Helvering v. Davis (301 U.S. 619)

Transcript of Oral Argument on Wednesday, May 5, 1937

THE CHIEF JUSTICE: No. 910, Guy T. Helvering against George P. Davis.

MR. JACKSON: May it please the Court this cause reaches this Court by certiorari directed to the First Circuit Court of Appeals, which has rendered a decision that title VIII of the Social Security Act imposing a tax upon employers, and also upon employees, and also title II establishing a system of old-age benefits, are all unconstitutional.

The district court had dismissed the bill in this case, holding that title VIII was constitutional as to the taxes imposed, and that title II was not involved.

The bill is brought by a stockholder, who charges that the defendant, Edison Electric Illuminating Co. of Boston of which he is a stockholder, is about to pay an unconstitutional tax, that he has protested without avail, and that the payment, if not enjoined, will be an irreparable injury to his stock equity.

He also sought to question the taxes imposed upon the employee, because the employer is made a withholding agent and required to withhold from the employee's wages the amount of the tax and pay it to the collector.

That was sought to be questioned by the stockholder upon the claim that it would cause "restlessness" among the employees.

The answer filed by the corporation raised no question of fact or substance.

A motion was made for a temporary injunction.

At that point the collector and Commissioner of Internal Revenue intervened and filed an answer, raising no question 'as to the regularity of the procedure, except as to the employees' tax.

It was denied that the stockholder could question the validity of a tax which his corporation did not have ultimately to pay.

The answer of the Government included a motion to dismiss.

The motion to dismiss was granted and the injunction denied.

The circuit court of appeals returned the case to the district court with instructions that the act was unconstitutional.

The statute involved is the Social Security Act, title VIII, which imposes a tax on employers and on employees, except those engaged in agriculture, domestic service, and the like.

The tax is payable to the General Treasury.

Title II is asserted to be involved, and, beginning in 1942, it establishes monthly benefit payments for persons 65 years of age and upward, who have qualified under the act, and certain death benefits for those who have qualified for them, but who do not reach 65 years of age.

The decision of the circuit court of appeals is based upon several propositions.

The opinion appears at page 26 of the record, and the reasoning upon which they have held these two titles to be unconstitutional seems to be expressed in several quotations, which I will make.

The first reason appears to be on page 27: The assistance of those Incapacitated by age from earning a livelihood is one of the powers belonging to, and burdens Imposed on, the states at the time of the adaptation of the Federal Constitution.

Conceding that this tax is not an earmarked tax nor a tax appropriated specifically to the purposes of title II, the Court nevertheless continues with a finding that it was the intent of Congress that the taxes raised under sections 801 and 802 of title VIII were imposed for the express purpose of paying the old-age benefits provided in title II; and it continues: We think that the power to provide for old-age benefits was among those powers reserved to the States under the tenth amendment.

MR. JUSTICE STONE: Are you going to deal with the equity jurisdiction, Mr. Jackson?

MR. JACKSON: I had not intended to; but, of course, if there is a question about it, I shall be glad to.

I may say that we waived any question as to equity jurisdiction; that we waived because of the vital importance to the Government of an early decision in this case.

We recognize that there is some question as to the right of a stockholder to maintain an action of this kind and doubt as to whether he sustains an irreparable injury under these circumstances.

The Circuit Court of Appeals of the Second Circuit has recently rendered a decision that the stockholder is not injured.

MR. JUSTICE STONE: What was the relief prayed?

MR. JACKSON: In this case?


MR. JACKSON: It was an injunction to restrain the payment of the tax which the stockholder alleged the corporation would otherwise make under the unconstitutional act.

MR. JUSTICE STONE: The collector was made a party?

MR. JACKSON: The collector became a party upon his own intervention, and raised no question as to the procedure, or as to the right of the stockholder to maintain the action, and, so far as he could, expressly waived that question.

MR. JUSTICE STONE: So that the Government is in the positions of saying here that a suit to enjoin a tax is properly here, although provision is made for payment of the tax and for a suit to recover it, which would give adequate relief, would it not, to the taxpayer?

Mr. Jackson: We think that question, if raised by the Government or by the defendant in the case, would have to be decided against the stockholder.

We believe that the Norman case, decided in the second circuit (Apr. 12, 1937), is good law, but we also believe that it is a question not of jurisdiction, but of fact, as to whether the stockholder is irreparably injured under the circumstances, and that it can be waived by the Government, as was done in Pollock V. farmersLoan @ Trust Co. (157 U. S. 429), and I think in Brushaber V. Union Pacific R. R. (240 U. S. 1) .

MR. JUSTICE STONE: Conceding that is so, he would be equally protected by a direction to pay the tax and sue to get it back?

MR. JACKSON: Perhaps that is true.

MR. JUSTICE STONE: That is the procedure which the Government has insisted should be followed, in most of these tax cases.

MR. JACKSON: We have insisted on that in many cases.

MR. JUSTICE STONE: And having been disposed to be with them on that, I wonder whether I should recede from that position now.

MR. JACKSON: I should very much dislike to say anything that would discourage you in that position, Your Honor.

Our position is that it can be waived, that it is not jurisdictional, and we waived it in this case.

MR. JUSTICE STONE: Equity jurisdiction cannot be conferred by consent, on the other hand.

MR. JACKSON: I think, however, that the jurisdictional which depends upon the question of fact as to irreparable injury can be waived, so as to permit the cause to proceed.

It is not a situation where the Court has no jurisdiction to proceed to inquire into the facts.

It is a case where, if the facts are found to establish irreparable injury, as in Ashwander V. Tennessee Valley Authority (297 U. S. 288).

An other cases then it is held that the-Court may enter judgment.

MR. JUSTICE STONE: Is it not a little more than that?

It has always seemed to me that it was a question of large public policy, and a very important one, that when a taxpayer is called up on to pay taxes and there is an adequate remedy at law whereby he can pay the tax and sue to get it back, the courts should keep away from granting injunctions.

MR. JACKSON: I certainly agree that should be the law, but we have been subjected to many such injunctions.

The law is unsettled upon this subject of injunctions to restrain collection of taxes.

MR. JUSTICE STONE: This may unsettle it still further, if you succeed.

MR. JACKSON: I would not think so, if we succeed upon the ground of waiver.

MR. JUSTICE CARDOZO: I noticed in your brief, Mr. Attorney General, that you put it upon the ground of the adequacy of the legal remedy.

I am wondering whether it is only that, whether there is not a question of substantive law involved.

In the T. V. A. case and cases of that kind it was held that the directors had no discretion that would permit them to make the unconstitutional payment or to yield to the unconstitutional demand, because they would be commit ting the stockholders to It loss that would in all likelihood be irreparable.

In this case, was there not a discretion on the part of the directors to pity that tax and afterward sue to get it back, thus avoiding penalties that would be incurred if they refused to pay the tax?

MR. JACKSON: I think there was such a discretion.

In the Norman case, the Consolidated Gas Co. of New York asserted that discretion and asserted that the directors were exercising their discretion that they preferred to pay the tax and pursue their remedy Inter.

The Edison Electric Illuminating Co. , in this case , made no such assertion but submitted only the question of law, as to the constitutionality of the tax.

MR. JUSTICE CARDOZO: The only allegation in the bill is that the Edison Co. proposes to pay this tax.

Now, at the beginning, what else could the Edison Co. do?

It could not have sued to restrain the collection of the tax, because it had no warning that the Government was going to waive the provisions of the statute, assuming that the Government could.

All we have that the Edison Co. proposes to do, apparently, was the only thing that it could do-pay the tax and enter suit to get it back.

MR. JACKSON: But under the circumstances of this case, where an intervention occurs by the Government, the Government becomes bound by the decision.

Certainly we could not intervene in the case, and, if we were defeated in our contention as to constitutionality, then send the collector to distrain property of the taxpayer.

Certainly if we then made a collateral attack on the judgment and said, "Well, there was no equitable jurisdiction here", I would expect the Court to say that our time for raising that question was past, and that we were bound by the judgment, and that the collector could not distrain upon the corporation's property.

MR. JUSTICE CARDOZO: My difficulty is-perhaps it is not a true one that you are not merely waiving the objection that the remedy at law is adequate but that the Government is attempting to say that a discretion which direct ors duly exercised shall be overridden, and I question whether the Government can take away the discretionary power of the directors.

MR. JACKSON: We did not, Your Honor.

They surrendered that themselves.

The corporation itself raised no such question, and it was stipulated by all parties concerned that the only question to be raised in the case was the validity of the taxing titles.

So that the Government has not interfered with the company's asserting any rights they wished; and, in the Norman case, we were confronted with exactly the situation which your question suggests.

The Consolidated Co. said that as a matter of managerial discretion it preferred not to question the act, which it felt was constitutional, and preferred to pursue its remedy, if any, by way of refund later.

We joined in that argument also, taking the same position.

We have not thrust upon the defendant in this case any waiver of its discretion.

It has voluntarily waived.

MR. JUSTICE CARDOZO: Will you refer me to the stipulation which you say was made?

MR. JACKSON: Mr. McClennen tells me that the stipulation was not actually filed, and I have misled the Court in calling it a stipulation.

It seems to have been a "gentlemen's agreement", which has been observed but not made of record.

MR. JUSTICE STONE: It would be time enough, since the company, according to the allegation, stood ready to pay the tax to bring a suit in equity, if irreparable injury will result from the payment of the tax, to have brought a suit directing the company to sue for and recover the tax which it had paid.

MR. JACKSON: That would probably be true.

MR. JUSTICE STONE: So that if the bill were now dismissed or directions were given to permit the company to pay the tax and then sue to recover it, the Government would not suffer anything, would it?

MR. JACKSON: The Government would have in this case, and I propose to state the reason for our waiver.

This action was brought in November 1936, and the tax was due on February 28, 1937.

This tax promised an estimated yield of $253,000,000 for the fiscal year 1937 and $621,000,000 for the following fiscal year.

It is being paid at the present time at the rate of $50, 000,000 a month.

It was important from a budgetary point of view that we have this tax question settled at the earliest possible moment.

Administratively it was also very important.

Some 26,000,000 people are paying taxes under this employee's tax, and 2,500,000 under the other tax, which meant that if this law were to be held unconstitutional, the Treasury would be faced with 28,500,000 refunds- an enormous administrative task-and we exerted every effort to obtain a decision in this case before we would be confronted with that contingency.

We think the doubt of the right to sue is a question which can be waived.

The question is not clear, whether the stockholder can or cannot.

It is a question of difficulty.

We have waived it because we are still confronted with this very practical situation; that 26,000,000 people are building up from day to day either the funds of the United States or refund claims, and it is imperative that we know which it is' and for that reason we hope that the court will not find it necessary to decide this case on procedural grounds merely.

The question is covered in the brief, because we recognize that this question faces us at the outset, and IS one about which, If there were not imperative practical considerations facing us, we probably would be taking a somewhat different position.

Having found that the general welfare was not served by this tax, the circuit court of appeals also hold that the tax, separate and apart from the use to which they determined the money should be put, was unconstitutional, holding, in their own words, that it –

cannot be upheld as an excise tax authorized under section 8 of article I of the Constitution, for the reason stated –

in a companion case involving the unemployment titles –

since it was a tax on the natural and common right of employing labor, and is not a tax on property manufactured, sold, or in use, or on a privilege granted by any government, and was not within the purview of the framers of the Constitution.

It also held that this tax could not be sustained as II tax, because it was not clearly within the purview of those who adopted the Constitution, and "where the application of a taxing statute is doubtful, it should be resolved against the Government.

" It also held that since this benefit system is confined to nonagricultural and non-domestic- service workers, the classification was bad, and held that both men and women in the excepted classes; on reaching the age of 65, are equally entitled with those engaged in other lines of work to old-age benefits.

The Boston &: Maine case, which was decided on the same day, contains a more lengthy exposition of the Court's reasoning.

Turning to the statute, I would ask the Court to first observe title I, not because it is involved here, but because it is important to an understanding of the background of title II and of title VIII.

Title I of this act grants assistance to the States "for the purpose of enabling each State to furnish financial assistance, as for as practicable under the conditions in such State, to aged needy individuals”- and I ask you to note the word "needy"-"to aged needy individuals, there is hereby authorized to be appropriated for the fiscal year ended June 30, 1936, the sum of $49,750,000", and there is authorized to be appropriated for subsequent years such sum as may be necessary.

"The sums made available under this section shall be used for making payments to States which have submitted, and had approved by the Social Security.

Board established by title VII *** State plans for old-age assistance.

