Rosenfeld Susan. Encyclopedia of American Historical Documents

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then available market, and shall from time to time there-

after construct such portion of the balance of such devel-

opment as the commission may direct, so as to supply

adequately the reasonable market demands until such

development shall have been completed. The periods for

the commencement of construction may be extended once

but not longer than two additional years and the period for

the completion of construction carried on in good faith and

will reasonable diligence may be extended by the commis-

sion when not incompatible with the public interests. In

case the licensee shall not commence actual construction

of the project works, or of any specified part thereof,

within the time prescribed in the license or as extended by

the commission, then, after due notice given, the license

shall, as to such project works or part thereof, be termi-

nated upon written order of the commission. In case the

construction of the project works, or of any specified part

thereof, have been begun but not completed within the

time prescribed in the license, or as extended by the com-

mission, then the Attorney General, upon the request of

the commission, shall institute proceedings in equity in the

district court of the United States for the district in which

any part of the project is situated for the revocation of said

license, the sale of the works constructed, and such other

equitable relief as the case may demand, as provided for in

section 26 hereof.

Sec. 14. That upon not less than two years’ notice in

writing from the commission the United States shall have

the right upon or after the expiration of any license to take

over and thereafter to maintain and operate any project or

projects as defined in section 3 hereof, and covered in

whole or in part by the license, or the right to take over

upon mutual agreement with the license all property

owned and held by the licensee then valuable and service-

able in the development, transmission, or distribution of

power and which is then dependent for its usefulness

upon the continuance of the license, together with any

lock or locks or other aids to navigation constructed at the

expense of the licensee, upon the condition that before

taking possession it shall pay the net investment of the

licensee in the project or projects taken, not to exceed the

fair value of the property taken, plus such reasonable dam-

ages, if any, to property of the licensee valuable, service-

able, and dependent as above set forth but not taken, as

may be caused by the severance therefrom of property

taken, and shall assume all contracts entered into by the

licensee with the approval of the commission. The net

investment of the licensee in the project or projects so

taken and the amount of such severance damages, if any,

shall be determined by agreement between the commis-

sion and the licensee, and in case they can not agree, by

proceedings in equity instituted by the United States in

the district court of the United States in the district within

which any such property may be located: Provided, That

such net investment shall not include or be affected by the

value of any lands, rights of way, or other property of the

United States licensed by the commission under this Act,

by the license, or by good will, going value, or prospective

revenues: Provided further, That the values allowed for

water rights, rights of way, lands, or interest in lands shall

not be in excess of the actual reasonable costs thereof at

the time of acquisition by the licensee: Provided, That the

right of the United States or any State or municipality to

take over, maintain, and operate any project licensed

under this Act at any time by condemnation proceedings

upon payment of just compensation is hereby expressly

reserved.

Sec. 15. That if the United States does not, at the expi-

ration of the original license, exercise its right to take over,

maintain, and operate any project or projects of the

licensee, as provided in section 14 hereof, the commission

is authorized to issue a new license to the original licensee

upon such terms and conditions as may be authorized or

required under the then existing laws and regulations, or

to issue a new license under said terms and conditions to a

new licensee, which license may cover any project or pro-

jects covered by the original license, and shall be issued on

the condition that the new licensee, shall, before taking

possession of such project or projects, pay such amount,

and assume such contracts as the United States is required

to do, in the manner specified in section 14 hereof: Pro-

vided, That in the event the United States does not exer-

cise the right to take over or does not issue a license to a

new license, or issue a new license to the original licensee,

upon reasonable terms, then the commission shall issue

from year to year an annual license to the then licensee

under the terms and conditions of the original license until

the property is take over or a new license is issued as afore-

said.

Sec. 16. That when in the opinion of the President of

the United States, evidenced by a written order addressed

to the holder of any license hereunder, the safety of the

United States demands it, the United States shall have the

right to enter upon and take possession of any project, or

part thereof, constructed, maintained, or operated under

said license, for the purpose of manufacturing nitrates,

explosives, or munitions of war, or for any other purpose

involving the safety of the United States, to retain posses-

sion, management, and control thereof for such length of

time as may appear to the President to be necessary to

accomplish said purposes, and then to restore possession

and control to the party or parties entitled thereto; and in

the event that the United States shall exercise such right it

shall pay to the party or parties entitled thereto just and

fair compensation for the use of said property as may be

fixed by the commission upon the basis of a reasonable

1332 ERA 7: The Emergence of Modern America

profit in time of peace, and the cost of restoring said prop-

erty to as good condition as existed at the time of the tak-

ing over thereof, less the reasonable value of any

improvements that may be made thereto by the United

States and which are valuable and serviceable to the

licensee.

