Helvering v. Davis

• Decision Date: 24 May 1937
• Docket Number: No. 910,910
• Citation: 301 U.S. 619,81 L.Ed. 1307,109 A.L.R. 1319,301 U.S. 672,57 S.Ct. 904
• Parties: HELVERING, Com'r of Internal Revenue, et al. v. DAVIS
• Court: U.S. Supreme Court

301 U.S. 619

57 S.Ct. 904

301 U.S. 672

81 L.Ed. 1307

HELVERING, Com'r of Internal Revenue, et al.

v DAVIS.

No. 910.

Argued May 5, 1937.

Decided May 24, 1937.

As Amended June 1, 1937.

Messrs. Homer S. Cummings, Atty. Gen., Robert H. Jackson, Asst. Atty. Gen., and Charles E. Wyzanski, Jr., Sp. Asst. Atty. Gen., for petitioners.

[Argument of Counsel from pages 620-624 intentionally omitted] Messrs. Edward F. McClennen and Jacob J. Kaplan, both of Boston, Mass., for respondent.

[Argument of Counsel from Pages 625-633 intentionally omitted]

Page 634

Mr. Justice CARDOZO delivered the opinion of the Court.

The Social Security Act (Act of August 14, 1935, c. 531, 49 Stat. 620, 42 U.S.C., c. 7 (Supp.), § 301 et seq. (42 U.S.C.A. § 301 et seq.), is challenged once again.

In Steward Machine Co. v. Davis, 301 U.S. 548, 57 S.Ct. 883, 81 L.Ed. —-, decided this day, we have upheld the validity of Title IX of the act (section 901 et seq. (42 U.S.C.A. § 1101 et seq.)), imposing an excise upon employers of eight or more. In this case Titles VIII and II (sections 801 et seq., 201 et seq. (42 U.S.C.A. §§ 1001 et seq., 401 et seq.)) are the subject of attack. Title VIII lays another excise upon employers in addition to the one imposed by Title IX (though with different exemptions). It lays a special income tax upon employees to be deducted from their wages and paid by the employers. Title II provides for the payment of Old Age Benefits, and supplies the motive and occasion, in the view of the assailants of the statute, for

Page 635

the levy of the taxes imposed by Title VIII. The plan of the two titles will now be summarized more fully.

Title VIII, as we have said, lays two different types of tax, an 'income tax on employees,' and 'an excise tax on employers.' The income tax on employees is measured by wages paid during the calendar year. Section 801 (42 U.S.C.A. § 1001). The excise tax on the employer is to be paid 'with respect to having individuals in his employ,' and, like the tax on employees, is measured by wages. Section 804 (42 U.S.C.A. § 1004). Neither tax is applicable to certain types of employment, such as agricultural labor, domestic service, service for the national or state governments, and service performed by persons who have attained the age of 65 years. Section 811(b), 42 U.S.C.A. § 1011(b). The two taxes are at the same rate. Sections 801, 804 (42 U.S.C.A. §§ 1001, 1004). For the years 1937 to 1939, inclusive, the rate for each tax is fixed at one per cent. Thereafter the rate increases 1/2 of 1 per cent. every three years, until after December 31, 1948, the rate for each tax reaches 3 per cent. Ibid. In the computation of wages all remuneration is to be included except so much as is in excess of $3,000 during the calendar year affected. Section 811(a), 42 U.S.C.A. § 1011(a). The income tax on employees is to be collected by the employer, who is to deduct the amount from the wages 'as and when paid.' Section 802(a), 42 U.S.C.A. § 1002(a). He is indemnified against claims and demands of any person by reason of such payment. Ibid. The proceeds of both taxes are to be paid into the Treasury like internal revenue taxes generally, and are not ear-marked in any way. Section 807(a), 42 U.S.C.A. § 1007(a). There are penalties for nonpayment. Section 807(c), 42 U.S.C.A. § 1007(c).

Title II (section 201 et seq. (42 U.S.C.A. § 401 et seq.)) has the caption 'Federal Old-Age Benefits.' The benefits are of two types, first, monthly pensions, and second, lump-sum payments, the payments of the second class being relatively few and unimportant.

The first section of this title creates an account in the United States Treasury to be known as the 'Old-Age

Page 636

Reserve Account.' Section 201 (42 U.S.C.A. § 401). No present appropriation, however, is made to that account. All that the statute does is to authorize appropriations annually thereafter, beginning with the fiscal year which ends June 30, 1937. How large they shall be is not known in advance. The 'amount sufficient as an annual premium' to provide for the required payments is '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, and upon an interest rate of 3 per centum per annum compounded annually.' Section 201(a), 42 U.S.C.A. § 401(a). Not a dollar goes into the Account by force of the challenged act alone, unaided by acts to follow.