Then follow certain provisions about the State plans, which are not important to us here, as this title is not involved.

Under section 3, the Federal participation is limited , so that from the sums appropriated, the Secretary of the Treasury shall pay to each State an amount to be used exclusively as old-age assistance, equal to one-half the total of the sums expended under the State plan with respect to each individual who at the time of such expenditure is 65 years of age or older, and is not an inmate of a public institution, not counting so much of such expenditure with respect to any individual for any month as exceeds $30.

Then 5 percent is paid for administration.

In other words, in this title, a system of assistance to the States by a matching system, under which each shall contribute 50 percent of the cost, establishes aid, in the discretion of the State, up to $30 per month maximum, for those 65 years of age or over, and it is based on the need of the individual; to be ascertained, presumably, by a means test.

The significance of this title, since it is not involved in this litigation, is entirely as background to the title that follows.

This provision is not limited to any particular group of workers.

It applies to the domestic, the agricultural worker, and all sort and conditions of men and women who find themselves in need at 65.

It is essentially the dole system based on need.

It would require proof of the qualification, which is that the individual is needy; sometimes established by proof that the individual is himself needy, and also by proof that the family on whom he might expect to rely is also needy.

MR. JUSTICE SUTHERLAND: Is there a provision here, as in the case of the unemployment provision, that the funds raised by the State must be deposited with the United States Treasury?


This money is paid over to the State for administration.

MR. JUSTICE SUTHERLAND: The State keeps the money?

MR. JACKSON: Yes; but there are requirements as to what the St ate law must contain.


MR. JACKSON: But they are not involved in this case.

MR. JUSTICE SUTHERLAND: The State is expected to raise a portion of this fund?

MR. JACKSON: Yes; 50 percent.

MR. JUSTICE SUTHERLAND: And that is not required to be paid into the United States Treasury?

MR. JACKSON: The State administers it itself.


MR. JACKSON: The State administers t his title itself.

It merely gets Federal aid.

It is much like the aid provision in Massachusetts V. Mellon (262 U. S. 447).

MR. JUSTICE SUTHERLAND: In t hat respect it differs from the unemployment provision?

MR. JACKSON: That is right.

MR. JUSTICE STONE: Are those payments made annually or only as there is need?

MR. JACKSON: Quarterly, as I recall it.

MR. JUSTICE STONE: And the fund is held in the St ate custody or possession until such time as it is required.

MR. JACKSON: I think it is turned over to the State, as a matter of fact for each quarter, and there is not any substantial accumulation.

THE CHIEF JUSTICE: No; it is paid over for each quarter.

There is no restriction upon the State's action in relation to it, except, of course as to the requirements of the State law, which are approved by the Social Security Board.

MR. JACKSON: That is right, and it is set forth in section 4, as to the operation of the State plans, and in section 2 as to requirements for approval of State plans.

MR. JUSTICE SUTHERLAND: I want to be sure about that.

As I understand it there is no interference on the part of the Federal Government with the administration of the fund by the State Government.

MR. JACKSON: No; except that there are certain limitations.

MR. JUSTICE SUTHERLAND: As to the legislation?


MR. JUSTICE SUTHERLAND: But not as to the administration of the fund?


It is a pure matter of Federal aid to t he State, to take care of its own problem, based on an all-inclusive system from which neither agricultural workers, domestic workers, nor any groups are excluded, essentially a dole based on proof of need of the individual; and that has been in operation since 1936.

The result gives us some impression of the magnitude of this problem.

Forty two States have been receiving aid.

The number of recipients aided is 1,196,000 and it has cost the States and Federal Government $22,000,000 for the month of February 1937.

The maximum received by any individual is $1 a day, or $30 a month, and the minimum I think is $4. 02, of the amounts actually received, $4. 02 a month, in one of the States.

MR. JUSTICE BUTLER: Title I is not involved in the case?

(Inaudible to the reporter.

MR. JACKSON: As I said, they are not involved in this case, no question is raised about the conditions.


The title is not involved in the case.

MR. JACKSON: Except, as I am pointing out, that it is a part of the relief program which had to be undertaken by the Federal Government, and I am going to point out why it was inadequate, and title II was enacted.

There are found in section 2 provisions relating to a State plan for old-age assistance.

It must be m effect in all political subdivisions of the State.

It must provide for financial participation by the State.

It must provide for the establishment of a single State agency to administer the plan, provide for granting to any individual, whose claim for old -age assistance is denied, a fair hearing, and provide such methods of administration, other than those relating to selection, tenure of office, and compensation of personnel, as are found by the board to be necessary for the efficient operation of the plan, and provide for making report to the Social Security Board.

MR. JUSTICE BUTLER: What is the amount that the State will get, here?

MR. JACKSON: The amount that the State will get?

It will get one-half of what it expends, not counting anything that it expends above $30 for any individual, and 5 percent for administrative expense.

MR. JUSTICE BUTLER: The Government contributes 6 percent of its fund for the administration?


MR. JUSTICE BUTLER: That goes to the State?

MR. JACKSON: That goes to the State.

That sum contributed by the Federal Government is shown by the t able on page 74 of the appendix to be a very much smaller proportion of the total money expended than that contributed by the Federal Government under the general relief sys tem.

For the latter purpose the States were contributing very much less than 50 percent.

MR. JUSTICE BUTLER: * * * conditions imposed by * * * [inaudible to the reporter].


MR. JUSTICE BUTLER: Does it empower the Federal Board to make any rules or regulations governing the use by the State to which t he Government proposes to contribute under title I?

MR. JACKSON: The conditions which you are speaking of are perhaps the conditions for the credit under the unemployment title and there is no credit system set up in this act at all.

The State old-age-assistance plans must have in them the provisions contained in section 2.

MR. JUSTICE BUTLER: Referring to page 3 of your appendix, subdivision (b) of section 2, will you explain that for me?

I do not quite follow that.

MR. JACKSON: On page 3, subparagraph (b), under title I?


MR. JACKSON: That requires the Board to approve any plan specified, except it shall not approve any plan which requires an age requirement of more than 65 years, except that it may be 70 up to 1940.

In other words, the old-age money sent them is to be expended on persons 65 or upward after 1940, but it may be limited to 70 or upward previous to that time.

Any residence requirement which excludes any resident of the State who has resided therein five years during the nine years Immediately preceding the application (or old-age assistance and has resided therein continuously for one year immediately preceding the application.

MR. JUSTICE BUTLER: Is there any specific grant of authority to the Board, in respect of relief to be furnished by this title, III any other part of the title?


MR. JUSTICE BUTLER: Is this the only authorization, and that to be implied from this subdivision (b)?

MR. JACKSON: Of course, if the State plan departs from the requirements laid down, the board may give the State notice, as provided in section 4 and after proof that it has failed to comply with the provisions the board may notify it that it will receive no further money.

MR. JUSTICE BUTLER: What I want to get at is the full extent of the power of the Board in respect to the matters covered by this title.

MR. JACKSON: Purely a conditional grant and the board has a right to ascertain if the conditions specified are being complied with.

MR. JUSTICE BUTLER: And those are the seven conditions in sections 2 (a)?

MR. JACKSON: That is right.

MR. JUSTICE BUTLER: And the three conditions in section (b)?

Those 10 conditions are all the conditions that may be brought forward in respect to this relief?

MR. JACKSON: That sets up the entire system, in respect of grants in aid to the States.

That title is not involved in this case, and its validity is not challenged, but it was determined that title and that system of taking care of the old-age problem, as it presented itself in this country was not adequate and could not be depended upon, as a long-range policy; that the old-age problem as it presented itself required some further and more scientific treatment.

Various alternatives were considered and rejected.

The flat pension based on age alone, with different suggestions as to the age and different suggestions as to the amount, ranging from the Townsend Plan of $200 a month to much more moderate suggestions were considered.

That alternative was rejected.

Unconditional subsidies to the States were advocated and rejected.

An alternative was adopted and embodied in title II.

The system embodied in title II, which is under attack here, is a system by which old-age benefits, as a permanent long-range policy of the United States, shall be paid to persons reaching 65 and upward, but that those benefits shall be measured by the wages earned by the person who receives the benefit, counting wages only up to $3,000 per year.

The benefits which one may hope to receive will be conditioned upon the contribution which he makes to society, and the payments are an incentive to thrift rather than a discouragement to it.

It was also considered that if benefits were keyed to wages earned, there would be something of a check upon the demands which.

might be made as to amounts of pensions, and that the method III which benefits were made dependent upon wages earned would fit the benefits somewhat to the circumstances of life of the beneficiary/ because presumably his way of living would be fixed by the wages he nod been in the habit of receiving' and his benefit would be fixed upon the same basis.

It was further considered that the means test, by which an individual in order to receive aid under the title I must prove his dependency, was a humiliating condition, which has had to be abandoned in many places where it has been tried.

Also the means test was found to be a distinct incentive to arriving at 65 without any property, because the person who arrived at 65 with no property began to get benefits, and the person who had a little property didn't, until it was exhausted, and the effect of the means test as a social proposition has been found to be demoralizing.

Then, too, the difficulty with title I from a fiscal point of view was that the demands upon the Treasury were in no way financed, and that a system might be set up under which the wages which were earned could be a measure of one's contribution to the Federal Treasury, as well as a measure of the benefits which he would receive.

And for that reason Congress moved in the direction of a system of benefits keyed to wages, rather than to need.

Title II, section 201 (a), provides There is hereby created an account in the Treasury of the United States to he known as the "Old-Age Reserve Account" hereinafter in this title called the "account".

There is hereby authorized to be appropriated to the account (or each fiscal year, beginning with the fiscal year ending June 30, H137, an amount sufficient as an annual premium to provide for the payments required under this title, such amount to be determined on a reserve basis in accordance with accepted actuarial principles, and based upon such tables of mortality as the Secretary of the Treasury shall from time to time adopt.

The next, subsection (b), provides for the investment of this fund, while it is in the Treasury.

That provision, creating the old-age reserve account, and making appropriations to it from year to year, not measured by any tax received but measured by the reserve requirements computed actuarially, is the subject of great controversy.

I do not think that controversy concerns us in this case.

Whether the Congress, if it were going to establish a system of old-age benefits, should do it on a pay-as-you-go system, by which each year contributed just the amount necessary to that year's benefits, or whether it should proceed to accumulate reserves to meet the increasing liabilities, if the benefits may be considered such, is a question for the Congress to determine.

It is not a legal question, but it is fully treated on page 144 of our appendix, so that the reserve system can be examined, insofar as the Court desires to examine it.

I would point out, however, that this reserve system is at all times in the control of the Congress.

It can at any time change the amount of contribution to that reserve, or the basis upon which that contribution shall be made.

There is no appropriation contained in this title, but only an authorization of an appropriation, which amounts to no more than a declaration of policy as to the future.

Need, dependency, indigency-none of those things are tests in determining whether he is qualified.

Every qualified individual shall be entitled to receive with respect to the period beginning on the date he attains the age of 65, or on January 1, 1942, whichever 18 the later, and ending on the date of his death, an old-age benefit * * * as follows.

Then follows a computation, or rather a rule for computation based on the wages which he has earned.

For example, if one earned for 5 years an average of $25 a week, he would not be entitled to any old-age benefit, because he would not have earned over $2,000, and the law deemed that monthly benefits based on earnings so small as that would cost too much to administer, but he would receive back a lump-sum payment of $52. 50 when he reached 65, and was not qualified to receive benefits.

If one earned $100 a month as an average for 5 years before he became 65, his monthly benefit would be $17. 50.

The maximum that one may under any circumstances receive as a monthly benefit under this act is $85 per month, and in order to receive $85 per month he must have had average earnings of $250 per month over 45 years of employment.

A table in our brief shows just what the accumulations based on average monthly salaries would amount to, and the amount of benefits.

MR. JUSTICE BUTLER: The term "qualified individual" is defined in subdivision (c) of section 210.

Would that include agricultural laborers, and so on?


MR. JUSTICE BUTLER: The benefits of this title do not extend to the classes you referred to, the seven classes in subdivision (b)?

MR. JACKSON: The benefits of this title do not extend to any of those classes and the taxes which are levied under title VIII do not extend to them either.

Those employments are not affected by either the appropriating or the taxing titles of the act, for reasons which we explained in connection with the unemployment insurance, and which I will not take the time to repeat--the difference in the types of work.

MR. JUSTICE BUTLER: Has there been any research to indicate the relative number of the qualified individuals, or the percentage?

