Steward Machine Co. v. Collector of Internal Revenue
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| Steward Machine Co. v. Collector of Internal Revenue | |
| Reference: 301 U.S. 548 | |
| Term: 1937 | |
| Important Dates | |
| Argued: April 8-9, 1937 Decided: May 24, 1937 | |
| Outcome | |
| United States Court of Appeals for the Fifth Circuit affirmed | |
| Majority | |
| Benjamin Cardozo • Chief Justice Charles Hughes • Louis Brandeis • Harlan Fiske Stone • Owen Roberts | |
| Dissenting | |
| George Sutherland • Willis Van Devanter • James Clark McReynolds • Pierce Butler | |
Steward Machine Co. v. Collector of Internal Revenue is a case decided on May 24, 1937, by the United States Supreme Court holding that the federal government is permitted to impose a tax even if the goal of the tax is not just the collection of revenue. The case concerned the federal government's power to levy taxes on employers to fund the joint federal-state unemployment insurance program. The Supreme Court upheld the federal government’s authority under Titles III and IX of the Social Security Act of 1935 and to offer up to a 90% federal unemployment tax reduction to employers in states that established federally compliant state unemployment taxes. The Supreme Court affirmed the ruling of the United States Court of Appeals for the Fifth Circuit, holding that Congress did not violate the Constitution by exercising undue influence on the states or levying an arbitrary tax.[1][2][3]
Why it matters: The Supreme Court's decision upheld the Social Security Act of 1935 and the incentives for states to create unemployment insurance programs. The case set the precedent that Congress could use the Spending Clause (also known as the General Welfare Clause) for purposes broadly related to promoting the general welfare. The precedent affirmed Congress' power under the clause to use financial incentives, but not coercion or destruction, to regulate state laws. To read more about the impact of Steward Machine Co. v. Collector of Internal Revenue click here.
Background
| Unemployment insurance |
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- See also: Social Security Act of 1935
Title IX of the Social Security Act of 1935 established a federal unemployment tax on employers. The title also established that employers who paid state unemployment tax into a federally approved state unemployment program could credit the amount paid under state law against the federal tax to offset up to 90% of the federal unemployment tax. Title IX also exempted businesses with fewer than eight employees from the federal unemployment tax.[2][3]
Title III of the Social Security Act of 1935 authorized future appropriations out of any money in the Treasury (not specifically out of revenue generated by the federal unemployment tax) to issue grants for assisting states in administering their unemployment insurance laws.[2][3]
Steward Machine Company filed suit in federal district court, alleging Title IX and Title III illegally coerced states into passing unemployment insurance laws in violation of the Tenth Amendment. The company also alleged the exemptions in Title IX were arbitrary and violated the Fifth Amendment. The district court held that both titles were constitutional, and the United States Court of Appeals for the Fifth Circuit affirmed the decision.[2][3]
Oral argument
Oral argument was held on April 8-9, 1937. The case was decided on May 24, 1937.[1][2]
Decision
The Supreme Court decided 5-4 to uphold the Social Security Act of 1935 and the incentives for states to create unemployment insurance programs. Justice Benjamin Cardozo delivered the opinion of the court, joined by Chief Justice Charles Hughes and Justices Louis Brandeis, Harlan Fiske Stone, and Owen Roberts. Justices George Sutherland, joined by Willis Van Devanter, and James Clark McReynolds filed opinions concurring in the judgment in part and dissenting in part. Justice Pierce Butler delivered a dissenting opinion.[1][2]
Opinions
| Federalism |
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Opinion of the court
Justice Benjamin Cardozo, writing for the court, argued that the Social Security Act of 1935 did not violate the principles of federalism under the Tenth Amendment. Cardozo said the act only provided motivation, not coercion, for states to pass unemployment insurance laws:[2]
| “ | But to hold that motive or temptation is equivalent to coercion is to plunge the law in endless difficulties. The outcome of such a doctrine is the acceptance of a philosophical determinism by which choice becomes impossible. Till now the law has been guided by a robust common sense which assumes the freedom of the will as a working hypothesis in the solution of its problems. The wisdom of the hypothesis has illustration in this case. Nothing in the case suggests the exertion of a power akin to undue influence, if we assume that such a concept can ever be applied with fitness to the relations between state and nation.[4] | ” |
