Taxing Clause authorizes tax money to be spent on the general welfare, the Taxing Clause does not authorize borrowed money to be spent that same way.

Economists will tell you that the most sensible way to look at national debt is not the very scary number of total dollars, but instead the slightly less scary percentage of gross domestic product.  It was about 60% in the year 2000.  At the end of 2020 it was 99.3%.  So you get an idea where we're headed, and maybe the Constitution can apply some brakes.