How would the numbers compare with the agricultural laborers, domestic service employees, and so forth, the seven classes?

How would that compare with those who get the benefits?

Is there any knowledge on that score yet?

MR. JACKSON: I think there is.

There are estimates.

I do not have them in mind, but I will get them for you.

Some 26,000,000 people at the present time are affected by the taxing titles.

MR. JUSTICE BUTLER: There are 26,000,000 taxed, and the qualified individuals would be included in that 26,000,000?

MR. JACKSON: All of the 26,000,000 are in the process of qualifying.

MR. JUSTICE BUTLER: That is what I mean.


MR. JUSTICE BUTLER: But the number of agricultural employees, domestic service, and so on you do not have that?

MR. JACKSON: We have it, but I do not have it in mind.

We have estimates on it.

There is a limitation of $85 per month on the amount of benefits which may be received, and any qualified individual who receives wages with respect to employment after he attains the age of 65 receives no benefit for the months during which he was employed.

Then there are certain payments made upon death, under section 203.

If any individual dies before attaining the age of 65, there shall be paid to his estate an amount of 3. 5 per centum of the total wages determined by the board to have been paid to him, with respect to employment after December 31, 1936.

So that in the event of death before he qualifies, a death benefit is paid to his estate.

Another type of payment is provided by section 204 [p. 10) There shall be paid in a lump sum to any individual who upon attaining the age of 65, is not a qualified individual, an amount equal to 3. 5 per centum of the total wages determined by the board to hove been paid to him with respect to employment after December 31, 1936, and before he attained the age of 65.

So there are, roughly, three kinds of benefits A benefit paid monthly after reaching the age of 65, provided he is qualified; a death benefit paid to the estate, if he fails to reach the age of 65, based on 3. 5 percent of his wages; and, if he reaches 65 and does not qualify, because of his failure to earn sufficient wages during the period to entitle him to an annuity, then he receives a rump-sum payment.

MR. JUSTICE BUTLER: In the case' of those who are needy, they would have the dole, based on title I?

They would have relief under both?

MR. JACKSON: Title I takes care of those who are not reached under this title , and it would also take care of, or would authorize the extension of assistance to, a person who was receiving a benefit under this title, if the benefit was not sufficient to enable him to live.

Title I is applied to the extreme situation of need from whatever cause arising.

This is a system by which, through calculation of his earnings, he becomes entitled to a benefit, based on his wages.

Now, that, with the definitional title which Your Honor has already called attention to, excluding agricultural labor, domestic service, and casual labor, employees on vessels, political divisions of the State, and of the United States, completes the expenditure title, title II.

This plan of expenditure is complete in itself.

It does not depend on the amount of tax that is raised.

It does not have any reference to the taxes, in fixing the amounts, or the time benefits shall begin.

In fact, it does not begin until 1942, so far as the monthly payments are concerned, while the tax begins this year.

It is not in any way dependent upon the amount of taxes raised.

There is no interdependence.

THE CHIEF JUSTICE: This entire scheme could be abolished by Congress without affecting the taxing provision?

MR. JACKSON: It could.

And the entire taxing scheme could be abolished, without affecting this provision.

All that you would need to do would be to keep your wage records for the benefit title.

Both benefits and taxes require reference to the amount of wages earned for their computation, but by the keeping of the records this title can exist alone.

It does not depend in any way upon the operation of a tax, in the sense that the Agricultural Adjustment Act depended, as Your Honors found in the Butler case.

There would have been many other methods by which this could have been financed.

I cite some merely to show that the benefits are independent of the taxing provision.

It could have been financed by borrowing.

There was no need of the tax in connection with the expenditure title.

It could be financed by printing the money, if Congress were so disposed.

It could be financed from higher income taxes, as a very respectable school of thought advocates that it should he.

It could be financed by a sales tax, or a tax on employees alone, or on employers alone.

But Congress/anticipating that these appropriations to this reserve account would occasion a substantial drain upon the Treasury, sought additional sources of revenue with which to protect the Budget, and it decided upon a tax on employees 'earnings' a tax by which the employee during his productive years would pay to the Treasury of the United States a proportion of his earnings, and a tax on employers, based on the employment- and this is not limited to eight or more, so that the employer who had the benefit of that man's services during his productive years would also be contributing to the Treasury during that time.

This tax scheme is set up in title VIII, found on page 37 of our appendix, and it is a very simple taxing' measure.

In addition to other taxes, there shall be levied, collected, and paid upon the income of every individual a tax equal to the following percentages of the wages * * * received by him after December 31, 1936, with respect to employment * * *.

Now "wages" is limited by definition, and "employment" is limited by definition.

The definition of "employment" excludes agricultural labor, casuals, domestic service, and so forth, and "wages" is limited to that amount which is paid, under $3,000; that is to say, $3,000 from anyone employer.

Section 802 makes this employee tax the obligation of the employer to withhold and pay over to the Treasury, and indemnifies the employer if he does so.

That tax has been held bad in this case.

We contend it could not be challenged by the stockholder of a corporation, since it in nowise and under no circumstances could operate to affect his equity.

The circuit court of appeals held it bad because they held that this tax would not have been enacted alone, and that it was "capricious" in that all persons should be entitled to benefits under an old-age plan, and not merely the groups which are included.

We contend that even if this were to be reviewed, it is a valid tax, under the silver tax decision which this Court handed down at this term (United States v Hudson, No. 97, decided Jan. 11 1 1937).

It is an additional tax on income, additional to any other income tax which the employee might have to pay.

Then 804 lays the tax on the employers -In addition to other taxes, every employer shall pay an excise tax, with respect to having individuals in his employ, equal to the following percentages of the wages * * * .

These percentages start at 1 percent for the first 3 years, and increase one-half of 1 percent each 3 years until they reach a maximum of 3 percent.

Under section 807, the taxes imposed by this title shall be collected by the Bureau of Internal Revenue under the direction of the Secretary of the Treasury, and shall be paid into the Treasury of the United States as internal-revenue collections.

There are no provisions in this act which limit the use to which this fund so collected shall be put, or which appropriates it either in part or in its entirety to any particular use.

As a matter of fact, this tax is being collected under the regulations by returns filed by the employers, and as I have said, 26,000,000 persons are paying the employees' tax, and 2,500,000 are paying the employers' tax, making the widest taxing base that has ever been established in this country, producing at the rate of approximately a half a billion dollars in revenue per year.

MR. JUSTICE BUTLER: How many employers did yon say?

MR. JACKSON: Over 2,500,000

This tax, as a tax, has been held bad.

The circuit court of appeals wrote an opinion in the Boston & Maine case, which is found in our appendix at page 89.

It accompanied the opinion in this case and it explains at greater length their view of these taxes, although they were there dealing with the unemployment titles.

The circuit court of appeals said, in reference to the other tax, but referred to in its opinion as amplifying the reasons given in the case at bar.

Is the tax imposed on employers under section 901 of title IX an excise tax with in the meaning of section 8 of article I of the Federal Constitution?

If it is not, it is not a tax that Congress is authorized to levy.

It seems to us that this indicates a very substantial departure from the Constitution, in that there is equal power to levy taxes, duties, and imposts, along with excises, and that whether this be an excise or whether it be denominated by some other name does not affect its validity.

The Court then proceeds to say-

MR. JUSTICE SUTHERLAND: I suppose that provision of the Constitution is intended to include nil forms of indirect taxation.

MR. JACKSON: That is our view, and there is no holding that this is a direct tax.

Says the Court At the time of the adopt ion of the Constitution the term "excise tax" was used only in connection with a tax on goods, merchandise, and commodities.

And the Court follows its reasoning by pointing out that the Massachusetts Constitution provides only for excise taxes on produce goods, wares, merchandise, and commodities.

It concludes While the Federal Constitution does not contain the word "commodities" as a basis for levying excise taxes, there appears to be little, if any, difference in the limits imposed upon the interpretation of section VIII of article I by the Supreme Court of the United States and the interpretation placed on the Constitutional provision of Massachusetts by the Massachusetts Supreme Court.

In other words, it seems to us that they have read into our Constitution the limitations of the Massachusetts Constitution upon excise taxes.

MR. JUSTICE STONE: Did they say that it could not be any other form of tax or impost if it were not an excise?

MR. JACKSON: That is the inference that I draw from their opinion.

They treat it as an excise, find that it is not an excise and conclude that because it is not an excise it is not valid.

There are historical reasons why "excise" as used in the Federal Constitution is not to be limited as it is in the Massachusetts Constitution.

In the first place, the Massachusetts Constitution limits it to commodities and merchandise, by its own terms.

In the second place, our system of excises did not arise in Massachusetts but in New York.

Seligman's Essays on Taxation point out that the excise taxes came to this country from the Dutch, that they were not developed in the English system of taxes but the English got them from the Dutch, and he points out that Massachusetts had a system of taxation based largely upon direct taxes, and that, in New York [reading] Accordingly, there was no system of poll and property taxes as in New England and no system of indirect taxes on exports and imports "as In Virginia.

The fundamental characteristics of this system was the introduction of the excise system or indirect taxation of trade, which was borrowed from Holland, just as we find the excise system introduced from Holland into England and the other European countries during the seventeenth century.

Each section therefore had a fiscal system more or less in harmony with its economic conditions.

It was not until these conditions changed during the eighteenth century that the fiscal systems began somewhat to approach each other * * *.

That undoubtedly is why we find, in an instrument that is not given to using synonyms, that "taxes, duties, imposts, and excises" are all specifically enumerated, in order to make certain that the system of each of the Colonies was included.

The argument that this tax cannot be laid because the employment of labor is a "natural right", is one which I shall not pursue, because I do not think it is important in a constitutional sense.

Whether the source of the right is "natural" does not seem to affect its taxability so fur as I can find in our constitutional law.

If the right to employ labor is a natural right, it would seem that earnings from that work would be also a natural right, although we know that they have been taxed for some time.

It would seem that the right to make gifts or to make sales or to process materials which were owned would be as "natural" as the right to employ labor.

We contend that the right to tap the labor supply of the United States is a taxable right, whether it originates in some theory of natural law or whether it be considered a privilege.

The source of the right is not important so far as the right to tax is concerned.

We know that there is no source of wealth more productive today than the exploitation of other men's labor.

We know that it is a source of trouble and expense to the Government, and I do not need to enlarge upon it, in view of the recent cases which this Court has had, involving those questions.

We know that the economic effect on the worker is something that society has a right to consider, under the minimum-wage decisions.

We know that the effect on society of employers who call labor, by offers of wages, from one locality to another, who build up employment in the city by drawing men from the country, and who move them about from place to place by various inducements, creates a social problem .

It is unthinkable, that this privilege, right, or whatever it may be held to be, so exercised in this day, would be exempt from taxation.

If it be exempt from taxation under the Federal Constitution, then there is an unsuspected and a metaphysical limitation on the taxing clause that has taken 150 years to discover.

So we submit that this tax, as a tax, is valid.

I shall not go into the question of due process-that has been argued before this Court very recently-except to point out that this tax is not appropriated to any specific end, nor is it earmarked, that there is no equivalence between tax and expenditure.

On the other hand, the very fact that it is necessary- to create a reserve in the Treasury shows that there is not an equivalence between the receipts in any particular period and the expenditures for that period, except there may be-we hope there will be-over a long period of time a rough equivalence between revenue and expenditures.

This tax produces more revenue than any tax that this Court has been called upon to consider in a long time, and has a broader base.

All of these considerations argue for the validity under the due process clause.

Whether this benefit title II can be considered at all upon the challenge of any taxpayer or its stockholder, is also raised and briefed.

We think that no taxpayer, whether it be in a refund case or in this case, or in any other case, can reach back of the taxing title of this act and bring into question the expenditures for old-age pensions which Congress has seen fit to establish, because there is no necessary connection or interdependence between the two titles of the act.

If he can, then every tax which is laid to meet anticipated drains upon the Treasury, may be challenged, if any one of the appropriations there may be found to be questionable.

It is contended in the light of the peculiar character of this tax and its entire separability from the purposes of title II , that the circuit court of appeals, in holding that they must pass upon title II in order to determine, the validity of title VIII as to taxes, was in error, and that this taxing title can stand by Itself, as a system of taxes for the Treasury, to produce revenues that are badly needed if there were no old-age system, and that are worse needed if there be an old-age system, and that the consideration of title II in this case is error.

Considering the tax upon its own merit, it is our contention that it is a valid excise tax laid upon the right, to employ labor in certain employments which are not excluded by definition, and that that tax does not offend the due process clause of the Constitution.

