McCulloch v. Maryland

McCulloch v. Maryland is a keynote case, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819), decided by the U.S. Supreme Court that established the principles that the federal government possesses broad powers to pass a number of types of laws, and that the states cannot interfere with any federal agency by imposing a direct tax upon it.

This case represents another illustrative example of the ongoing debate among the founders of the U.S. constitutional government regarding the balance of powers between the states and the federal government. The Federalists were in favor of a strong central government, whereas the Republicans wanted the states to retain most powers. Those who wrote and ratified the U.S. Constitution ultimately agreed to grant the federal government certain specific powers known as the enumerated powers—listed in the Constitution—and concluded with a general provision that permitted Congress to make all laws that are necessary and proper for the carrying out of the foregoing powers, as well as all other powers vested in the U.S. government by the Constitution. Some people were fearful that such a provision, which is called the NECESSARY AND PROPER CLAUSE of the Constitution, was a blanket authorization for the federal government to regulate the states.

Subsequently, a series of articles—which came to be called the Federalist Papers—were published in New York newspapers. These articles defended the clause on the basis that any power only constitutes that ability to do something, and that the power to do something is the power to utilize a means of doing it. It is necessary for a legislature to have the power to make laws; therefore, the proper means of exercising that power is by making "necessary and proper" laws. The Constitution was, therefore, ratified in 1789 with the Necessary and Proper Clause.

In exercise of the power conferred by that clause, the first Congress enacted a law in 1791 that incorporated a national bank called the BANK OF THE UNITED STATES, which operated as a private bank, took deposits of private funds, made private loans, and issued bank notes that could be used like money. In addition, wherever branches were established, it operated as a place for the federal government to deposit its funds. The legislation that incorporated the bank stated in its preamble that it would be extremely conducive to the successful operation of the national finances, would aid in the obtaining of loans for the use of the government in sudden emergencies, and would produce considerable advantages to trade and industry in general.

That bank charter was allowed to expire in 1811; however, a second Bank of the United States was incorporated in 1816 with one-fifth of its stock owned by the United States, and it became extremely unpopular. This was particularly true in the South and West, where it first overexpanded credits and then drastically limited them, thereby contributing to the failure of many state-chartered banks. A number of states attempted to keep branches of the national bank out of their states by passing laws proscribing any banks not chartered by the state or by imposing heavy taxes on them. The only bank affected by these laws was the Bank of the United States. The tremendous dispute that subsequently arose between the federal and state governments required resolution by the Supreme Court.

Maryland had one of the least stringent rules against the bank, which required that any bank or branch that was not established subject to the authority of the state must use special stamped paper for its bank notes and, in effect, pay 2 percent of the value of the notes as a tax or pay a general tax of $15,000 a year. Maryland brought suit against McCulloch, cashier of the Bank of the United States, for not paying the tax and won a judgment for the amount of the penalties. An appeal was brought to the Supreme Court by McCulloch.

Chief Justice JOHN MARSHALL wrote the majority opinion of the Court, which reversed the Maryland judgment. The Court held that the federal government has the power to do what is necessary and proper, which included the grant of authority to establish a national bank. Maryland, therefore, had no right to tax the bank, a conclusion which was based upon the theory that "the power to tax is the power to destroy." A state cannot have authority under the Constitution to destroy or tax any agency that has been properly set up by the federal government. On that basis, the law that was passed by the legislature of Maryland that imposed a tax on the Bank of the United States was unconstitutional and void.