Davis v. Edison Electric Illuminating Co. of Boston
| Decision Date | 14 April 1937 |
| Docket Number | No. 3221.,3221. |
| Citation | 89 F.2d 393 |
| Parties | DAVIS v. EDISON ELECTRIC ILLUMINATING CO. OF BOSTON et al. |
| Court | U.S. Court of Appeals — First Circuit |
Edward F. McClennen, of Boston, Mass. (Jacob J. Kaplan, of Boston, Mass., on the brief), for appellant.
Robert H. Jackson, Asst. Atty. Gen. , for appellees Commissioner of Internal Revenue et al.
Before BINGHAM, WILSON, and MORTON, Circuit Judges.
This is a bill in equity brought by a stockholder of the defendant company seeking to enjoin the defendant from paying the tax imposed on it by section 804 of title VIII of chapter 531, 49 Stat. 620, 637 (42 U.S.C.A. § 1004), known as the Social Security Act, on the ground that the tax is not one authorized by section 8 of article 1 of the Constitution of the United States, that the act infringes the rights of the states, and imposes a capricious and arbitrary burden on those whom it affects.
The District Court of Massachusetts held sections 801 and 804 of title VIII (42 U.S.C.A. §§ 1001, 1004) were valid exercises of powers of Congress within the field of federal authority, and that the funds collected from such taxes go into the Treasury of the United States and are there subject to such appropriations as Congress sees fit to make, since they are not "earmarked" as collected for any particular purpose, and therefore a taxpayer cannot object to an action by Congress in appropriating funds in the United States Treasury.
The plaintiff appealed and assigned as errors that the District Court erred in holding that the plaintiff had no standing to question the validity of the tax imposed by section 801, and that the District Court erred in holding that section 804 imposed a valid excise tax on the defendant.
It is contended by the government that, whatever is decided with reference to the validity of the tax on employers under section 804, the tax on the employees under section 801 is a valid income tax. Standing alone it may well be, but whether it can be considered as within the intent of Congress that it shall be enforced if the other features of title VIII (section 801 et seq. 42 U.S.C.A. § 1001 et seq.) are held invalid or must fall with the tax on the employers, may well be questioned.
The government also contends that title VIII has no direct relation to title II (section 201 et seq. 42 U.S.C.A. § 401 et seq.) or, if so, title II of the act is a valid exercise of the power of Congress to appropriate money in the treasury for any purpose it may deem for the general welfare of the United States.
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 adoption of the Federal Constitution. If so, the power to deal with it was expressly reserved to them under the Tenth Amendment. It is not to be lightly assumed that the several states whose governments are much closer to their people than Congress is, have failed in this duty as their people see it. But, even if they have and Congress is right in its view that the aged are entitled to more definite and more generous assistance than they have received from the several states, the failure of the states (in the opinion of Congress) would not operate to extend the power of the federal government over this distinctly state field. The principle involved in the argument for the government, although it is not so stated, is that in any field reserved to the states, in respect to which in the opinion of Congress the states are not doing their duty, it may step in and take the matter out of their hands under the "general welfare" clause. It was not denied by counsel for the government that Congress could, if it saw fit, take over general education in the same indirect way, by establishing its Board of Education and taxing heavily the states whose systems did not conform to the ruling of the Board. Obviously, this principle, if accepted, marks the end of responsible state government. We are not unmindful of the argument that the increasing unification of the country in economic and industrial fields and the competition among the states to extend their industries make the states reluctant to impose burdens for old age assistance which would handicap their industries, and that the matter should therefore be dealt with by the federal government, thereby equalizing such burdens throughout the country. The argument applies to many other aspects of daily life besides old age assistance. There are those who urge that our frame of government should be greatly revised. Such considerations are plainly not for the courts. Their duty is to enforce the stated boundaries between the federal and the state governments as they now exist. They have not hesitated, for instance, to strike down state laws which interfered with the federal power over interstate commerce. It is equally their duty to strike down federal laws which interfere with the power of the states.
It is true that the plaintiff's bill as drawn raises no issue as to the validity of title II, nor does title VIII in any way refer to the provisions of title II as indicating the purposes for which the taxes under title VIII are imposed. If title II bears no relation to the provisions of title VIII, then it may be that the plaintiff has no standing to question the validity of title II under Massachusetts v. Mellon (Frothingham v. Mellon), 262 U.S. 447, 43 S.Ct. 597, 67 L.Ed. 1078; but there are indications in both title II and title VIII, when taken together, that the taxes imposed under sections 801 and 804 of title VIII (42 U.S.C.A. §§ 1001, 1004), while not earmarked in the sense counsel for the government contends, are to be construed together. Both titles are a part of an act entitled:
"An Act To provide for the general welfare by establishing 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; to establish a Social Security Board; to raise revenue; and for other purposes." 49 Stat. 620.
It is apparent from the language of sections 202 and 210 of title II (42 U.S.C.A. §§ 402, 410) and section 811 of title VIII (42 U.S.C.A. § 1011) that it was the intent of Congress that the taxes raised in sections 801 and 804 of title VIII (42 U.S.C. A. §§ 1001, 1004) were imposed for the express purpose of paying the old age benefits provided for in title II. It is not within reason to suppose that Congress would by section 801 of title VIII compel employees to give up 3 per cent. of their earnings, if it were not contemplated that it would insure them the benefits provided for in title II.
We think that the power to provide for "old age benefits" was among those powers reserved to the states under the Tenth Amendment, and that a tax imposed to benefit slightly over half of the people over sixty-five years of age and who are the care or burden of the states cannot be said to be imposed for the general welfare of the United States and the taxes under title VIII would fail for this reason.
Following the reasoning of our opinion in the recent case of George P. Davis v. Boston & Maine Railroad Company, 89 F.(2d) 368, we think the tax imposed with respect to having individuals in one's employ cannot be upheld as an excise tax authorized under section 8 of article 1 of the Constitution, for the reason stated in the opinion in that case, 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 or the people in adopting it.
The power vested in Congress under section 8 of article 1 of the Constitution is undoubtedly a broad power and covers a wide range of taxable subjects, but that it was intended by those adopting the Constitution that it should reach every possible relation between employer and employee was a subject for taxation we cannot agree. Certain particular vocations in which the public may have an interest, such as attorneys, innkeepers, or auctioneers, may be subject to excise taxes, as was said in Thomas v. United States, 192 U.S. 363, 24 S.Ct. 305, 48 L.Ed. 481; but the right to employ labor in ordinary business is not a commodity or a privilege that is subject to a tax. Congress may tax the right to do certain kinds of business, or corporations holding a franchise from a state, based on their income, as in the case of Spreckels Sugar Refining Co. v. McClain, 192 U.S. 397, 24 S.Ct. 376, 48 L.Ed. 496; Flint v. Stone Tracy Co., 220 U.S. 107, 31 S. Ct. 342, 55 L.Ed. 389, Ann.Cas.1912B, 1312. It has never been held, however, either by the Supreme Court of the United States, or the Supreme Court of any state, so far as we are advised, that Congress had the power to tax the common right to employ labor. It is like taxing a person's right to work.
Such a levy was held not to be within the taxing power of the Canadian Parliament. Canada Law Reports, 1036, Part VII, p. 454. In effect, it was held in this case that employment of labor was not a privilege derived from the Canadian government, and an excise tax on the right to employ was beyond the powers of the Canadian Parliament and invalid.
In the case of James v. Commonwealth of Australia, 1936, A.C. 578, in which the British Privy Council held that an act of the commonwealth of Australia to control and limit the products of agriculture...
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