Thank You For Submiting Feedback!
The Constitution, art. 1, § 8, names as the first power of Congress, "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." The employment of another is such a transaction as may be the basis of an excise tax. The power of Congress in imposing excise taxes has been said to be subject only to the limitation that they be for the public welfare and be uniform throughout the United States.
Petitioner, Charles C. Steward Machine Company, paid a tax in accordance with title IX of the Social Security Act, sued the Commissioner of Internal Revenue to recover the payment, and asserted a conflict between the statute and the Constitution. Under title IX (42 U.S.C.S. §§ 1101-1110), headed: "Tax on Employers of Eight or More." The first section (42 U.S.C.S. § 1101) stated that: "On and after January 1, 1936, every employer (as defined in section 907 [section 1107 of this chapter]) shall pay for each calendar year an excise tax, with respect to having individuals in his employ, equal to the following percentages of the total wages," etc. The taxes imposed shall be collected through usual channels and by usual procedure, shall be paid into the Treasury of the United States as internal-revenue collections, shall be entered as free funds set apart to no special use and subject to be applied to any congressional appropriation. Furthermore, one of the purposes of the Social Security Act, as stated in its caption, is "to raise revenue." However, the provisions of title IX touched the credits against the tax matter which tied these credits to title 7 (sections 701-704 [42 U.S.C.S. §§ 901-904]) which created the Social Security Board, and to title III (sections 301-303 [42 U.S.C.S. §§ 501-503]) which made grants to assist the States in the administration of their unemployment relief laws. The law allowed a taxpayer to take credit up to 90 percent of his tax for contributions which he has made to an unemployment fund under the laws of his State if those laws have been certified by the Social Security Board as conforming to certain standards specified in section 903 (42 U.S.C.A. § 1103).
Was the tax unconstitutional?
The Constitution, art. 1, § 8, names as the first power of Congress, "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." For many years and in numerous instances Congress had recognized with complete public acquiescence that calamities such as floods, droughts, earthquakes, and pestilences which, though local, exceed the resources of local government to meet, are matters affecting the general welfare of the United States, touching which its power to tax and the correlative power to spend may be exercised. Still, it remained true that the relief of such conditions was primarily the duty and burden of several States. To refill the federal treasury and to encourage the States to assume for the future their proper burden this tax with its credit scheme has been devised. In articles III and IX taken together Congress recognized that the subject of unemployment relief by insurance or otherwise was primarily a matter for the States, but that by reason of recent experience the federal treasury is also involved, and that its reasonable protection is part of the general welfare in a constitutional sense. The policy of such grants and the fixing of their conditions and amount is for legislative, not curial, judgment. The tax here in issue is calculated to raise more money than is appropriated to aid State administrations even if all the States establish them, and the net result of it will be to put money into the Treasury as well as to aid federally protective State activities.