Sec. 17. That all proceeds from any Indian reservation

shall be placed to the credit of the Indians of such reser-

vation. All other charges arising from licenses hereunder

shall be paid into the Treasury of the United States, sub-

ject to the following distribution: Twelve and one-half per

centum thereof is hereby appropriated to be paid into the

Treasury of the United States and credited to “Miscella-

neous receipts”; 50 per centum of the charges arising from

licenses hereunder for the occupancy and use of public

lands, national monuments, national forests, and national

parks shall be paid into, reserved, and appropriated as a

part of the reclamation fund created by the Act of

Congress known as the Reclamation Act, approved June

17, 1902; and 37 1/2 per centum of the charges arising

from licenses hereunder for the occupancy and use of

national forests, national parks, public lands, and national

monuments, from development within the boundaries of

any State shall be paid by the Secretary of the Treasury to

such State; and 50 per centum of the charges arising from

all other licenses hereunder is hereby reserved and appro-

priated as a special fund in the Treasury to be expended

under the direction of the Secretary of War in the mainte-

nance and operation of dams and other navigation struc-

tures owned by the United States or in the construction,

maintenance, or operation of headwater or other improve-

ments of navigable waters of the United States.

Sec. 18. That the operation of any navigation facilities

which may be constructed as a part of or in connection

with any dam or diversion structure built under the provi-

sions of this Act, whether at the expense of a licensee here-

under or of the United States, shall at all times be

controlled by such reasonable rules and regulations in the

interest of navigation, including the control of the level of

the pool caused by such dam or diversion structure as may

be made from time to time by the Secretary of War. Such

rules and regulations may include the maintenance and

operation by such licensee at its own expense of such lights

and signals as may be directed by the Secretary of War, and

such fishways as may be prescribed by the Secretary of

Commerce; and for willful failure to comply with any such

rules or regulation such licensee shall be deemed guilty of

a misdemeanor, and upon conviction thereof shall be pun-

ished as provided in section 25 hereof.

Sec. 19. That as a condition of the license, every

licensee hereunder which is a public-service corporation,

or a person, association, or corporation owning or operat-

ing any project and developing, transmitting, or distribut-

ing power for sale or use in public service, shall abide by

such reasonable regulation of the services to be rendered

to customers or consumers of power, and of rates and

charges of payment therefor, as may from time to time be

prescribed by any duly constituted agency of the State in

which the service is rendered or the rate charged. That in

case of the development, transmission, or distribution, or

use in public service of power by any licensee hereunder

or by its customer engaged in public service within a State

which has not authorized and empowered a commission or

other agency or agencies within said State to regulate and

control the services to be rendered by such licensee or by

its customer engaged in public service, or the rates and

charges of payment therefor, or the amount or character of

securities to be issued by any of said parties, it is agreed as

a condition of such license that jurisdiction is hereby con-

ferred upon the commission, upon complaint of any per-

son aggrieved or upon its own initiative, to exercise such

regulation and control until such time as the State shall

have provided a commission or other authority for such

regulation and control: Provided, That the jurisdiction of

the commission shall cease and determine as to each spe-

cific matter of regulation and control prescribed in this

section as soon as the State shall have provided a commis-

sion or other authority for the regulation and control of

that specific matter.

Sec. 20. That when said power or any part thereof

shall enter into interstate or foreign commerce the rates

charged and the service rendered by any such licensee, or

by any subsidiary corporation, the stock of which is owned

or controlled directly or indirectly by such licensee, or by

any person, corporation, or association purchasing power

from such licensee for sale and distribution or use in pub-

lic service shall be reasonable, nondiscriminatory, and just

to the customer and all unreasonable discriminatory and

unjust rates or services are hereby prohibited and declared

to be unlawful; and whenever any of the States directly

concerned has not provided a commission or other author-

ity to enforce the requirements of this section within such

State or to regulate and control the amount and character

of securities to be issued by any of such parties or such

States are unable to agree through their properly consti-

tuted authorities on the services to be rendered or on the

rates or charges of payment therefor, or on the amount or

character of securities to be issued by any of said parties,

jurisdiction is hereby conferred upon the commission,

upon complaint of any person aggrieved, upon the request

of any State concerned, or upon its own initiative to

enforce the provisions of this section, to regulate and con-

trol so much of the services rendered, and of the rates and

charges of payment therefor as constitute interstate or for-

eign commerce and to regulate the issuance of securities

by the parties included within this section, and securities

Postwar Economy 1333

issued by the licensee subject to such regulations shall be

allowed only for the bona fide purpose of financing and

conducting the business of such licensee.

The administration of the provisions of this section, so

far as applicable, shall be according to the procedure and

practice in fixing and regulating the rates, charges, and

practices of railroad companies as provided in the Act to

regulate commerce, approved February 4, 1887, as

amended, and that the parties subject to such regulation

shall have the same rights of hearing, defense, and review

as said companies in such cases.

In any valuation of the property of any licensee here-

under for purposes of rate making, no value shall be

claimed by the licensee or allowed by the commission for

any project or projects under license in excess of the value

or values prescribed in section 14 hereof for the purposes

of purchase by the United States, but there shall be

included the cost to such licensee of the construction of

the lock or locks or other aids of navigation and all other

capital expenditures required by the United States, and no

value shall be claimed or allowed for the rights granted by

the commission or by this Act.