| —Justice Benjamin Cardozo, majority opinion in Steward Machine Co. v. Collector of Internal Revenue[2] | ||
Cardozo also held that Title IX did not violate the Fifth Amendment, since the law applied equally across the United States:[2]
| “ | The tax imposed by Title IX of the Social Security Act of August 14, 1935, upon the employer of labor, described as "an excise tax with respect to having individuals in his employ," and which is measured by prescribed percentages of the total wages payable by the employer during the calendar year, is either an "excise," a "duty," or an "impost," within the intent of Art. I, Sec. 8, of the Constitution, and complies with the requirement of uniformity throughout the United States.[4] | ” |
| —Justice Benjamin Cardozo, majority opinion in Steward Machine Co. v. Collector of Internal Revenue[2] | ||
Finally, Cardozo determined that Title III did not present an issue since it only authorized future appropriations for the purposes of administrative grants, and it did not directly appropriate money. He also said Title III was separable from Title IX, so if the appropriations authorized by Title III were found unconstitutional in the future, the title could be struck down without striking Title IX federal unemployment taxes:[2]
| “ | The tax imposed by Title IX of the Social Security Act of August 14, 1935, upon the employer of labor, described as "an excise tax with respect to having individuals in his employ," and which is measured by prescribed percentages of the total wages payable by the employer during the calendar year, is either an "excise," a "duty," or an "impost," within the intent of Art. I, Sec. 8, of the Constitution, and complies with the requirement of uniformity throughout the United States.[4] | ” |
| —Justice Benjamin Cardozo, majority opinion in Steward Machine Co. v. Collector of Internal Revenue[2] | ||
Dissenting opinions
Justice Pierce Butler, writing the dissent, argued the Social Security Act of 1935 violated the principles of federalism outlined in the Tenth Amendment. Butler argued that Congress' power of taxation was limited to specifically enumerated purposes, and he said the federal government did not have the authority to pay unemployment insurance benefits. Butler also held that tax systems similar to the 90% credit device outlined in Title IX could allow the federal government to exercise authority over states in other matters of policy the Constitution reserved to state and local governments.[2]
| “ | The Constitution grants to the United States no power to pay unemployed persons or to require the states to enact laws or to raise or disburse money for that purpose. The provisions in question, if not amounting to coercion in a legal sense, are manifestly designed and intended directly to affect state action in the respects specified. And, if valid as so employed, this 'tax and credit' device may be made effective to enable federal authorities to induce, if not indeed to compel, state enactments for any purpose within the realm of state power and generally to control state administration of state laws.[4] | ” |
| —Justice Pierce Butler, majority opinion in Steward Machine Co. v. Collector of Internal Revenue[2] | ||
Impact
The Supreme Court's decision set the precedent that Congress could use the Spending Clause for purposes broadly related to promoting the general welfare. The precedent affirmed Congress' power under the clause to use financial incentives, but not coercion or destruction, to regulate state laws.[1][2]
South Dakota v. Dole (1987) is one example of a case that relied on the precedent set in Steward. In that case, the Court ruled 7-2 that Congress could, under the Spending Clause, withhold federal highway funding from states that did not raise the drinking age to 21.[5]
See also
- Federalism
- Unemployment insurance
- The Hughes Court
- Supreme Court of the United States
- History of the Supreme Court
External links
- Full text of case syllabus and opinions (Justia)
- Supreme Court of the United States
- Search Google News for this topic
Footnotes
- ↑ 1.0 1.1 1.2 1.3 Oyez, "Steward Machine Company v. Collector of Internal Revenue," accessed August 27, 2021
- ↑ 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12 2.13 2.14 Justia, "Steward Mach. Co. v. Collector, 301 U.S. 548 (1937)," accessed August 27, 2021
- ↑ 3.0 3.1 3.2 3.3 Cornell Law School, "CHAS. C. STEWARD MACH. CO. v. DAVIS," accessed August 27, 2021
- ↑ 4.0 4.1 4.2 4.3 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
- ↑ Justia, "South Dakota v. Dole, 483 U.S. 203 (1987)," accessed August 27, 2021
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