There remains the question as to whether the old-ago benefits in title II serve the general welfare, If It is to be reviewed by this Court.

We face a consideration of the question whether, and to what extent, appropriations made by the Congress are subject to judicial review.

The court below has reviewed this expenditure has held that these expenditures, would not serve the general welfare but would serve a purely “local” purpose; and that has been the basis upon which these taxes have been held to be unconstitutionally laid.

It is clear that a tax to pay the debts of the United States does not present a reviewable question, because the court has held that it is wholly within the discretion of Congress to recognize us debts such claims as it will, even though they may not be based upon lawful obligations.

Certainly there will be no review of the question as to what appropriations are necessary to the common defense.

It seems to us that the same limitation applies to the general welfare that unless the tax and an expenditure be so interwoven that one becomes a part of the other, as in the Buller case that tax was held to be there is no room for judicial review, The right of review is presented in this case because these benefits are in the nature of pensions or gratuities.

There is no contract created by which any person becomes entitled as a matter of right to sue the United States or to maintain a claim for any particular sum of money.

Not only is there no contract implied but it is expressly negatived, because it is provided in the act, section 104, that it may be repealed, altered, or amended in any of its provisions at any time.

This Court has held that a pension granted by the Government is a matter of bounty that the pensioner has no legal right to his pension, and that they may be given, withheld, distributed, or recalled at the discretion of Congress.

We therefore feel that title II, which sets up in this country a system of old-age pensions is not to be reviewed, that it presents a political question as to the general welfare rather than a legal or constitutional question, and that if there be an abuse in the pensioning system, It is a matter to be dealt with politically rather than judicially.

But, if there he a review, it must, under the Butler case (297 U. S. 1), appear that by "no reasonable possibility" can these expenditures contribute to the general welfare, and I do not know how we shall determine it in this case, because, even though you might hold that "the meaning of the Constitution does not change, with the ebb and flow of economic events", to quote from Mr. Justice Sutherland, that certainly cannot apply to subjects affecting the" general welfare, for the very words themselves are of flexible content.

They do not embody fixed legal concepts which can carry from generation to generation without change.

Here we have evidence taken by Congress.

Over 3 weeks the Ways and Means Committee called witnesses as to all phases of these problems, the -Finance Committee for another 3 weeks, and there is offered to this Court in this case no evidence whatever to overcome the evidence taken by Congress, and on which it based its conclusion that old-age benefits would be for the general welfare.

If we are to review in a judicial proceeding these appropriations, it seems to me we must do one of these four things We must either disregard the evidence taken by Congress, upon the ground that it is irrelevant to a judicial inquiry, or we must overrule it up on the ground that we judicially know other things to which Congress did not give sufficient weight, or we must weigh it as to its sufficiency to sustain the conclusion that the general welfare would be served by these appropriations, or we must test it by the "some evidence rule', as to whether it is sustained by any evidence, or we must test it by the "no reasonable possibility" rule laid down in the Butler case.

The very difficulties of considering this question of general welfare in this state of the evidence adds weight to the argument that it is not a judicial question.

But if we are to review in this Court the question whether Congress has served the general welfare in fact, I am frank to admit that we face a tradition of 150 years of practice that is against the making of old-age relief a matter of national welfare.

But I would call your attention to the fact that old-age welfare has been a constantly widening concern.

The matter of the care of the old was at one time a matter for the family only.

It became gradually a matter for the town poormaster if the family failed.

From the town poormaster it became a matter for the county with its poorhouse, and then the State because of failures of counties, intervened, and now we argue that it has become a matter of national welfare.

The uncontradicted evidence shows that there are developments in the matter of the old-age problem which differentiate that problem as it exists today from the problem as it existed in the past.

In 1870 out of a population of 38,000,000 we had 1,153,000 or less than 3 percent of our people 65 and over.

That proportion had more than doubled by 1936, and out of 128,000,000 we had 7,700,000, or 6 percent of the population that had reached 65.

Experts projecting these trends indicate that in 1980, out of a projected population of 158,000,000, we will have 22,000,000 aged or 14 percent who will have reached 65.

Table 3 shows that there is a proportionate increase in the older brackets involving ages less than 65.

It seems that science is extending life, but that science is not stimulating the birth rate.

We find that parallel with this growth in the number and proportion of aged, there is a shortening of the economic life of each that the employable years are more limited.

The studies set forth in our brief show that in 1929 in the State of New York a study was made and 28 percent of the manufacturing plants had a limit on the years of those that they would employ.

Commonly the limit was 45 years.

In 1930, 224 factories were studied.

MR. JUSTICE BUTLER: Is that the limit of taking them on or the limit of letting them out?

MR. JACKSON: The limit of taking on.

MR. JUSTICE BUTLER: And the letting out?

MR. JACKSON: On the letting out there has been no fixed limit ascertained.

A man who has a job is commonly kept on, sometimes long alter 45, but if he loses his position, or if that plant closes, or if his skill becomes obsolete because of some improvement-

MR. JUSTICE BUTLER: I just wanted to understand what particular limit you meant.

MR. JACKSON: When he is forced by any of those hazards to seek a new position, 45 years of age places a handicap upon him.

MR. JUSTICE STONE: Is there anything to show what the effect of unemployment in recent years has been upon the increase of unemployables because they had reached the age of 45 during the period of unemployment?

MR. JACKSON: I do not recall anything that is definite and in statistical form on that subject, Your Honor but we have found that outside of those that had fixed limits, 153 factories that had no fixed limits, as a matter of rule made it a practice to hire but few men past 50.

Now this means a great deal on this old-age problem If we assume, as the mortality tables tell us, that at 65 years of age a man has an expectancy of 12 years and a woman of 13 years, the shortening of employable years during which one can make provision for taking care of age makes a radical alteration in the old-age problem.

That is to say, if a man has 40 years of employable life to provide for 10 years of old age, that is one problem.

If he has only 20 years of employable life to prepare for 10 years in old age you have doubled the burden upon his productive years.

MR. JUSTICE STONE: Do your figures here dealing with the age at which one ceases to be employable deal with men who have not learned a particular trade?

Isn't it much lower than 45?

That is to say, if a man knows a trade, he may get employment up to 45.

Suppose he has not learned a trade.

How late can he get into it?

Are there any statistics shown here?

MR. JACKSON: I couldn't answer that, because these tables are not classified by occupations, and whether there is such information available I do not know.

MR. JUSTICE STONE: I was under the impression it was much lower where a man had been out of employment and had not learned a trade

MR. JACKSON: An exceedingly skilled man may be unable to obtain employment if there has been technological improvement which makes his skill obsolete.

My attention is called to this note in the brief [reading] The age when hiring handicap begins for male is 35 years; and females, 30 years.

The chances of an unemployed person of 40 years and over obtaining employment are only about 19 percent as good as those of a person under 20 years of age.

MR. JUSTICE STONE: On what page is that?

MR. JACKSON: That is page 58, but it does not classify by occupations.

The present ratio of dependency of the aged is summed up by the Social Security Board by saying that almost three out of four persons 65 years of age or over were dependent wholly or partly on others for support.

This losing struggle which the aged are fighting in the economic world becomes a mater of no mystery when we look at the age commonly paid, which has been discussed in the Steward Case, dealing with unemployment compensation, and I will not repeat it.

Among the hazards that fall upon men are periods of unemployment, and in that respect I would call Your Honors’ attention to the fact that even if you shall find that the unemployment system attempted in this country may work, is still does not relive the worker of bearing the major part of the burden of unemployment.

He gets a few weeks of benefit, a part of his wages.

He has to wait a couple of weeks usually to get it, and after that short period when compensation is paid the burden is all his own.

The system is not, and cannot at the present time, be made sufficiently extensive but that the worker must bear the major part of the burden of unemployment.

The movement to the city is another factor which has made the old-age problem serious.

We all know that on the farm where living requirements are not mainly in case, and where one has access to his own means of production, old age means doing the same job but doing it slower, and the pace may be set by the worker.

Perhaps a steady man and maturity of judgment would be an asset there, but in modern industry pace has taken the place of all other requirements, and the requirements of speeding up and efficiently operate against the man of years.

The failure of private pension plans is explored by the evidence, and pointed out in our brief.

The failure of private charity to meet this problem is conclusively shown by the figures of the Bureau of Internal Revenue.

In 1928 the persons with $300,000 and up of income contributed an average of $25,400 to purposes for which they were entitled to the charitable deduction.

By 1931 they had reduced those contributions, the same group, to $12900 average, showing that the well-to-do retrenched in their charitable contributions during the period of depression, although the need was greater.

The resources of the States have been declining.

Real estate reserved to the States as a source of taxation has been taxed to the limit of it s capacity to bear, and personality has never been successfully taxed locally.

The Federal Government, which is able to tax incomes and to lay excises, has sources of revenue winch have been drying up for the States, not because of any change m the legal system but because the economic emphasis on personal property has left the States without a comparative source of revenue such as they had at the beginning of our constitutional system.

Congress therefore came to the conclusion that the general welfare of the United States would be served by abandoning the system under which age looked forward to a road that led over the hills to the poorhouse.

It came to the conclusion that poverty in age is no longer a moral Judgment against the individual; that if the time has been in our economy when we could say that it was only indolence and prodigality that led one to the poorhouse, that time was no longer, and that if a poverty-stricken age was the judgment of a wasted life at one time in our history, it is not so today.

The lesson of the depression broke that tradition.

The condition which is promised us an implication of our system, that thrift would be followed by plenty, failed in the depression, for the man who had responded to the inducements and had accumulated a bank account and selected the wrong bank, or the man who had saved to purchase a home found himself in the same position as the one who had never saved at all.

In fact, the man who had not tried to acquire a home perhaps was better off because he was not faced within deficiency judgment.

The unfortunate consequences of tins depression bring home to us the fact that self-denial lad not assured comfortable age, and this old-age-pension system was set up in the hope that it would make true the promise to men that if they were thrifty and industrious and self-disciplined their age would be spared at least extreme poverty.

This plan does no more than spare extreme poverty, and may not in many instances do that.

This plan was that if the workman during his productive years would contribute to the Treasury of the United States than the Treasury of the United States in his unproductive years would contribute to his necessities.

We submit that there is nothing unconstitutional in this exercise of the power to tax and the power to appropriate.

If this tax and this appropriation does have the effect of relieving the State of some of it s burdens, that is not in itself unconstitutional.

One of the first acts of our Federal Government was to relieve the States of their burdens by assumption of their debts.

The Constitution does not prohibit the assumption by the United States of obligations which a changing condition may make necessary for the general welfare.

No right of the State is invaded here.

No regulation is imposed by this title except a tax.

No right of the State to handle its poor problem in any way it chooses is interfered with.

It may maintain its poorhouse, if it considers that to be one of its rights.

It may take care of its poor beyond the provision made by the Federal Government.

It may solve its problem in any manner its own local interests may require, but the Government pays into the hands of it s aged citizens certain sums based on their contributions to the production of the country during their productive years, and that cannot be said to be an interference with the rights of the State, any more than a pension to a veteran is an interference with the right of a State of which he is also a citizen.

This Court has announced, through Mr. Justice Sutherland, in Florida V. Mellon (273 U. S. 12) and in Massachusetts V. Mellon (262 U. S. 447), the doctrine that the taxpayer is a citizen of the United States as well as of the State, and that the performance of his duties as a taxpayer to the United States can never be said to be an interference with the right of the State to exact its duties likewise owed to the State.

By the same doctrine, the discharge by the Federal Government of its duties to its citizens, where there is no interference with the right of the State to perform it s own functions in its own way, is not an interference with the rights of the State.

There is no system here by which anyone is required to execute any contracts submitting to Federal jurisdiction.

No contracts are provided with either State or Individual.

This contributory system by which the productive years of men take care of their unproductive years is the soundest system in economics that the country is likely to see.

It is not offered even by its sponsors and advocates as a perfected system, but it is at least designed to preserve in our life those virtues which we have been taught were essential to our system.

By the keying of -benefits to wages, there would be something of an automatic check upon the amounts which might be demanded, and there would be a relation between the pension and the deserts of the pensioner.

The pension which he received in his old age would be adapted to the style of living in which he had been able to set himself up by virtue of his own el1rnings.

The congressional determination made after long study, made after considerable experience in dealing with the general problem of relief which included relief of the aged, that this system is for the general welfare of the United States, seems to us not subject to review.

But if it is to be reviewed, it at least falls within that wide discretion which is vested in the Congress to make provision for the general welfare of all of our people.

