Friday, September 28, 2007

More on the Bank

Sandy Levinson

I am taking the liberty of offering this new post to respond to some of the comments on my previous post on Blackwater and the Bank of the United States.

First, according to Ellis, there was almost no serious dispute as to the constitutional legitimacy of the Bank. This, after all, was conceded by Madison himself, who had so notably opposed the First Bank. Only a few, basically irrelevant, "Old Republicans" challenged the authority of Congress. The key issue, therefore, was the legitimacy of Maryland's tax, even though Marshall, for his own purposes, devoted most of the opinion (by paragraphs and word count) to the far less controversial issue of Congress's authority.

So let's turn to the tax. First, there is the issue of its characterization. I confess that I have taught the case as if Maryland's tax was basically confiscatory and designed to run the Bank out of the state. As I wrote earlier, Ellis denies this. $15,000 was a small fraction of the $9,2 million dollars in business done by the Baltimore branch; it was also genuinely designed to raise revenue. Most importantly, "the tax . . . was no higher than the taxes [Maryland] levied on its own chartered banks" (pp. 5-6). If Ellis is correct, then this immediately undercuts a standard way of presenting McCulloch, which is as a case involving discriminatory taxation. Indeed, some people in other states made the argument that it discriminated against state banks to allow taxation of them while the BUS was free of any tax burdens to pay, e.g., for the ordinary operations of state government from which the bank presumably benefited.

One of Ellis's major points is the near-bogus nature of treating the Bank as an unequivocal "federal instrumentality," unless one adopts, by definitional fiat, a view that any institution chartered by Congress just is, without further ado, a "federal instrumentality" even if it is otherwise a private organization (e.g., the Red Cross). At most, one can describe the Bank as a joint venture between the US and private investors, who sought (and received) a good return on their investment. Moreover, also as indicated in the earlier posting, I was struck by the following statement from an April 6, 1819 letter by Sec. of the Treasury William Crawford to Langdon Cheves, the president of the Bank: "The first duty of the Board [of Directors] is to the stockholders, the second is to the nation." (p. 107) Why should any entity with this order of priorities be cloaked in the full majesty of the national government? (To move back to Blackwater for a moment, one thing we know about the US Army is that the first duty of its members is to the nation. Can any reasonable person say this about Blackwater or any other band of mercenaries who seek to sell their services to the US? Do we expect defense contractors to offer cut-rate prices to "their" nation, instead of maximizing the profits for their investors?)

Back to McCulloch: The ultimate basis of part two of Marshall's opinion, as he himself admits, rests entirely on "texture" and not at all on the text of the Constitution or anything that might count as historical evidence. The text, of course, limits the authority of states to tax only only with regard to "Imports or Exports" (Article I, Section 10). Marshall pins his argument on what Justice Holmes accurately called the "rhetorical absolute" that "the power to tax is the power to destroy." Well, perhaps. But, of course, it is equally true that limiting the right of a "sovereign State" (which Marshall, perhaps sarcastically, described Maryland as being in the very first sentence of the opinion) to tax is also the power to destroy, inasmuch as tax revenues are essential to any government. Indeed, a principal reason for junking the Articles of Confederation and (perhaps illegally, given Article XIII relating to amendment) replacing them with the Constitution, as my colleague Calvin Johnson has argued at length, was the inability of the national government to fund itself. Let me suggest that it is no more paranoid for a state to fear that Congress, by engaging in the promiscuous chartering of tax-exempt corporations, etc., will deprive states of important sources of revenue, than for the national government to fear that even a reasonable tax on a so-called federal instrumentality of the actual kind the BUS was will destroy the national government. Both kinds of paranoia ultimately reject the truth that participants in any scheme of government, especially federal governments, have to rely on some measure of good faith on the part of one's fellow citizens.

So now the question is whether we want courts to engage in inquiries as to what constitutes "reasonable" as opposed to "unreasonable" levels of taxation, or into what motivated the tax, i.e., genuine attempts to gain revenue as against trying to run the Bank out of the state. Two responses: First, one can use differentiation between state and national banks as a proxy for reasonableness. If it's true that the level of taxation on the BUS was no higher than taxes imposed on state banks, then this would seemingly be a pretty good argument for "reasonableness." Moreover, to be anachronistic for a moment, if we accept the ability of the current Court to determine what constitutes "reasonable" levels of punitive damages, then they could easily figure out what constitutes a reasonable level of taxation. It may be similarly anachronistic to point out that contemporary courts engage in "motive" inquiry all the time.

To be sure, Marshall lived in a different jurisprudential universe. So that leads to the second point: If courts are unsuitable agencies to engage in such inquiries into "reasonableness," as Marshall suggests, then why not leave it to Congress to decide whether it will allow any taxation, and at what level, of "federal instrumentalities"? Exactly what it is that makes judicial resolution of such a key issue of "sovereign authority" so attractive?

Imagine a McCulloch that (uncontroversially) upholds Congress's authority to charter a bank and then holds that, because the BUS was a joint venture that was, as a matter of fact, significantly more "private" than "public," it would be subject to "reasonable" taxation defined by reference to taxes against similar state-chartered banks. Would this really have been so terrible? If so, why wouldn't Congress have passed a bill protecting the Bank against state taxes? Surely, it would have the authority to do so, assuming the validity of McCulloch part I. Indeed, had Congress passed a general law saying that no nationally-chartered entity would be subject to state taxes, that would have achieved the identical result as McCulloch, but it would have rested on a democratic decision by Congress rather than dubious reasoning by the Supreme Court. Would we really be worse off if that had been the result?


I just lost my whole post on this. I'll try again with a shorter version.

1. There's nothing inadequate about Marshall's argument. It's a structural argument, just as is the argument for, say, the President's removal power.

2. Hamilton dealt with the fairness issue in Federalist 30 or so (I'm traveling and can't find it right now). The situation is not the same for states and feds. The states then had appointed representatives in Congress. The feds had no such representation within any state. In addition, it only took one state (SC, anyone?) to cause trouble. It took the concurrence of the Senate, all representatives of states, to "infringe" on the states.

3. The constitutional issue was more important than you suggest. Jackson, after all, relied on that argument in part for his veto.

4. The Bank's operations were not equivalent to the state bank operations. It served as the repository for federal funds. It collected taxes and imposts, and paid out federal obligations. It transferred federal funds between banks. Much of the bank operations which a state might tax were actually the administrative operations of the federal government itself.

5. There's no reason to assume good faith by ALL the states. OH, for example, did not impose its tax in good faith. It only took one to undo the whole system.

6. I don't see any textual basis for Congress to bar taxes on the Bank.

Trust me, my lost post was eloquent, witty, and irrefutable.

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