Section 202 and later sections (42 U.S.C.A. § 402 et seq.) prescribed the form of benefits. The principal type is a monthly pension payable to a person after he has attained the age of 65. This benefit is available only to one who has worked for at least one day in each of at least five separate years since December 31, 1936, who has earned at least $2,000 since that date, and who is not then receiving wages 'with respect to regular employment.' Sections 202(a), (d), 210(c), 42 U.S.C.A. §§ 402(a, d), 410(c). The benefits are not to begin before January 1, 1942. Section 202(a), 42 U.S.C.A. § 402(a). In no event are they to exceed $85 a month. Section 202(b), 42 U.S.C.A. § 402(b). They are to be measured (subject to that limit) by a percentage of the wages, the percentage decreasing at stated intervals as the wages become higher. Section 202(a), 42 U.S.C.A. § 402(a). In addition to the monthly benefits, provision is made in certain contingencies for 'lump sum payments' of secondary importance. A summary by the Government of the four situations calling for such payments is printed in the margin.¹

Page 637

This suit is brought by a shareholder of the Edison Electric Illuminating Company of Boston, a Massachusetts corporation, to restrain the corporation from making payments and deductions called for by the act, which is stated to be void under the Constitution of the United States. The bill tells us that the corporation has decided to obey the statute, that it has reached this decision in the face of the complainant's protests, and that it will make the payments and deductions unless restrained by a decree. The expected consequences are indicated substantially as follows: The deductions from the wages of the employees will produce unrest among them, and will be followed, it is predicted, by demands that wages be increased. If the exactions shall ultimately be held void, the company will have parted with moneys which as a practical matter it will be impossible to recover. Nothing is said in the bill about the promise of indemnity. The prediction is made also that serious consequences will en-

Page 638

sue if there is a submission to the excise. The corporation and its shareholders will suffer irreparable loss, and many thousands of dollars will be subtracted from the value of the shares. The prayer is for an injunction and for a declaration that the act is void.

The corporation appeared and answered without raising any issue of fact. Later the United States Commissioner of Internal Revenue and the United States Collector for the District of Massachusetts, petitioners in this court, were allowed to intervene. They moved to strike so much of the bill as has relation to the tax on employees, taking the ground that the employer, not being subject to tax under those provisions, may not challenge their validity, and that the complainant shareholder, whose rights are no greater than those of his corporation, has even less standing to be heard on such a question. The intervening defendants also filed an answer which restated the point raised in the motion to strike, and maintained the validity of Title VIII in all its parts. The District Court held that the tax upon employees was not properly at issue, and that the tax upon employers was constitutional. It thereupon denied the prayer for an injunction, and dismissed the bill. On appeal to the Circuit Court of Appeals for the First Circuit, the decree was reversed, one judge dissenting. Davis v. Edison Electric Illuminating Co., 89 F.(2d) 393. The court held that Title II was void as an invasion of powers reserved by the Tenth Amendment to the states or to the people, and that Title II in collapsing carried Title VIII along with it. As an additional reason for invalidating the tax upon employers, the court held that it was not an excise as excises were understood when the Constitution was adopted. Cf. Davis v. Boston & Maine R. Co. (C.C.A.) 89 F.(2d) 368, decided the same day.

A petition for certiorari followed. It was filed by the intervening defendants, the Commissioner, and the Collector, and brought two questions, and two only, to our

Page 639

notice. We were asked to determine: (1) 'Whether the tax imposed upon employers by section 804 of the Social Security Act (42 U.S.C.A. § 1004) is within the power of Congress under the Constitution,' and (2) 'Whether the validity of the tax imposed upon employees by section 801 of the Social Security Act (42 U.S.C.A. § 1001) is properly in issue in this case, and if it is, whether that tax is within the power of Congress under the Constitution.' The defendant corporation gave notice to the clerk that it joined in the petition, but it has taken no part in any subsequent proceedings. A writ of certiorari issued. 301 U.S. 674, 57 S.Ct. 792, 81 L.Ed. —-.

First: Questions as to the remedy invoked by the complainant confront us at the outset.

Was the conduct of the company in resolving to pay the taxes a legitimate exercise of the discretion of the directors? Has petitioner a standing to challenge that resolve in the absence of an adequate showing of irreparable injury? Does the acquiescence of the company in the equitable remedy affect the answer to those questions? Though power may still be ours to take such objections for ourselves, is acquiescence effective to rid us of the duty? Is duty modified still further by the attitude of the Government, its waiver of a defense under section 3224 of the Revised...