If you review this phase with the most critical eye, it still meets the challenge, and the evidence here shows that it is for the general welfare of the United States.

We therefore ask a reversal of the ruling of the circuit court of appeals, and I would like to reserve the remainder of our time for reply by Mr. Wyzanski.

MR. MCCLENNEN: May it please the court, the first question in this case is, whether this is an excise.

If it is not an excise, all the other questions become unimportant.

The Constitution gave to Congress the power to tax and to levy excises, imposts, and duties for the common defense, payment of the debts, and the general welfare of the United States.

In this first question, there is not involved any question whether this is for the general welfare, or for the common defense, or to pay the debts.

It is simply the question whether it is an excise.

It is no other type of tax.

The Congress elected to have it in excise.

They called it an excise, and if it is not that, it is not n valid levy.

MR. JUSTICE STONE: That is, you say it could not be regarded as a tax, if it is not an excise?

MR. MCCLENNEN: It could not be regarded as a tax that, was valid, because the Congress has laid it as an excise.

MR. JUSTICE STONE: Suppose they had called it by the wrong name?

Would we have to call it unconstitutional?

MR. MCCLENNEN: Not merely by reason of that; but if it is not an excise, Congress in laying it has laid it in the manner of an excise and has not apportioned it.

If this is some other kind of tax, Congress has not yet exercised its judgment on how they will lily it.

MR. JUSTICE STONE: That is, you say any tax other than an excise must be apportioned.

Is that it?


A duty does not have to be apportioned.

An impost does not have to be apportioned, if that is anything different from a duty, or an excise.

But if it is, in your judgment, a tax but not an excise, Congress has not yet passed upon the question of whether it will follow the rule of uniformity or will follow the rule of apportionment, as required by the Constitution.

This much, in answer to Your Honor.

MR. JUSTICE STONE: I should have supposed we would have approached it in a somewhat different way, and asked ourselves whether this was a tax, and whether, if a tax, it is a direct tax; and if we said it was not a direct tax, that we could then stop without any further inquiry as to the label we attached to it.

MR. MCCLENNEN: There is as Your Honor puts it, involved the question whether under the Constitution there is any power to lay anything that may be called a tax except a direct tax, or an impost, excise, or duty.

The Court has said in its past utterances on the subject that those comprehended all the taxes that were within the power of the Congress, and the natural interpretation of the Constitution would indicate that to be so, because the Constitution lays down two methods of laying taxes, one by apportionment and one by uniformity, and it would seem as if it was the intention of the Constitution to provide one or the other method of determination, in accordance with which class it fell in, und that, there was no kind of tax that did not fall into one or the other.

MR. JUSTICE STONE: Mr. McClennen, does your brief deal with the equity jurisdiction in this case?

MR. MCCLENNEN: No, Your Honor; it does not.

I have a memorandum of authorities available, if the Court desires it.

MR. JUSTICE STONE: If at your convenience you could submit them, I would be glad to see them myself.

I cannot speak for the others.

THE CHIEF JUSTICE: You might print a list of your authorities.

MR. MCCLENNEN: I have them in print, Your Honor.

MR. JUSTICE BUTLER: The injunction runs against the income tax of employees, does it?

MR. MCCLENNEN: If a decree were entered pursuant to the circuit court of appeals.

MR. JUSTICE BUTLER: The decision here?

MR. MCCLENNEN: It would enjoin corporations.

The Commissioner is not a party in interest in this litigation.

We ask no relief against him.

MR. JUSTICE BUTLER: Mr. Jackson raised the point more or less definitely.

MR. MCCLENNEN: I deal with that question as to the substance.

That is, I later will ask Your Honor-

MR. JUSTICE BUTLER: I did not mean to interrupt you.

MR. MCCLENNEN: As well now as any time.

We are at odds as to whether a tax is imposed on employees, but we say that we have a right to be heard as to whether we shall pay over to the United States some money of our own-and it is our own; it never goes to the employees and comes back.

It is never segregated to him in any way.

We pay; we give our check to the United States, under 802, and then we haven't the money.

The statute says that we may deduct it in paying the employee and pay him only 97 percent.

But the statute being by the premises unconstitutional, we cannot deduct it.

And we are open to suit by him, and under the laws of the Commonwealth from which I come, If we do not pay that 3 percent of the wages We may be summoned into the police court for-nonpayment of weekly wages when due, and of course if the act is unconstitutional, we have no answer to that criminal prosecution.

So that I submit that there should be no question but we have a standing to be heard on the question of whether the order to us not to pay our employees what we owe them but to pay it over to the United States instead is a constitutional act.

In view of Your Honor's inquiry about the jurisdiction, may I say this I submit that there is no fundamental lack of jurisdiction here.

We have brought a proceeding, an irregular proceeding, if you please, in which we ask a court for some relief.

It is a court of general jurisdiction, and there are known to the common-law ways by which the relief can eventually be obtained.

We could have gone into a court of equity and asked permission to compel the corporation to file a refund claim-they paid the tax- and the result would have been arrived at in exactly the same way and the question up would have been just the question that is here presented.

That is all waivable.

Furthermore, we are hem reluctantly, in a sense, because we have been summoned here by a writ of certiorari that bounds the questions that we are called upon to respond to, I submit, and we were asked to come here to demonstrate the question of constitutionality which is presented in the petition; no question of propriety of procedure is presented.

Again, the decree of the district court of the United States dealt with the merits of this question.

Had we rested there, it would have been established as to us that this act was constitutional, that we could never complain of this treatment of this money.

They dealt with the merits, and we appealed.

The only ground on which we appealed was that the act was unconstitutional.

That was the only error that we assigned.

Our adversaries did not appeal from the fact that the district court had exercised jurisdiction to decide this question.

They could not be heard above.

The only thing that could be heard above was our appeal.

MR. JUSTICE CARDOZO: I suppose your position is that so for as any substantive right of the corporation is concerned the corporation by not appealing or petitioning for the certiorari has abandoned or waived that, and that there remains then only the question of adequate remedy at law which may in certain circumstances be waived or disregarded?

MR. MCCLENNEN: Yes; that apart from the procedural obstacles in the way of employees raising any of these other questions in this appeal here, in this petition for certiorari here, everybody in sight except the Court has waived this question, and I submit that they have a right to waive it.

I might say one word more.

There is no preliminary injunction here.

None ever will be issued.

There will be only a final injunction.

The judicial power of this Nation is in this Court.

They are a Court of equity.

If finally it is determined that this is not a tax, if the section of the statute referred to prohibits this Court from issuing then an injunction, not against the collection of a tax, but against the collection of something which is not a tax, it would be unconstitutional, This Court cannot have its powers taken from it in that way, when the substance of judgment in a court of equity and final relief enables the Court to issue an injunction.

And of course the statute never was intended to cover a case where, before the injunction ever was issued, the Court of last resort had reached the conclusion that there was not any tax.

It would not be applicable in terms under those circumstances.

Now, I would like to answer further Your Honor's earlier question on the matter of tax.

What I referred to was what was said in Flint V. Stone-Tracy Co. (220 U. S. 107, 151)

Although there have been from time to time intimations that there might be some tax which was not a direct tax nor included under the words "duties, imposts, and excises", such a tax for more than 100 years of national existence has as yet remained undiscovered, notwithstanding the stress of particular circumstances has invited thorough investigation into sources of revenue.

Of course, that does not absolutely Bay that there is no other, but it is pregnant with that suggestion, and I submit that if you look at the Constitution when you consider what was sought to be accomplished here, here were 13 sovereigns surrendering some of their taxing power to a new sovereign.

Of course, if we had been set up as an unlimited sovereign- I don't mean that there was any limit on its sovereign powers, but those were in its category of Government, and if it had been an unlimited sovereign, there would be the inherent power to tax.

Such was not the case here.

All the property, all the persons against whom taxes could be levied, were in allegiance to another sovereignty already, and that sovereign had equal powers to take everything that could be taken by taxation from them, and the Nation got only what those 13 sovereigns turned over; and that was the right to tax and it mentioned these taxes.

Well now, if those words should be read in the language of the times, in the light of the knowledge of the times, I respectfully submit that all they were talking about were direct taxes and excises, imposts, and duties; that that comprehended all of the power that was given.

You know how jealous the States were in giving up these taxing powers, and it is inconceivable that when they had made this one careful provision that the direct taxes should he done in this and this way, and the excises-and I use that in short for the other three should be done in this way, it is inconceivable that they would have left another way of taxation which they did not design, as to whether that was to be apportioned among the States as they provide with respect to these taxes, or was to be made uniform or was to be done in some other way.

Taxes meant, in the language of that day, direct taxes; and these others meant these other types.

Now, of course, duties may be laid aside and imposts may be laid aside, except so far as they are comprehensive of excises and duties; and the only word that can be used is the word which Congress recognized as the only one that would be applicable if there was any that was applicable; and they said they laid an excise.

Now, it is a word that must have some definition.

There must be some limits to the taking of property from the citizen by the Government under the name "excise.

" The definition which we have proposed is the definition sanctioned by the cases.

That is taxation, direct taxation, was tax upon the property-debatable whether it included personal property, but that is immaterial; real property any way, determined by its static value and irrespective of its use of nonuse; and the excise was also a tax upon property , property in manufacture, property in sale, property in trade in any way-but property

If we go further back, submit that the word "tax", leaving out of consideration the capitation tax that is expressly provided for, is based upon the idea of property in some form.

There must be something to be taxed.

Now, here the difficulty is evident in the language of the section 804 is on page 8 of our brief.

The sections there are not, you will observe, in order, because they are in the order of their sequence in consideration in the case. 804 "In addition to other taxes, every employer shall pay an excise with respect to having individuals in his employ.

What is the tax on?

"With respect to having individuals in his employ.

" This was a Congress that had in mind at the time exactly how you talked when you were discussing a tax on something.

In 801, which is on page 9, the tax is on the income.

"In addition to other taxes, there shall be levied and collected and paid taxes on income.

" It was on income.

You could tell what they were talking about and what was being taxed.

What are they taxing in 804?

No substance whatever.

No individuals.

No taxes levied on an individual.

No taxes levied on a piece of property.

And they do go on to give the guide for the measurement of the tax, but they do not tell what it is on.

And it throws a great deal of light on the difficulties.

There was not anything there to be taxed.

Now, when the word "excise" was used in 1788 it had a well-established meaning.

The excises began in England.

I think it was 1643, and we had them in Massachusetts in 1646, and they ran all the way down, and they were taxes upon property.

A tax upon whisky was the typical thing.

Tax upon tea was another.

Tax upon salt.

Tax upon green glass-things of that kind.

In the brief we have asked your consideration of these things, bearing on the meaning of this word in 1788 The things that had been called excises, the practical applications, what the word meant as it appeared in these statutes and ordinances; what the dictionaries of the day said about it.

Dr. Johnson's dictionary was 20 years old or so before this.

I am speaking now of the vulgar dictionaries, not law dictionaries.

The law writers spoke in the same terms.

Blackstone speaks of the excise, what it is.

That was 20 years or so before these words were used.

In 1797, 9 years after, the Encyclopedia Brittanica of that edition, takes Blackstone's definition as the definition.

The 13 States, when they adopted this Constitution gave power to levy an excise.

What would you say that they gave power to levy by the term "excise"?

Why, they gave the power to levy that which by the common speech of the day was an excise, and nothing else.

Of course, I don’t mean that they could be levied only on chaises or property of that day.

They could be levied on automobiles, although those did not exist then.

But the employing of labor was a thing that occurred in those days, and if the act of employing labor in those days was not a thing upon which an excise could be laid, it was not comprehended by the term "excise", it has never become so by any change in conditions since.

If the suggestion is made in argument that we question the right to levy a tax upon a natural right, we make no such question, because the right to hold property is in this crude sense of the term a natural right.

But we say that if in 1788 that was not the kind of thing on which an excise could be levied, there has been no chance since, and it is not a thing now on which an excise can be levied.

The next thing that we ask your consideration to is what was said in the adopting conventions by the advocates of the adoption of the Constitution.

This excise was rather a hateful kind of tax.

There was a good deal of apprehension about it, and the different ones advocating the adoption of the Constitution, in telling what the tax was, described it in the terms to which I have referred-tax upon property, tax upon property in consumption, in sale, in manufacture.

I respectfully submit that until someone can find a batter definition it would be appropriate to take the definition which this Court has heretofore given, and that indicates that it is a tax upon property in action, in operation, in use, not a tax upon the capital but, as the very word indicates, something cut out of the property.