Sec. 21. That when any licensee can not acquire by

contract or pledges an unimproved dam site or the right to

use or damage the lands or property of others necessary to

the construction, maintenance, or operation of any dam,

reservoir, diversion structure, or the works appurtenant or

accessory thereto, in conjunction with an improvement

which in the judgment of the commission is desirable and

justified in the public interest for the purpose of improv-

ing or developing a waterway or waterways for the use or

benefit of interstate or foreign commerce, it may acquire

the same by the exercise of the right of eminent domain in

the district court of the United States for the district in

which such land or other property may be located, or in

the State courts. The practice and procedure in any action

or proceeding for that purpose in the district court of the

United States shall conform as nearly as may be with the

practice and procedure in similar action or proceeding in

the courts of the State where the property is situated: Pro-

vided, That United States district courts shall only have

jurisdiction of cases when the amount claimed by the

owner of the property to be condemned exceeds $3,000.

Sec. 22. That whenever the public interest requires or

justifies the execution by the licensee of contracts for the

sale and delivery of power for periods extending beyond

the date of termination of the license, such contracts may

be entered into upon the joint approval of the commission

and of the public-service commission or other similar

authority in the State in which the sale or delivery of power

is made, or if sold or delivered in a State which has no such

public-service commission, then upon the approval of the

commission, and thereafter, in the event of failure to issue

a new license to the original licensee at the termination of

the license, the United States or the new licensee, as the

case may be, shall assume and fulfill all such contracts.

Sec. 23. That the provisions of this Act shall not be

construed as affecting any permit or valid existing right of

way heretofore granted, or as confirming or otherwise

affecting any claim, or as affecting any authority heretofore

given pursuant to law, but any person, association, corpo-

ration, State, or municipality, holding or possessing such

permit, right of way, or authority may apply for a license

hereunder, and upon such application the commission may

issue to any such applicant a license in accordance with the

provisions of this Act, and in such case the provisions of

this Act shall apply to such applicant as a licensee hereun-

der: Provided, That when application is made for a license

under this section for a project or projects already con-

structed, the fair value of said project or projects, deter-

mined as provided in this section, shall for the purposes of

this Act and of said license be deemed to be the amount to

be allowed as the net investment of the applicant in such

project or projects as of the date of such license, or as of

the date of such determination, if license has not been

issued. Such fair value may, in the discretion of the com-

mission, be determined by mutual agreement between the

commission and the applicant or, in case they can not

agree, jurisdiction is hereby conferred upon the district

court of the United States in the district within which such

project or projects may be located, upon the application of

either party, to hear and determine the amount of such fair

value.

That any person, association, corporation, State, or

municipality intending to construct a dam or other project

works across, along, over, or in any stream or part thereof,

other than those defined herein as navigable waters, and

over which Congress has jurisdiction under its authority to

regulate commerce between foreign nations and among

the several States, may in their discretion file declaration

of such intention with the commission, whereupon the

commission shall cause immediate investigation of such

proposed construction to be made, and if upon investiga-

tion it shall find that the interests of interstate or foreign

commerce would be affected by such proposed construc-

tion, such person, association, corporation, State, or

municipality shall not proceed with such construction until

it shall have applied for and shall have received a license

under the provisions of this Act. If the commission shall

not so find, and if no public lands or reservations are

affected, permission is hereby granted to construct such

dam or other project works in such stream upon compli-

ance with State laws.

Sec. 24. That any lands of the United States included

in any proposed project under the provisions of this Act

shall from the date of filing of application therefor be

1334 ERA 7: The Emergence of Modern America

reserved from entry, location, or other disposal under the

laws of the United States until otherwise directed by the

commission or by Congress. Notice that such application

has been made, together with the date of filing thereof and

a description of the lands of the United States affected

thereby, shall be filed in the local land office for the district

in which such lands are located. Whenever the commission

shall determine that the value of any lands of the United

States so applied for, or heretofore or hereafter reserved or

classified as power sites, will not be injured or destroyed

for the purposes of power development by location, entry,

or selection under the public-land laws, the Secretary of

the Interior, upon notice of such determination, shall

declare such lands open to location, entry, or selection,

subject to and with a reservation of the right of the United

States or its permittees or licensees to enter upon, occupy,

and use any part or all of said lands necessary, in the judg-

ment of the commission, for the purposes of this Act,

which right shall be expressly reserved in every patent

issued for such lands; and no claim or right to compensa-

tion shall accrue from the occupation or use of any of said

lands for said purposes. The United States or any licensee

for any such lands hereunder may enter thereupon for the

purposes of this Act, upon payment of any damages to

crops, buildings, or other improvements caused thereby to

the owner thereof, or upon giving a good and sufficient

bond to the United States for the use and benefit of the

owner to secure the payment of such damages as may be

determined and fixed in an action brought upon the bond

in a court of competent jurisdiction, said bond to be in the

form prescribed by the commission: Provided, That loca-

tions, entries, selections, or filings heretofore made for

lands reserved as water-power sites or in connection with

water-power development or electrical transmission may

proceed to approval or patent under and subject to the

limitations and conditions in this section contained.

