Taxing Power, Veazie Bank v. Fenno

[A18]

Veazie Bank v. Fenno, 75 U.S. 533 (1869)

The Congress levied a 10% tax on state-charted bank notes. The Supreme Court upheld the tax, and such bank notes began their slip into extinction.

[Emsworth]

There were two issues that the court faced in this case: firstly, whether this tax was a direct tax, and secondly, whether Congress could tax state-chartered banks.

It is quite clear that this tax is not a direct tax. Only taxes on people or on land are considered direct; all others are indirect. It follows, then, that this tax is only subject to the rule of uniformity, not the rule of apportionment.

The second issue relates to the sovereignty of the states. Naturally, Congress may not tax the operations of state governments; as Chief Justice Marshall stated in McCulloch v. Maryland, the power to tax involves the power to destroy. This case, however, is slightly different. The bank was not an agency of the state government, but a chartered private corporation just like any other business. Congress was not taxing the issuance of the charter by the state (an operation of the state government), but the issuance of banknotes by the bank (an operation of a private organization).

Thus, it would seem that the case was correctly decided.

[A18]

The bank was not an agency of the state government, but a chartered private corporation just like any other business. Congress was not taxing the issuance of the charter by the state (an operation of the state government), but the issuance of banknotes by the bank (an operation of a private organization).

There is no doubt that Congress may tax for revenue purposes. But the federal government is acknowledged by all to be one of enumerated powers, and the problem here is that the Congress was using its taxing power to regulate private banking.

If Congress's power to tax is unlimited, so is its power to legislate. For the power to tax does, indeed, involve the power to destroy.

[Emsworth]

There is no doubt that Congress may tax for revenue purposes. But the federal government is acknowledged by all to be one of enumerated powers, and the problem here is that the Congress was using its taxing power to regulate private banking.

Well, that is a completely different issue. The court only addressed the propositions that the tax was a direct tax, and that state-chartered banks cannot be taxed. As far as I can tell, the argument that the tax was a "means to an unconstitutional end" was not raised.

Was the tax a measure intended to generate revenue, or a regulatory measure? I do not know, but in the absence of clear evidence I cannot conclude that the latter was the case.

[A18]

Its primary effect (and, ultimately, only effect) was not to raise revenue, but to suppress private currency.

Even if we use the intent test, you can't tell me the Congress didn't realize putting private currency at this disadvantage would eliminate it altogether.

[Emsworth]

Its primary effect (and, ultimately, only effect) was not to raise revenue, but to suppress private currency.

I do not see how that can necessarily be concluded. This seems to have been but an excise on private currency, no different than any other excise.

This tax was imposed by a general revenue act. It levied taxes on "many hundreds products of the country" (to use the Supreme Court's words from In Re Henderson's Distilled Spirits). From the context, it should be very clear that this is a revenue measure, not a regulatory one. For a court to strike it down without absolutely clear evidence would be to overstep the bounds of the judiciary.

[A18]

Other excise taxes do not destroy the product they tax. Clearly, a tax that completely destroys the article it taxes is of no revenue benefit to the government.