Some of you may remember when the corn was taken to the miller and he kept a tenth of it for the grinding.

He excised a tenth of it for the operation.

The Government excises a portion of the property.

They take a portion of the property and cut it out for the Government, and then it is liquidated in money.

That is the compromise of it.

I respectfully submit, therefore, that before we get to any other of the questions in this case this should fall, because it is not an excise and it was not within the power of the Congress to impose it.

The next question is what this tax was imposed for.

The only title here involved is title 8, and the only sections directly involved are 804, putting the imposition on the employer to pay his own eventually 3 percent, and 802, putting upon the employer the duty to pay eventually 3 percent more, out of his own money.

No segregation of that for the employee, He is to pay 6 percent, but the statute says that he can perform his obligations to his employee by paying him 97 percent of what he agreed to pay.

It is not a case where the employee is rendered liable for this tax.

There are no circumstances under which it can be got from the employee.

It is the employer that is the one to pay this second tax under 802, and he pays it just as he pays the one under 804.

He pays his 6 percent and he pays his employee 97 percent of what he agrees to pay the employee.

That is the tax, if we may call it a tax.

I submit that if it were possible to get away from this being an excise and put into some other kind of a levy, then it fails to be a tax because, characteristically, it is not a tax.

The conception of a tax is something put upon property, and for the Government to seize from the individual something unrelated to property, save the capitation tax expressly for, is not a tax.

It does not make it a tax to call it a tax under those circumstances.

Now, for what was this levy imposed?

It is said, first, that it was just imposed to raise money.

Of course, if it was a tax and was imposed just to raise general revenue for the United States, there can be no question that that is for the general welfare of the United States.

To get money is for the general welfare of the United States.

It has to be determined once for all, I submit, whether this was laid for that purpose or was laid for some other purpose, and one cannot vacillate on that question.

I am called upon to present the argument in two ways, because I may not know in advance which will be your conclusion as to whether this is to raise a general revenue or is to provide old-age benefits; but it will be the one thing or the other in your judgment, and not a little of both, because the elements to be considered in determining whether it is good or not are so different in the two cases.

Reading the act, I submit that there can be no question in anyone's mind but what this levy was made to provide old-age benefits.

My adversaries have called attention in their brief to the fact that this might have been several different acts, the different titles might have been different acts.

Well, they might have been but they were not.

It would have been pretty difficult to steer some of those titles through as separate acts without any association with their neighbors, but this was one act.

I take it we may assume honesty and sincerity in Congress, and they say, not that it was the "Revenue Act of 1935"; they said it was the "Social Security Act.

" Eleven titles were the Social Security Act, and they start out-this is what the act is for "An act to provide for the general welfare by establishing a system of Federal old-age benefits"-a system of Federal old-age benefits" and by enabling the several States to make more adequate provision for aged persons blind persons, dependent and crippled children, maternal 'and child welfare, public health, and the administration of their unemployment compensation laws"- not to provide any unemployment compensation).

but only the administration of the States laws, leaving it to the States to provide for the way in which-not exactly to provide for the way in which-to provide whether they would do it in the way that Congress said it ought to be done-"to establish a Social Security Board"-not a tax-gathering board but a Social Security Board-"to raise revenue; and for other purposes.

The "raising of the revenue" got down in with the "other purposes.

" It was the residuary clause there.

This was passed by a Congress dependent upon the suffrage of the country, to be brought back into office in accordance with the way in which they had administered the affairs or legislated for the affairs of the country, and they selected, we may assume, an honest title, to go forth into that community to let it be known what they had done, and what they said first was "by establishing a system of Federal old-age- benefits" by a "security act "-security.

Somebody could have a right to the benefits.

It is true they might repeal the act.

They might permit a breach of faith and take the security away again after they had given it in terms which the common man whose mind operated honestly would understand to be the giving of security.

They pick out as the first thing to tax the wages of the smallest wage earners in the country.

They exempt from the tax the wages above $3,000 a year.

Is it within the bounds of reason to assume that the Congress would have done such a thing as that in order to raise general revenue’?

I submit that it flies in the face of all reason to suggest such a thing as a possibility.

The reason that they selected those wages to be imposed on was because the recipients, the otherwise recipients of those wages, would be the ones who were going to have the security of an old-age benefit.

That was the only reason that they did it.

Now, I dare say that it may be that the constitutional power of this Congress to repeal this act after they have collected from the small wage earners this money exists, to deprive them of the security which they said they were to have for paying this tax.

It may be it is within the power of the Congress to do that.

Congress has power to be quite perfidious without transgressing the limitations of the Constitution, but I venture to say that no Congress would ever be found that would be guilty of the degree of perfidy that there would be in the repeal of this act without making tantamount provision otherwise for the same end.

Then you have the other thing.

The wages that are taxed are not all wages even below the $3,000.

They are not the wages of domestic servants or farm laborers, and there are other exemptions that it is unnecessary to refer to, because these two prominently present the question Why were they not taxed?

Why should not farm laborers, some of whom very likely were getting more than the cobbler's apprentice that is taxed-why should they not be taxed?

Why, for the obvious reason that this idea of old-age benefits was one that was to be limited to the same classes of people.

If there had not been the necessity for this circumlocution due to the different sovereignties under which we live they would have done what they recommended be done in the case of the unemployment compensation.

They did not call for a tax there; they called for a continuation.

The employees that were to get the benefit of this money were called upon to make a contribution, and that is the reality of what this is.

And the employers were called upon to make the contribution, and they were the employers of just the same classes.

If you take section 210 that defines the prospective recipients of the benefits and section 811 which defines the ones to be taxed, they are identical in language except for one section about the over 65, and it is perfectly obvious that the reason the over 65 is left out in the one clause is because they were going to fall at that age into the benefits that were coming in the benefit section.

If you looked only at the act itself, applying it to just the common knowledge of the community, of what was being talked about, no one, I submit, would have any doubt but what in the substance of the thing that money was being raised for the purpose of creating this security fund.

We had had these very troublesome times, and men over 65 years of age are as hard up now as we hope they are likely to be hereafter, but this act postpones until 1942 the time when any of them shell have any of these benefits.

If this was the provision out of the general funds of the United States to provide for these people who were in need in this way or deserving in this way, if they are in need, it would begin now.

The obvious reason why there is a postponement until 1942 is because these funds raised under title 8 are to go to create the reserve fund out of which these payments shall be made.

These payments raised in the present year, if raised in this way, would be just as available for the 65's and over now, and paid currently.

They would not he sufficient until the accumulations have been made of several years, and then comes the time when these payments are to be made.

That indicates as clearly as could be indicated that this money was raised under title 8 for the very purpose of furnishing the reserve fund, provided for by title 2.

We are not here complaining of any appropriation.

We are here complaining of the fact that an attempt is being made to take money from us under the guise of a tax for the purpose of providing old-age benefits.

If that purpose is not a Federal purpose, then the requirements of the enacting clause have not been met.

The validity of a tax depends not only upon its going upon the things upon which it may go, but that it is raised for the purposes of the United States, namely, to pay its debts, provide its common defense, or to provide for the general welfare of the United States .

We submit that the providing of an old-age annuity fund for the needy and the non-needy persons who have sustained only the calamity of living after the age of 65 is not within the province of the United States, and that the tax must fall because it lacks that essential quality of a Federal purpose.

Now, before going at length to the discussion of the Federal purpose, I would ask your consideration next to the question whether this tax meets the requirement of being uniform and not capricious.

There is no language in the Constitution that says that a tax shall not be capriciously laid.

No language was necessary, because an imposition upon the citizens by the Government which is capricious is not a tax.

The whole conception of taxation is the raising of money by some fair method, and of course within the boundaries of its powers the method that the Congress deems to be fair is the one that must prevail.

"Reasonably levied", "proportionally levied"-various words used to define, but repeatedly this Court has said that if the selection is capricious the tax is bad.

Now, assume that I am wrong in asserting that this tax is laid for the purpose of providing old-age benefits, and assume for the moment that it is laid for the purpose of raising general revenue.

We forget title II altogether now and we look at title VIII.

The "because" of the tax is the employing of labor in industry and trade and in all other ways in which there may be employment, except agriculture and domestic service.

We are not speaking now of the fact that the old man on the farm can still work, and the old man in the cobbler's shop cannot work.

I should think that is, of course, a matter for separate debate.

But we are speaking now not of what he is going to get out of this at all; we are speaking of who should pity this tax ; what sort of people should pay this tax.

A country carpenter, if he employs a journeyman, must pay the tax.

A country farmer employing a laborer does not pay the tax.

The affluent citizen who keeps a horde of servants does not pay the tax.

The cobbler who employs a worker at the same bench with him may never have started a week with $ 10 to his name.

Property has nothing to do with it.

Capacity to pay has nothing to do with it.

The success of his business has nothing to do with it.

The extent of his income has nothing to do with it.

The profits that he is making have nothing to do with it.

Can anyone think of any reason for pecking at the particular ones pecked at?

For that, I take it, is the test of caprice.

If this is for general revenue you could not think of a more excellent example of pure caprice than the way that this has been laid.

It might have been aid exclusively on baldheaded men or on gray-haired men or on those who wore white shirts or those who wore blue shirts.

There is no reason whatever that can be assigned, I respectfully submit, for the selections made if this was being raised for general revenue.

It lacks all the characteristics of a levy of tuxes for the support of government.

Now, I ask that you assume that I am right in asserting that the tax is to provide old-age benefits but that it is not a regulation that it is a tax, a revenue-raising measure for the particular purpose.

If it were a regulation, one could see how different employments might be classified and contributions exacted from the particular classes by reason of the particular benefits that, were to come to that class or to the members of that class.

But we cannot view it in the light, of a regulation here, because I suppose that everyone admits that this regulation of employment in domestic industry, in industry within the State, is not within the power of Congress, and that this can be supported only if it is a tax.

Well now, while the measure is the money paid out in wages, so far as you can get any indication of what the tax is for, it is for employing people.

If you employ people, because of that fact you must pay this tax.

Well, it is not even that; for while the thing, the employing, the element of employing, is picked upon as the thing that shall determine whether you will pay the tax or not, it is not applied rationally or uniformly, because it is not pt upon all those who do that thing.

It is not put upon those who employ in agriculture.

It is not put upon those who employ in domestic service.

And therefore it lacks a rational basis.

It is a capricious tax in that sense.

Then we come to the question whether the furnishing of old-age benefits is a Federal purpose.

That, of course, takes us into various elementary considerations of the history of the creation of this Nation.

I respectfully submit that the Government of the United States has no power and it is under no duty to support the indigent of the several States.

When this Constitution was in process of adoption or was being promoted for adaptation there was no one within the area to be considered who was not the citizen of an absolute sovereign government of the State.

The people who became the people of the United States could not have adopted the Constitution of the United States without consent of the States.

It would have been an act of treason to the State for them to adopt the Constitution.

One of the necessary results of the sovereignty of the States was that individuals owned complete allegiance to the State, and it was the States and not the people of the United States that adopted the Constitution. ART. 7. The ratification of the conventions of nine States shall be sufficient for the establishment of this Constitution between the States so ratifying the same.

We may assume that in a civilized community the sovereign is under the duty to prevent the starvation of the people of the sovereignty and that the providing of poor relief to those who can qualify for it is a more performance of governmental duty.

It was the duty of the State in 1786.

Each of those States had that duty.

They had the correlative power of taxation for the performance of that duty.

The Constitution may be searched in vain for any clause or any combination of clauses that transfers that duty to the United States.

There it rests, it has been recognized through all our history that there it rested, and that the States retained the power, the full taxing power, to provide for the carrying out of that duty.

Of course, I do not refer to what may be the duty of the United States to take care of those within its category of government, the employees engaged in interstate commerce, the employees of the Government itself, those who are engaged in defending the United States or carrying on war.

I am referring to those persons who merely live within the several States.

The Government of the United State was never given any power to legislate even for the general welfare of the United States.

I am not approaching yet the question of taxation, but I assume that it is now well settled that the Government of the United States has no power to regulate the general welfare, to provide those things that a sovereign government must provide in the way of the ordering of the community in which the people of the States live.

It was set up for two perfectly clearly set forth powers One was relations of the group to the outside world, and the other was the mutual relation between the States; and, of course, the most prominent feature of this latter is in interstate commerce.

One has only to look at the Articles of Federation, which were the forerunner of the Constitution, to see these same things set forth there.