Sec. 25. That any licensee, or any person, who shall

willfully fail or who shall refuse to comply with any of the

provisions of this Act, or with any of the conditions made

a part of any license issued hereunder, or with any sub-

poena of the commission, or with any regulation or lawful

order of the commission, or of the Secretary of War, or of

the Secretary of Commerce as to fishways, issued or made

in accordance with the provisions of this Act, shall be

deemed guilty of a misdemeanor, and on conviction

thereof shall, in the discretion of the court, be punished by

a fine of not exceeding $1,000, in addition to other penal-

ties herein prescribed or provided by law; and every

month any such license or any such person shall remain in

default after written notice from the commission, or from

the Secretary of War, or from the Secretary of Commerce,

shall be deemed a new and separate offense punishable as

aforesaid.

Sec. 26. That the Attorney General may, on request of

the commission or of the Secretary of War, institute pro-

ceedings in equity in the district court of the United States

in the district in which any project or part thereof is situ-

ated for the purpose of revoking for violation of its terms

any permit or license issued hereunder, or for the purpose

of remedying or correcting by injunction, mandamus, or

other process any act of commission or omission in viola-

tion of the provisions of this Act or of any lawful regulation

or order promulgated hereunder. The district courts shall

have jurisdiction over all of the above-mentioned proceed-

ings and shall have power to issue and execute all neces-

sary process and to make and enforce all writs, orders, and

decrees to compel compliance with the lawful orders and

regulations of the commission and of the Secretary of War,

and to compel the performance of any condition imposed

under the provisions of this Act. In the event a decree

revoking a license is entered, the court is empowered to

sell the whole or any part of the project or projects under

license, to wind up the business of such licensee con-

ducted in connection with such project or projects, to dis-

tribute the proceeds to the parties entitled to the same,

and to make and enforce such further orders and decrees

as equity and justice may require. At such sale or sales the

vendee shall take the rights and privileges belonging to the

licensee and shall perform the duties of such licensee and

assume all outstanding obligations and liabilities of the

licensee which the court may deem equitable in the

premises; and at such sale or sales the United States may

become a purchaser, but it shall not be required to pay a

greater amount than it would be required to pay under the

provisions of section 14 hereof at the termination of the

license.

Sec. 27. That nothing herein contained shall be con-

strued as affecting or intending to affect or in any way to

interfere with the laws of the respective States relating to

the control, appropriation, use, or distribution of water

used in irrigation or for municipal or other uses, or any

vested right acquired therein.

Sec. 28. That the right to alter, amend, or repeal this

Act is hereby expressly reserved; but no such alteration,

amendment, or repeal shall affect any license theretofore

issued under the provisions of this Act, or the rights of any

licensee thereunder.

Sec. 29. That all Acts or parts of Acts inconsistent with

this Act are hereby repealed: Provided, That nothing

herein contained shall be held or construed to modify or

repeal any of the provisions of the Act of Congress

approved December 19, 1913, granting certain rights of

way to the city and county of San Francisco, in the State of

California: Provided further, That section 18 of an Act

making appropriations for the construction, repair, and

preservation of certain public works on rivers and harbors,

Postwar Economy 1335

and for other purposes, approved August 8, 1917, is hereby

repealed.

Sec. 30. That the short title of this Act shall be “The

Federal Water Power Act.”

Source:

Statutes at Large, Vol. 41, pp. 1,063–1,077.

Bailey v. Drexel

Furniture Company, 1922

U.S. Supreme Court ruling issued on May 15, 1922, that inval-

idated the U.S. Child Labor Act of 1919. This section of the

general federal taxation bill enacted on February 24, 1919,

was designed to control child labor by assessing an excise tax

of 10 percent on the net profits of mines that employed chil-

dren under the age of 16, factories that employed children

under the age of 14, or that allowed children between 14 and

16 to work more than eight hours a day or six days a week or

after 7:00

. or before 6:00

. (In 1900, about 17 percent

of all children between 10 and 15 worked full time.)

Chief Justice William Howard Taft, writing for the major-

ity, argued that the tax was intended not to raise revenue but

to regulate the employment of children, a right that was

reserved to the states by the Tenth Amendment. He stated that

the act imposed a penalty, not a true excise tax, and therefore

violated constitutional limitations on congressional power.

This case demonstrates the reaction to Progressive Era legisla-

tion that characterized the 1920s. Previously, the Court had

overturned an anti–child labor act based on the interstate

commerce clause. In

Hammer v. Dagenhart

(247 U.S. 251), is-

sued on June 3, 1918, the 5-4 majority invalidated the Keat-

ing-Owen Act, which forbade interstate shipment of products

of child labor. In its 5-4 decision, the Supreme Court ruled that

the statute was an unwarranted infringement on state power,

“repugnant to the Constitution,” an attempt to extend federal

authority over a “purely local matter.” In dissent, Justice Oliver

Wendell Holmes deplored the “evil of premature and exces-

sive child labor,” upheld the federal right to regulate interstate

commerce, and noted that the states lacked the power to con-

trol child labor.

