All Banks in Like Manner Taxed? Maryland and the Second Bank of the United States

Abstract

All Banks in Like Manner Taxed? Maryland and the Second Bank of the United States MARK R. KILLENBECK Virtually everyone understands that there were two issues posed in M’Culloch v. Maryland.' The first was whether Con­ gress had the power to create the Second Bank of the United States, given the Constitution’s failure specifically to authorize Congress to create a national bank or charter a corporation. The Court held that Congress did, finding an implied power to do what was both “necessary” and “proper” to facilitate other enumerated powers. That made it appropriate to con­ sider the second question: whether the State of Maryland could levy a tax on the notes issued by the Baltimore branch of the Bank. Once again, most of us are well aware of the answer: no. Picking up on a phrase used by Daniel Webster in his argument for the Bank, Chief Justice John Marshall declared in no uncertain terms “that the power of taxing [the Bank] by the States may be exercised so as to destroy it, is too obvious to be denied.”2 Now known as the doctrine of intergovernmental regulatory immunity, the theory was simple. Taxation has a definite impact on an institution and its operations. If wielded inappropriately, the power to tax could indeed control or compromise institu­ tional activities. The states may have been sovereigns, and for them the “power of taxation is one of vital importance.”3 But they could not employ it against the national government and its operations. “This great principle is, that the constitution and the laws made in pursuance thereof are supreme; that they control the constitution and laws of the respective States, and cannot be controlled by them.”4 So far, so good. But there are two problems with this account, with the 200th anniversary of the decision providing an appropriate occasion for addressing them. The first is that most treatments of M’Culloch tend to emphasize Marshall’s take on implied powers, giving at best short 8 JOURNAL OF SUPREME COURT HISTORY shrift to the taxation argument and issues posed by it. In October 2014, for example, the Frank C. Jones Reenactment of the M’Culloch argument dealt only with the first issue. This decision was largely dictated by time; there simply was not enough available to deal fully with two issues, but deleting the taxation argument in favor of that concerning implied powers was also an eminently logical decision given the manner in which most people view the case. The second problem is that the taxation issue is much more sophisticated than most people realize. In particular, counsel for Maryland argued that the tax was a largely de minimus exercise in raising needed revenue, a mea­ sure within which the levy on the federal Bank was consistent with the manner in which Maryland dealt with all such financial institutions. The contention that the Maryland tax was not a punitive measure has subsequently gained a certain degree of currency. For example, in his final work. Aggressive Nationalism: McCulloch r. Maryland and the Foundation of Federal Authority in the Young Republic, Richard Ellis focused his formidable skills and deep knowledge of the founding era on the problems posed by the decision. He stressed that his goal was to rectify the failure of many scholars to explore the full range of issues posed by M’Culloch. In particular, he argued for the need to "examine the case from the point of view of the losing side.” as he believed this was the best way to deal “with relevant and important issues, many of which are crucial to understanding the case.”'1 When someone like Richard Ellis speaks, people must listen. As one reviewer stressed, adopting the Ellis rationales, so-called “conventional” scholarship on M’Culloch tends to be “uncritical," discussing the decision on Chief Justice Marshall’s terms and focusing on his interpretation of the Constitution to the exclusion of the perspectives of the “losing side.”6 Accordingly, I use the work of Marshall's critics as my point of departure for a detailed examination of the taxation issue. This is not because I simply wish to dispute or discredit their work. Rather...