The Articles of Federation were for the purpose of taking care of the general and mutual welfare, and, of course, it requires no argument that the Federation got no power to control the internal affairs of the States or to require the citizens of Georgia by taxes to support those of New York above the age of 65 years.

No more did the United States.

A very short time had elapsed between the two documents.

The same words were used in this respect in the Constitution, except that the word "mutual" was dropped out and an amplification of that was provided for in interstate commerce, and the various special things that were pointed out.

Interstate commerce probably was in and of itself large enough to take care of all those matters where the States might come in conflict.

They could no longer derive those things by treaty among themselves or by warfare between them.

That was turned over to the United States.

The general welfare of the United States was the general welfare of the Government of the United States.

MR. JUSTICE SUTHERLAND: I am sorry, Mr. McClennen; I don't hear all you say.

You let your voice drop.

MR. MCCLENNEN: I was not saying anything really that was worth while.

The power to tax was given to this Nation to provide for these definite things The common defense of the United States, the payment of the debts—

MR. JUSTICE BUTLER: You are not speaking quite loud enough for me to hear well all you say.

MR. MCCLENNEN: The power to tax was given to provide for the common defense, the payment of the debts, and the general welfare of the United States.

"Of the United States" was there used as being a Government, not a Territory, not the several peoples within the Territory.

It is used after "debts" and "common defense.

" Obviously, it was not the debts of the people within the United States, the territory of the United States, that were to be paid.

It was the debts incurred or assumed by the Government of the United States.

"Welfare of the United States" is used in exactly the same way, and welfare of the United States when power to tax is given is the same thing as when duty to govern is imposed.

There is a duty in the United States to do certain things, and there is a power in the United States to raise the money with which to do those things and that is what is the "welfare of the United States.

"General welfare"-we may concede that it is for the welfare of the United States that everybody should be supported by the Government.

I resent a little its being limited to those over 65, but should get over that resentment in a little while.

If there is any duty to support those over 65, there is a duty to support the infant who is unable to support himself; there is the duty to support the cripple; there is the duty to support the incompetent; there is the duty to support everybody who, by the exercise of the best of his abilities, cannot support himself, and it may be that it would be for the general welfare of the United States that everybody should be supported by the Government.

The welfare recipient would advocate that, in all probability.

There is no ago limit to this, and it is not a question of whether it is for welfare; it is a question whether it is for the welfare of the general Government of the United States.

Can anyone think of anything that would be much more for the welfare of the people of the United States than to stamp out the use of narcotics?

Yet it seems to have been taken for granted-and more than that, expressed-that that is not a United States purpose.

There are many things that are for the welfare of everybody within the United States that are not in any way contributive to the general welfare of the Government of the United States.

I respectfully submit that the support of the aged is a thing not in character a part of the general welfare of the Government of the United States.

If it is, the duty is owed, and this Court has just said that if there is the duty, though it be not a legal duty, it is the moral duty, there is the power to tax for its performance and that it comes within the debt clause, that the debt clause is broad enough to take care of that.

The Government of the United States was never set up as an eleemosynary corporation.

The Government of the United States cannot engage in the administration of poor charity, getting its resources for that charity from the taxpayers of the United States.

Of course, there may be cases where what looks like charity is merely casting the broad on the water so that it may return after many days and is a good commercial transaction.

It may be that there in a power to perform mere charity to foreigners, to keep the foreign relations of the United States in the best of condition.

There may be cases where what looks like charity is the performance of what you have just said is the debts of the United States.

But there must be some governmental obligation, some governmental duty, in order that there may be the power to tax for it.

The States did not give to the Government of the United States the power to draw money from the citizens of the States to give away.

There cannot be found anywhere within the Constitution any provision for any such power.

It was set up as a government to protect the rights of all against the outside world and to determine the rights of State against State and the people of one State against the people of another State.

The idea that the people of South Carolina and Virginia could be taxed to take care of the paupers of Massachusetts and New York would have created consternation had it been suggested at the ratification tables when the Constitution was being adopted.

In reality, what is being dealt with here is a regulation and not a taxation for the support of Government.

The same question has recently been dealt with under almost identical conditions by the Privy Council in deciding where lay the powers as between the provinces and the Dominion of Canada, where they held that the Dominion Government, having full taxing power but no power of regulation of the affairs within the community, could not levy a tax for the purpose of its being paid into a fund for the support of so much of the unemployed, and, of course, the unemployed and the aged would come with in the same class.

The reason why it is necessary to take car of the aged is because they are to such an extent on that account the unemployed.

That is a very analogous situation to the one that is presented by the Constitution of the United States.

There is the power to tax but not the power to regulate.

And what this amounts to in real substance is a regulation.

When a State does it in an unemployment act it exacts a contribution from employers with which to pay employees of themselves and others in times of unemployment.

It amounts to being n regulation by law that a man shall not employ another without paying him a certain wage, but the wage to be paid in part in money and in part in an assurance of money to be paid him later.

He earns it by working.

He earns his old-age benefit by working.

He gets his old-age benefit just as he gets his weekly wage, as a return for the work that he has done.

And it is only in this way that there can be justified the assertions that this is a provision for contributive old-age benefits as distinct from those merely furnished by the Government, regardless of what they were to have done or any contribution that he has made.

The act came through exactly as, or in all substance as, had been suggested, urged, by the commission that had been, appointed by the President and that was a commission, not on finding other sources of revenue for the United States but a commission on the subject of economic security.

He appointed that commission.

Then he appointed another, again not to find sources of revenue for the United States, but an advisory council on economic security, and that commission reported.

In a 50-page report there is no talk about raising revenue for the Government of the United States, and there is much about the different subjects that are dealt with in the Social Security Act, and they propose under the title "Old Age Security” compulsory contributory annuities- compulsory contributory annuities, not annuities furnished by the United States going out and finding its means of doing it by the raising of general revenue.

A man when he pays a tax does not make any contribution to the building of highways.

This was not to be an act-for the payment of a tax.

It was an act to provide for compulsory contributions, and they say the satisfactory way of providing for the old age of those now young is a contributory system of old-age annuities.

This will enable younger workers, with matching contributions from their employers, to build up a more adequate old-age protection than it is possible to achieve with noncontributory pensions based upon a means test.

“To build up”- they were going to build it up; the workers and their employers were going to build it up by making contributions to it, and the way in which it was worked out was this method, that “the burden upon future generations for the support of the aged can be lightened in this way.

That is, the tax upon public resources obtained by taxation will be diminished by making the workers during their period of working and their employers during that period make their own contributions.

Well, that is a regulation of a method of employment, a way in which industry shall be conducted within the State.

It is not taxation.

I am not suggesting that there may not be taxation for a particular purpose where the payers of the tax are particularly benefited by that purpose, and that it may not be imposed on a certain portion but that is not what was done here.

That was not the aim.

That was not what they were talking about in these preliminaries.

And they go on

The contributory annuity system include on a personal basis all manual workers and nonmanual workers earning less that $ 250 a month.

You will observe the very minimum of $3,000 that was adopted into the act.

“The compulsory contributions are to be collected through a tax on pay rolls and wages, to be divided equally between employers and employees.

” “The compulsory contributions are to be collected through a tax”- they were going to call the contribution a tax, but it was a contribution.

It would have been no different if they had not used the word “tax” and had used the word “contribution”, and if it had not been for the possibilities envisaged in the taxing clause they would have spoken in the same language that they speak in the State act, “a contribution”.

Workmen’s contribution acts- same sort of thing.

The employers, regardless of responsibility for the act, make a contribution to the fund that shall take care of the misfortunes of the employee, not of himself, but of himself and others of the class or generally.

That is, I submit, clearly defined as not taxes but enforced contributions, if we look at the report of the commission.

That was submitted by the President to the Congress with the recommendation for legislation in accordance with it, and the legislation that was enacted by Congress was in all substance in accordance with it.

The committee on ways and means in their report says of this part-

and to make a beginning in the development of measures which will reduce dependency in the future, to assure support for the aged as a right.

Now, no one would ever think when he was paying taxes that he got by that payment of taxes a right to be supported by that Government in his old age because he paid taxes, even when he had money enough to support himself.

The Senate committee report follows that same line.

Means of providing old-age security as a right and not as a public charity.

What has been done here is to set up a regulation of the affairs of the State.

Now, whether we should have old-age protection in this way or not is a question of policy, and I do not speak for a moment to this Court on the question of whether it is good policy or bad policy because, obviously, it is not for this Court to say.

But it is a question of policy to be determined by the sovereign government.

Now the sovereign government of Massachusetts may believe that it may be for the welfare of the State to have people do their own saving, build up their own strength of character, have those who are frugal and prudent come out in old age better that those who are wasteful and extravagant.

It may be that this is a more humanitarian idea that should prevail, and another government may take another view of it.

But has not Massachusetts the right to say "Our citizenry shall continue to be governed and regulated under such a system as that.

We think of a pure gift as not being a regulation but it is.

Regulation does not mean speaking in terms of compulsion.

Regulation is determining the ways in which the affairs of the community shall run.

Massachusetts, If you please, says "We believe that it would be better to take care of those who must be taken care of in old age in a meager way and build up this strength of the community, strength in moral character and substance, in this way.

”May not Massachusetts do that?

Has Congress the power to prevent that any longer being the policy in Massachusetts?

I submit there is no provision in the Constitution anywhere that permits the Congress of the United States to interfere with that method of running the internal affairs of any State.

MR. WYZANSKI: May it please the Court, I shall address myself to the three challenges which have been directed to this statute.

It is asserted, first, that the tax laid by title 8 is not a valid tax qua tax.

It is then said that a person who is assessed for the tax under title 8 has the right to refuse payment because title 2, which provides for old-age benefits, is invalid and unconstitutional.

And finally, it is said that, even if the tax is good qua tax and the spending is good qua spending, taken together these two titles form a regulatory system not within the power of Congress.

The first point is whether the tax is good qua tax, As Your Honors will recall, in the Steward case (October term, 1936, No. 837) we argued rather elaborately the point that the Constitution authorizes the imposition of an excise tax upon employers measured by pay roll.

The tax is upon something definite, despite the contention to the contrary by the respondent.

It is upon the receipt of services, which is to all effects and purposes just as taxable as the receipt of property, which was considered in Knowlton V. Moore (178 U. S. 41).

It has been argued at the bar that there was no precedent in the eighteenth century which would have familiarized the Constitutional Convention with this sort of tax.

As I said to Your Honors in the Steward case, there was in 1777 in Great Britain a tax laid upon employers of domestic servants, the tax to be at the rate of 21 shillings per employee.

And if there is one subject which the framers of our Constitution knew, it was the taxing policy of George III.

This tax was, in fact, in England called an excise tax, as an examination of the 1869 reenactment of the 1771 statute shows.

Not only is the tax a valid excise tax, but it is clearly "uniform" under the interpretation of the rule of uniformity again and aga in given by this Court.

The rule is that the liability shall be the same in every State.

And there can be no question whatsoever that the canon of uniformity has been here observed.

It is suggested that the tax is arbitrary and capricious, in violation of the fifth amendment.

To that we have already given our answer in the Steward case.

This Court has again and again stated, perhaps nowhere more clearly than in Flint and Stone Tracy in 220 United States Reports, that Congress may select for taxation such subjects as it sees fit; and despite the contrary contention from the respondent, the Connolly case (229 U. S. 322, 329) makes it clear that in questions of taxation the power of selection is greater, not less, than in questions of regulation.

Before passing to other questions, perhaps I ought to mention a point which Mr. Justice Butler raised this morning, and that is the numerical coverage of the tax, The Senate commit tee report which accompanied this bill estimated, at page 26, in table 9, that the number of gainfully employed in the United States is something short of 47,000 ,000 persons, and the number of persons covered by this tax was estimated to be 25,000,000, and that estimate has fallen short of the fact, because there are, indeed, 26,000,000 or more persons who believe themselves to be covered by the tax and who have registered accordingly.

I pass now to the second question.

MR. JUSTICE BUTLER: That leaves 21,000,000?

MR. WYZANSKI: Twenty-one million.

That includes those who are self-employed or otherwise gainfully employed.

Your Honor asked in the Alabama Unemployment Compensation case what the term "gainfully employed" meant.

That term is utilized in the census to cover everybody who works at a regular job, whether he works for himself or his family or works for someone else.

MR. JUSTICE BUTLER: The number included in the exemptions here under farm labor, and so on?