The Court vindicated Holmes in 1937 by overturning

Hammer

United States v. Darby Lumber Company

________________________

_______________________

Mr. Chief Justice Taft delivered the opinion of the Court.

This case presents the question of the constitutional

validity of the Child Labor Tax Law. The plaintiff be-

low, the Drexel Furniture Company, is engaged in the

manufacture of furniture in the Western district of North

Carolina. On September 20, 1921, it received a notice

from Bailey, United States collector of internal revenue

for the district, that it had been assessed $6,312.79 for

having during the taxable year 1919 employed and per-

mitted to work in its factory a boy under 14 years of

age, thus incurring the tax of 10 per cent, on its net prof-

its for that year. The company paid the tax under protest,

and, after rejection of its claim for a refund, brought this

suit. On demurrer to an amended complaint, judgment

was entered for the company against the collector for

the full amount, with interest. The writ of error is prose-

cuted by the collector direct from the District Court

under section 238 of the Judicial Code (Comp. St. Sec-

tion 1215).

The Child Labor Tax Law is title No. XII of an act

entitled “An act to provide revenue and for other pur-

poses,” approved February 24, 1919, 40 Stat. 1057, 1138

(Comp. St. Ann. Supp. 1919, Sections 6336 7/8a to 6336

7/8h). The heading of the title is “Tax on Employment of

Child Labor.” It begins with section 1200 and includes

eight sections. Section 1200 is as follows:

“Sec. 1200. That every person (other than a bona fide

boys’ or girls’ canning club recognized by the agricultural

department of a state and of the United States) operating

(a) any mine or quarry situated in the United States in

which children under the age of sixteen years have been

employed or permitted to work during any portion of the

taxable year; or (b) any mill, cannery, workshop, factory, or

manufacturing establishment situated in the United States

in which children under the age of fourteen years have

been employed or permitted to work, or children between

the ages of fourteen and sixteen have been employed or

permitted to work more than eight hours in any day or

more than six days in any week, or after the hour of seven

o’clock post meridian, or before the hour of six o’clock ante

meridian, during any portion of the taxable year, shall pay

for each taxable year, in addition to all other taxes imposed

by law, an excise tax equivalent to 10 per centum of the

entire net profits received or accrued for such year from

the sale or disposition of the product of such mine, quarry,

mill, cannery, workshop, factory, or manufacturing estab-

lishment.”

Section 1203 relieves from liability to the tax any one

who employs a child, believing him to be of proper age

relying on a certificate to this effect issued by persons pre-

scribed by a board consisting of the Secretary of the Trea-

sury, the Commissioner of Internal Revenue, and the

Secretary of Labor, or issued by state authorities. The sec-

tion also provides in paragraph (b) that—

“The tax imposed by this title shall not be imposed in

the case of any person who proves to the satisfaction of the

Secretary that the only employment or permission to work

which but for this section would subject him to the tax, has

been of a child employed or permitted to work under a

1336 ERA 7: The Emergence of Modern America

mistake of fact as to the age of such child and without

intention to evade the tax.”

Section 1206 gives authority to the Commissioner of

Internal Revenue, or any other person authorized by him

“to enter and inspect at any time any mine, quarry, mill,

cannery, workshop, factory or manufacturing establish-

ment.” The Secretary of Labor, or any person whom he

authorizes, is given like authority in order to comply with a

request of the Commissioner to make such inspection and

report the same. Any person who refuses entry or

obstructs inspection is made subject to fine or imprison-

ment or both.

[1] The law is attacked on the ground that it is a regu-

lation of the employment of child labor in the states—an

exclusively state function under the federal Constitution

and within the reservations of the Tenth Amendment. It is

defended on the ground that it is a mere excise tax levied

by the Congress of the United States under its broad

power of taxation conferred by section 8, article 1, of the

federal Constitution. We must construe the law and inter-

pret the intent and meaning of Congress from the lan-

guage of the act. The words are to be given their ordinary

meaning unless the context shows that they are differently

used. Does this law impose a tax with only that incidental

restraint and regulation which a tax must inevitably

involve? Or does it regulate by the use of the so-called tax

as a penalty? If a tax, it is clearly an excise. If it were an

excise on a commodity or other thing of value, we might

not be permitted under previous decisions of this court to

infer solely from its heavy burden that the act intends a

prohibition instead of a tax. But this act is more. It pro-

vides a heavy exaction for a departure from a detailed and

specified course of conduct in business. That course of

business is that employers shall employ in mines and quar-

ries, children of an age greater than 16 years; in mills and

factories, children or an age greater than 14 years, and

shall prevent children of less than 16 years in mills and fac-

tories from working more than 8 hours a day or 6 days in

the week. If an employer departs from this prescribed

course of business, he is to pay to the government one-

tenth of his entire net income in the business for a full

year. The amount is not to be proportioned in any degree

to the extent or frequency of the departures, but is to be

paid by the employer in full measure whether he employs

500 children for a year, or employs only one for a day.

