Clinton v. City of New York

The line-item veto issue came to the political forefront during the 1980s as the national deficit dramatically rose. President Ronald Reagan's administration contended the problem was not due to his tax cuts or defense buildup, but rather Congress' large domestic spending programs under Democratic leadership. The Republicans identified the line-item veto as a key issue in their 1994 "Contract With America" during the 1994 national elections. Upon victoriously assuming control of Congress after the elections, the Republicans were suddenly faced with enacting the law while having a Democrat president. As an amendment to the 1974 Impoundment Act, Congress passed the Line Item Veto Act and President Bill Clinton signed it into law in April of 1996. But the Republican leaders delayed its effective date to January of 1997 in hopes they might recapture the presidency in the previous November elections.

The Line Item Veto Act granted the president power to cancel three kinds of provisions signed into law: (1) all discretionary spending not required by law; (2) any new direct spending; and, (3) limited tax benefits. Under the new law, Congress would, as usual, approve tax and funding bills and send them to the president for his signature. However, after signing the legislation, the president had five days to eliminate specific lines of spending and notify Congress of his deletions. Congress could resurrect the lined out items within 30 days by a single majority vote. Also, any spending deleted had to be applied to reducing the deficit, not for some other purpose. Rather than being an actual veto, in an effort to avoid violating the Constitution, the deletion was more an enhanced recision power, since it occurred after passage of the law.

Some Senate opponents, led by Senator Robert C. Byrd (D-WV), contested the bill's validity. However, the Supreme Court ruled in Raines v. Byrd (1997) they lacked legal standing to pursue the claim since they had suffered no actual injury or loss.

In total, Clinton used his new, historic power to veto 82 legislative items with Congress overriding only one, a military construction bill providing $287 million for 38 projects. The line-item vetoes that stood reversed $869 million in spending and tax breaks. Among those items canceled was one affecting New York State and another affecting Idaho potato farmers.

The Social Security Act had authorized the federal government to provide substantial funding to states to help finance indigent medical care. However, Congress passed legislation in 1991 directing that these federal subsidies would be reduced by the amount of certain taxes assessed by the states on health care providers. As a result, in 1994 Congress required New York to return improper excess Medicaid payments to the United States. The state lobbied Congress for relief. In August of 1997, Congress responded by resolving the matter in New York's favor, saving the state some $2.6 billion for the five year period. Six days later, President Bill Clinton sent notices to the Senate and House of Representatives canceling that part of the law claiming it improperly gave preferential treatment to one state.

Another specific spending item also caught Clinton's attention. A company profiting from the sale of property is generally subject to a capital gains tax. However, a business could sell to another through a merger or stock transaction without being taxed. Excluded from such tax relief were farmer's cooperatives. The Taxpayer Relief Act of 1997 offered such tax breaks to businesses selling processing plants to farmers cooperatives. Clinton canceled this limited tax benefit as well.

In reaction to the cancellations, two separate lawsuits were filed in U.S. district court against Clinton and other federal officials. The New York case involved New York City, two hospital associations, a hospital, and two unions representing health care employees. The second action involved a farmer's cooperative, Snake River Potato Growers Inc., representing of about 30 potato growers in Idaho, and an individual officer of the cooperative. The court combined the cases and determined that legal standing existed in each.

In February of 1998, the district court found the line-item vetoes unconstitutional. The very nature of the laws after the presidential cancellations was different from that agreed upon by both houses of Congress. Therefore, the court found that Clinton violated Article I of the Constitution when he "vetoed" only parts of the laws. The court concluded the Line Item Veto Act significantly disrupted the carefully designed balance of powers among the three branches of government. Clinton appealed the decision directly to the Supreme Court.