MR. WYZANSKI: That means 21,000,000 out of the 47,000,000 are not covered; 47,000,000 are gainfully employed in the United States 26,000,000 are in employment covered by this act; 21,000,000 are not in employment covered by this act.

I come to the second question, which is whether-

MR. JUSTICE BUTLER: Have you seen the figures on page 41 of Mr. McClennen's brief?


MR. JUSTICE BUTLER: They seem not to be in harmony, but do not delay yourself about it.

MR. WYZANSKI: Mr. McClennen says they come from the House report.

I didn't know that.

The second inquiry is whether a person who pays the tax under title 8 may raise any question with respect to the validity of the old-age benefits under title 2; and if so, whether those old-age benefits are valid exercises of the power entrusted to Congress under article I, section 8, clause 1, of the Constitution.

Your Honors will bear in mind that the tax collected under title 8 is in no sense earmarked.

We therefore do not have the problem which was before this Court in the Coconut Oil case (Cincinnati Soap Co. V. United States, No. 659, October Term, 1936) or in the Butler case (297 U. S. 1).

Your Honors also will bear in mind the fact that this particular tax is itself in no way regulatory, as the tax was deemed to be in United States against Butler.

The question arises, then, whether this case does not come within the rule of Frothingham V. Mellon (262 U. S. 477), so that the taxpayer under title 8 stands in no position whatsoever to question title 2.

MR. JUSTICE BUTLER: What was the precise question involved in that?

MR. WYZANSKI: In Frothingham V. Mellon the question was whether a general taxpayer might question a particular appropriation.

MR. JUSTICE BUTLER: What was the appropriation for?

MR. WYZANSKI: The appropriation was for maternity welfare.

The question then comes whether title 2 is a valid exercise of the power of Congress.

It has been suggested by the respondent that the only power which Congress has with respect to appropriations is to appropriate to pay the debts of the United States and to provide for the common defense and general welfare of the Government of the United States.

It seems to us that that reading of the clause is much too narrow and in conflict with the decisions of this Court in United States v, Realty Company in the one hundred and sixty-third United States, and more particularly in conflict with the decision in United States against Butler and the decision of the other day in the Cincinnati Soap case.

It is our view that this Court, having accepted the Hamiltonian and Story doctrine, has committed itself to a much broader view of article I, section 8, clause 1, than the respondent in this case takes.

Only the other day in the Cincinnati Soap case Your Honors pointed out that it would "require a very plain case to warrant the courts in setting aside the conclusion of Congress" that an expenditure was for the general welfare.

We submit that this is no very plain case for setting aside the conclusion of Congress.

Mr. Jackson, in his opening argument, made clear the extent to which the number of aged is increasing in this country.

He called your attention to a table which showed that in 1870 the aged constituted only 3 percent of the total population.

He pointed out that in 1930 those over 65 had come to be almost 6 percent of the population and he spoke of a projection which indicated that in 1980 the probabilities were that there would be 22,000,000 persons in the United States over the ago of 65 and that these 22,000,000 persons would constitute 14 percent of the then estimated population of 158,000,000.

These aged persons are already finding it increasingly difficult to get and to keep employment.

We have passed into a phase of urban industrial life in which, as Mr. Jackson stated, cash is an absolute necessity for survival.

And yet, these aged persons find it more and more difficult to retain the jobs that they have and to get new jobs when they lose their employment.

If they retain their jobs, often they suffer a reduction in wages.

Clearly, if they are paid on a piece basis, age counts heavily against them.

Even where that is not the case, new technical processes to which they cannot adapt themselves result in a reduction of their compensation from their particular employers.

And then, if in time of crisis or in a cyclical depression or a seasonal depression they lose their jobs, it is very difficult for them again to secure employment.

In answer to a question from Mr. Justice Stone this morning, Mr. Jackson referred to a statement which was to be found in the footnote on page 58; and in that statement in the footnote at page 58 it is shown that a man at the age of 40 has only 19 percent of the chance that a man at the age of 20 has of getting a job; and when a man gets to be between 60 and 64 there is a handicap of 83 percent in his case as compared with workers as a whole.

Needless to say, the handicap for aged women is even greater.

To take core of this danger of old age a number of different attempts have been made.

In the first place, there are some private pension plans.

But those private pension plans, as recently as 1930, covered only 4,000,000 employees, and many of those were on the railroads.

Of those covered by the plans only 90,000 got benefits in any one year.

Then, there is group insurance.

The figures on group insurance show that in 1935 only 6,500 in the United States got benefits.

Finally there are trade-union plans.

Those trade-union plans according to the most recent estimate, spent less than $4,000,000 a year.

That means that if they gave a benefit of $ 15 a month they covered less than 25,000 persons.

Not only ore private plans inadequate, but charity is also inadequate, partly for the reason that Mr. Jackson gave and partly because charity does not address itself to a problem of this sort, which is permanent and which is a problem very different from that which private charity has cared for, except in a few instances.

In the end, the people who become aged turn for their relief to persons other than private employers and charity, The Social Security Board has estimated that of the people over 65 in the United States two-fifths to one-half are dependent on their families.

About a quarter, perhaps no more than a fifth, are dependent upon public relief of one sort or another.

One-eighth are able to earn something, and one-sixth have some savings.

The consequence is perfectly obvious.

The States are tremendously overburdened with this problem of the aged.

In the year 1936- that is, last year-the States spent for the aged $ 161,000,000, of which about one-half was met from the Federal Treasury.


MR. WYZANSKI: Met from the Federal Treasury by direct grant to the States.

Can there be much question that at this rate of growth the States will be unable to bear the burden?

It is said that if it were not for these old-age benefits, by 1950 the States alone will be called upon to spend $700,000,000 annually for their aged.

In no year of the depression did they spend more than 500 million for the unemployed.

How are they possibly going to make provision for the aged unless steps are taken now?

And the States cannot act alone in this problem.

There is first the very serious question of records being kept.

In a country like ours, young as it is, people move around from one part of the country to another, and it would be very difficult to have adequate records in the single States.

Moreover, it is quite questionable whether the States could, acting alone, impose a tax that would not put them at a grave economic disadvantage with their sister States.

If the Federal Government endeavored to make some sort of subvention to them the consequence would be that the Federal Government would have to determine whether each State should have a reserve plan or a pay-as-you-go plan.

It would have to lay down many details which are referred to in our brief and which are explained in a very excellent article by Prof. J. Douglas Brown, to which we also refer and which will be found in Law and Contemporary Problems April 1936.

In this situation the Congress has enacted title 2.

Can it be said that this is a very plain case in which Congress has exceeded the authority given to it?

This expenditure is clearly national, general, and not local.

It meets the tests laid down by Story and by Hamilton.

In the course of the argument in the Cincinnati Soap Case it was suggested from the bench that an appropriate test of the general-welfare power might be whether the expenditure met a national objective.

That test is the test which Chief Justice Marshall had in mind, for, in McCulloch V. Maryland in the Fourth Wheaton, at page 409, he refers to the power of the National Government to apply the revenue for- and I quote- “national purposes”, which is a much broader power that the power that the respondent believes has been given to Congress.

If, as we assert, title 8 is good as a taxing measure and title 2 is good as a spending measure, it seems to us very difficult to understand how the tow of them taken together can be invalid.

Ever since McCulloch V. Maryland (4 Wheat. 315), and indeed as recently as the Norman case in 294 United States Reports (294 U. S. 240), this Court has laid down the principle that two powers may be used in conjunction as well as severally by Congress, and we see no reason why that principle does not apply here.

Indeed, if the two titles are here read together instead of separately, we think our case may be stronger rather than weaker, for much which seems capricious to the respondent has a clear explanation if the two titles be read together.

But it is said that reading the two titles together we find an expropriation and a regulation by Congress in a field reserved to the States.

The charge of expropriation seems to use plainly unfounded.

Here the money taken from the taxpayer goes into the general Treasury, It is in no sense earmarked for anyone.

But even if it were earmarked to pay the benefits, that would not make it an expropriation.

From early history the proceeds of taxes have been earmarked for special purposes.

This Court recognized that fact as recently as Monday last in the Cincinnati Soap case.

Another very interesting precedent for this tax is furnished by a statute of 1601 in England, the statute of 43 and 44 Elizabeth, Chapter 2, which imposed so-called “poor rates”, which are taxes, upon occupiers of land, the money to be earmarked to pay relief to those of the poor who were not able-bodied and to put those who were able-bodied to work.

It seems to us that the correct definition of a tax was given in the Butler case, where it was said at page 64 that the power to tax is “the power to tax for the purpose of providing funds for payment of the Nation’s debts and making provision for the general welfare.

” This tax, we contend, is a tax to make provision for the general welfare, if it is not a tax for the general revenue and in either view is entirely valid and not an expropriation.

I turn now to the charge that it is a regulation, and first of all I note that this statute in none of its parts requires any man to retire from work at any time.

It has no significant tendency to induce a man to retire, for the benefits are conservative in amount.

Moreover, I point out that the tax I not levied on the employment of a man who is over 65.

And why not?

In order that there may be no inducement for a man when he reaches the age of 65 to retire.

The employer is encouraged to keep him at work, and the employee is encouraged to stay at work.

It is sometimes said that this is “a system of social insurance.

” It matters not what the label is, for here we have nothing but an exercise of the taxing power and the spending power.

That names are unimportant is shown by McCulloch V. Maryland, where this Court upheld a bank, although the power to create a bank is not in specific terms given in the Constitution.

The bank was the resultant of the exercise of powers conferred.

And so here, if this be social insurance, it is the resultant of powers specifically conferred.

It is also said by the respondent that this is a case in which we have a regulation of the wage relationship.

Now is that so?

I point out that nowhere in this statute is the employer forbidden to deduct from that his employees the amount which he pays in excise taxes.

The employer is at liberty to reduce by 1 percent the wages of his employees if he wishes to do so.

I do not mean to say that I would encourage that practice, but it is open to the employer to adopt the practice, for there is nothing in the statute which forbids it.

Moreover, it cannot be said that any employer knows in advance that his employees-that his employees- will get any part of what that employer or other employers pay to the Treasury of the United States.

If an employee dies before he reaches the age of 65-and many employees of course will die before that time-his estate will receive back merely the amount he has paid in taxes plus some 16 percent increment, and that 16 percent increment may be much less than the interest he would have earned on that money deposited in a savings bank.

Three cases are referred to as having some bearing upon this subject United Slates V. Butler, (297 U. S. 1), the Railroad Retirement case (Railroad Retirement Board V. Alton R. R . Co. , 295 U. S. 330), and the decision of the Privy Council in Attorney General of Canada V. Attorney General of Ontario (No. 101 of 1936).

This case is not like United States V. Butler, for here there are no regulatory features whatsoever, no contracts, no other devices to regulate.

The Railroad Retirement case is not an authority here, for that case involved a statute which was passed under the commerce power, which was considered under the commerce power, and was condemned under the commerce power.

There clearly regulation was involved, for men over the age of 65 were required to retire unless some particular exemption was made in their case.

The Privy Council case has also been referred to by the respondent, and I think in turning to that case, which goes under the name of Attorney General of Canada V. Attorney General 0f Ontario, it is important to bear in mind the caveat which Mr. Justice Holmes uttered in Diaz V. Gonzales in 261 United States.

He reminded us that when we turn to a foreign system of law our tools of grammar and logic may be inadequate to understand the tacit assumptions which underlie a case.

And that is very true here, for, in the Dominion Constitution it is provided that those powers which are given to the Provinces are exclusively reserved to them, a situation which, as McCulloch against Maryland reminds us, does not exist under the tenth amendment.

Moreover, that statute was a statute drafted in terms upon a contributory basis and stands like the Railroad Retirement Act and not like this act.

One final word about this statute as a whole This statute has the great merit of laying "visible" taxes.

It teaches effectively that people do not get something for nothing.

It correlates, if you will, the benefits to the burdens.

There is another thing to be remembered about this statute.

The benefits are keyed to wages, and that preserves a very .

important factor in our national life.

It makes certain that benefits in different parts of the country will correspond to wages in different parts of the country, and the need and the value of that correlation will be well understood by Your Honors.

Another point about this statute is that it meets not only the need of the dependent aged; it meats the need and mitigates the dread of people before they reach old age, for no man before he reaches the age of 65 knows whether or not he will be dependent on that date, nor does be know for how long an old age he must provide.

This statute reassures him and thereby breeds in the body politic an important self-confidence.

And finally, this statute, by its relation of taxes and benefits, if there be a relation, and by its moral promise of future benefits, gives to every man a vital stake in our present political and economic order.