Moreover, if he does not know the child is within the

named age limit, he is not to pay; that is to say, it is only

where he knowingly departs from the prescribed course

that payment is to be exacted. Scienters are associated with

penalties, not with taxes. The employer’s factory is to be

subject to inspection at any time not only by the taxing offi-

cers of the Treasury, the Department normally charged

with the collection of taxes, but also by the Secretary of

Labor and his subordinates, whose normal function is the

advancement and protection of the welfare of the workers.

In the light of these features of the act, a court must be

blind not to see that the so-called tax is imposed to stop the

employment of children within the age limits prescribed.

Its prohibitory and regulatory effect and purpose are pal-

pable. All others can see and understand this. How can we

properly shut our minds to it?

It is the high duty and function of this court in cases

regularly brought to its bar to decline to recognize or

enforce seeming laws of Congress, dealing with subjects

not intrusted to Congress, but left or committed by the

supreme law of the land to the control of the states. We

cannot avoid the duty, even though it require us to refuse

to give effect to legislation designed to promote the high-

est good. The good sought in unconstitutional legislation is

an insidious feature, because it leads citizens and legisla-

tors of good purpose to promote it, without thought of the

serious breach it will make in the ark of our covenant, or

the harm which will come from breaking down recognized

standards. In the maintenance of local self-government, on

the one hand, and the national power, on the other, our

country has been able to endure and prosper for near a

century and a half.

[2] Out of proper respect for the acts of a co-ordinate

branch of the government, this court has gone far to sus-

tain taxing acts as such, even though there has been

ground for suspecting, from the weight of the tax, it was

intended to destroy its subject. But in the act before us the

presumption of validity cannot prevail, because the proof

of the contrary is found on the very face of its provisions.

Grant the validity of this law, and all that Congress would

need to do, hereafter, in seeking to take over to its control

any one of the great number of subjects of public interest,

jurisdiction of which the states have never parted with, and

which are reserved to them by the Tenth Amendment,

would be to enact a detailed measure of complete regula-

tion of the subject and enforce it by a so-called tax upon

departures from it. To give such magic to the word “tax”

would be to break down all constitutional limitation of the

powers of Congress and completely wipe out the

sovereignty of the states.

The difference between a tax and a penalty is some-

times difficult to define, and yet the consequences of the

distinction in the required method of their collection often

are important. Where the sovereign enacting the law has

power to impose both tax and penalty, the difference

between revenue production and mere regulation may be

immaterial, but not so when one sovereign can impose a

tax only, and the power of regulation rests in another. Taxes

are occasionally imposed in the discretion of the Legisla-

ture on proper subjects within the primary motive of

obtaining revenue from them and with the incidental

Postwar Economy 1337

motive of discouraging them by making their continuance

onerous. They do not lose their character as taxes because

of the incidental motive. But there comes a time in the

extension of the penalizing features of the so-called tax

when it loses its character as such and becomes a mere

penalty; with the characteristics of regulation and punish-

ment. Such is the case in the law before us. Although

Congress does not invalidate the contract of employment

or expressly declare that the employment within the men-

tioned ages is illegal, it does exhibit its intent practically to

achieve the latter result by adopting the criteria of wrong-

doing and imposing its principal consequence on those

who transgress its standard.

The case before us cannot be distinguished from that

of Hammer v. Dagenhart, 247 U.S. 251, 38 Sup. Ct. 529,

62 L. Ed. 1101, 3 A. L. R. A. 649, Ann, Cas. 1918 E, 724.

Congress there enacted a law to prohibit transportation in

interstate commerce of goods made at a factory in which

there was employment of children within the same ages

and for the same number of hours a day and days in a week

as are penalized by the act in this case. This court held the

law in that case to be void. It said:

“In our view the necessary effect of this act is, by

means of a prohibition against the movement in interstate

commerce of ordinary commercial commodities, to regu-

late the hours of labor of children in factories and mines

within the states, a purely state authority.”

In the case at the bar, Congress in the name of a tax

which on the face of the act is a penalty seeks to do the

same thing, and the effort must be equally futile.

The analogy of the Dagenhart Case is clear. The con-

gressional power over interstate commerce is, within its

proper scope, just as complete and unlimited as the con-

gressional power to tax, and the legislative motive in its

exercise is just as free from judicial suspicion and inquiry.

Yet when Congress threatened to stop interstate com-

merce in ordinary and necessary commodities, unobjec-

tionable as subjects of transportation, and to deny the

same to the people of a state in order to coerce them into

compliance with Congress’ regulation of state concerns,

the court said this was not in fact regulation of interstate

commerce, but rather that of state concerns and was

invalid. So here the so-called tax is a penalty to coerce peo-

ple of a state to act as Congress wishes them to act in

respect of a matter completely the business of the state

government under the federal Constitution. This case

requires as did the Department Case the application of the

principle announced by Chief Justice Marshall in McCul-

loch v. Maryland, 4 Wheat. 316, 423 (4 L. Ed. 579), in a

much-quoted passage:

“Should Congress, in the execution of its powers,

adopt measures which are prohibited by the Constitution;

or should Congress, under the pretext of executing its

powers, pass laws for the accomplishment of objects not

intrusted to the government; it would become the painful

duty of this tribunal, should a case requiring such a deci-

sion come before it, to say that such an act was not the law

of the land.”

But it is pressed upon us that this court has gone so far

in sustaining taxing measures the effect and tendency of

which was to accomplish purposes not directly within con-

gressional power that we are bound by authority to main-

tain this law.

The first of these is Veazie Bank v. Fenno, 8 Wall. 533,

19 L. Ed. 482. In that case, the validity of a law which

increased a tax on the circulating notes of persons and state

banks from one per centum to 10 per centum was in ques-

tion. The main question was whether this was a direct tax

to be apportioned among the several states “according to

their respective numbers.” This was answered in the neg-

ative. The second objection was stated by the court:

“It is insisted, however, that the tax in the case before

us is excessive, and so excessive as to indicate a purpose on

the part of Congress to destroy the franchise of the bank,

and is, therefore, beyond the constitutional power of

Congress.” To this the court answered:

“The first answer to this is that the judicial cannot pre-

scribe to the legislative departments to the environment

limitations upon the exercise of its acknowledged powers.

The power to tax may be exercised oppressively upon per-

sons, but the responsibility of the Legislature is not to the

courts, but to the people by whom its members are

elected. So if a particular tax bears heavily upon a corpora-

tion, or a class of corporations, it cannot, for that reason

only, be pronounced contrary to the Constitution.”

It will be observed that the sole objection to the tax

here was its excessive character. Nothing else appeared on

the face of the act. It was an increase of a tax admittedly

legal to a higher rate and that was all. There were no elab-

orate specifications on the face of the act, as here, indicat-

ing the purpose to regulate matters of state concern and

jurisdiction through an exaction so applied as to give it the

qualities of a penalty for violation of law rather than a tax.

It should be noted, too, that the court, speaking of the

extent of the taxing power, used these cautionary words (8

Wall. 541, 19 L. Ed. 482):

“There are, indeed, certain virtual limitations, arising

from the principles of the Constitution itself. It would

undoubtedly be an abuse of the power if so exercised as to

impair the separate existence and independent self-gov-

ernment of the states, or if exercised for ends inconsistent

with the limited grants of power in the Constitution.”

But more than this, what charged to be the object of

the excessive tax was within the congressional authority, as

appears from the second answer which the court gave to

the objection. After having pointed out the legitimate

1338 ERA 7: The Emergence of Modern America

means taken by Congress to secure a national medium or

currency, the court said (8 Wall. 549, 19 L. Ed. 482):

“Having thus, in the exercise of undisputed constitu-

tional powers, undertaken to provide a currency for the

whole country, it cannot be questioned that Congress may,

constitutionally, secure the benefit of it to the people by

appropriate legislation. To this end, Congress has denied

the quality of legal tender to foreign coins, and has pro-

vided by law against the imposition of counterfeit and base

coin on the community. To the same end, Congress may

restrain, by suitable enactments, the circulation as money

of any notes not issued under its own authority. Without

this power, indeed, its attempts to secure a sound and uni-

form currency for the country must be futile.”

The next case is that of McCray v. United States, 195

U.S. 27, 24 Sup. Ct. 769, 49 L. Ed. 78, 1 Ann. Cas. 561.

That, like the Veazie Bank Case, was the increase of an

excise tax upon a subject properly taxable in which the tax-

payers claimed that the tax had become invalid because

the increase was excessive. It was a tax on oleomargarine,

a substitute for butter. The tax on the white Oleomargarine

was one-quarter of a cent a pound, and on the yellow oleo-

margarine was first 2 cents and was then by the act in ques-

tion increased to 10 cents per pound. This court held that

the discretion of Congress in the exercise of its constitu-

tional powers to levy excise taxes could not be controlled

or limited by the courts because the latter might deem the

incidence of the tax oppressive or even destructive. It was

the same principle as that applied in the Veazie Bank Case.

This was that Congress, in selecting its subjects for taxa-

tion, might impose the burden where and as it would, and

that a motive disclosed in its selection to discourage sale or

manufacture of an article by a higher tax than on some

other did not invalidate the tax. In neither of these cases

did the law objected to show on its face as does the law

before us the detailed specifications of a regulation of a

state concern and business with a heavy exaction to pro-

mote the efficacy of such regulation.

The third case is that of Flint v. Stone Tracy Co., 220

U.S. 107, 31 Sup. Ct. 342, 55 L. Ed. 389, Ann. Cas.

1912B, 1312. It involved the validity of an excise tax levied

on the doing of business by all corporations, joint-stock

companies, associations organized for profit having a cap-

ital stock represented by shares, and insurance compa-

nies, and measured the excise by the net income of the

corporations. There was not in that case the slightest

doubt that the tax was a tax, and a tax for revenue, but it

was attacked on the ground that such a tax could be made

excessive and thus used by Congress to destroy the exis-

tence of state corporations. To this, this court gave the

same answer as in the Veazie Bank and McCray Cases. It

is not so strong an authority for the government’s con-

tention as they are.

The fourth case is United States v. Doremus, 249 U.S.

86, 39 Sup. Ct. 214, 63 L. Ed. 493. Thus involved the valid-

ity of the Narcotic Drug Act (38 Stat. 785 [Comp. St. Sec-

tion 6287g et seq.]), which imposed a special tax on the

manufacture, importation and sale or gift of opium or

cocoa leaves or their compounds or derivatives. It required

every person subject to the special tax, to register with the

collector of internal revenue his name and place of busi-

ness and forbade him to sell except upon the written order

of the person to whom the sale was made on a form pre-

scribed by the Commissioner of Internal Revenue. The

vendor was required to keep the order for two years, and

the purchaser to keep a duplicate for the same time and all

were to be subject to official inspection. Similar require-

ments were made as to sales upon prescriptions of a physi-

cian and as to the dispensing of such drugs directly to a

patient by a physician. The validity of a special tax in the

nature of an excise tax on the manufacture, importation,

and sale of such drugs was, of course, unquestioned. The

provisions for subjecting the sale and distribution of the

drugs to official supervision and inspection were held to

have a reasonable relation to the enforcement of the tax

and were therefore held valid.

The court said that the act could not be declared

invalid just because another motive than taxation, not

shown on the face of the act, might have contributed to its

passage. This case does not militate against the conclusion

we have reached in respect to the law now before us. The

court, there, made manifest its view that the provisions of

the so-called taxing act must be naturally and reasonably

adapted to the collection of the tax and not solely to the

achievement of some other purpose plainly within state

power.

For the reasons given, we must hold the Child Labor

Tax invalid and the judgment of the District Court is

Affirmed.

Source:

Supreme Court Reporter, Vol. 42. pp. 449–459.

Fordney-McCumber Act, 1922

Federal U.S. legislation, also known as the Tariff Act of 1922,

enacted on September 21, 1922, that established high tariff

rates to protect farmers and infant industries. It set high duties

on grains, meats, sugar, wool, and other farm products and

raised rates on textiles, dyes, ferro alloys, china, and other

manufactured goods. Sponsored by Representative Joseph W.

Fordney of Indiana and Senator Porter J. McCumber of North

Dakota, the act also made the tariff flexible, giving the U.S.

president the power to raise or lower rates by 50 percent in

order to equalize American and foreign costs of production.

Postwar Economy 1339

Prior to World War I, Congress passed two other major

tariff acts. The Payne-Aldrich Tariff Act, enacted by Congress

on August 5, 1909, reduced overall rates from the high levels

of the Dingley Tariff to about 38 percent but raised the levies

on coal and iron ore. The act, a compromise between protec-

tionism and the 1908 Republican Party platform promise to

lower tariffs, was cosponsored by Senator Nelson W. Aldrich

of Rhode Island and Representative Sereno Elisha Payne of

New York. It left more than 1,000 tariff schedules unchanged,

lowered 650, and raised 220. Its largely protectionist features

became a major political issue, resulting in Republican defeat

in the election of 1910.

Representative Oscar W. Underwood of Alabama and

Senator Furnifold M. Simmons of North Carolina sponsored a

tariff bearing their names that passed October 3, 1913. It low-

ered the average tariff duties from about 40 percent of the

value of an imported item to 26 percent. The act also put iron,

steel, and raw wool on the free list (sugar was added to the free

list in 1916) and imposed the first income tax under the Six-

teenth Amendment. Succeeding the Payne-Aldrich Tariff was

the Underwood-Simmons Act, called a “competitive tariff”

supported by the Democratic Party. Its benefits, however, were

swamped by the economic effects of World War I.

The Fordney-McCumber tariff was succeeded by the

Smoot-Hawley Tariff Act, which was signed June 17, 1930, by

President Herbert Hoover near the beginning of the Great

Depression. It raised import duties to the highest level in U.S.

history. Sponsored by Republican senator Reed Smoot of Utah

and Republican representative Willis C. Hawley of Oregon,

this protective tariff represented a congressional compromise,

raising rates on both agricultural products, as favored by the

Senate, and manufactured goods, as supported by the House

of Representatives. Foreign nations passed retaliatory legisla-

tion, which damaged U.S. foreign trade and worsened the

worldwide depression.

________________________

_______________________

An Act

To provide revenue, to regulate commerce with foreign

countries, to encourage the industries of the United States,

and for other purposes.

Be it enacted by the Senate and House of Represen-

tatives of the United States of America in Congress assem-

bled,

Title I

Dutiable List.

Section 1. That on and after the day following the pas-

sage of this Act, except as otherwise specially provided for

in this Act, there shall be levied, collected, and paid upon

all articles when imported from any foreign country into

the United States or into any of its possessions (except the

Philippine Islands, the Virgin Islands, and the islands of

Guam and Tutuila) the rates of duty which are prescribed

by the schedules and paragraphs of the dutiable list of this

title, namely:

[Schedule of items taxed follows.]

* * *

Sec. 588. Transportation between ports.—If any merchan-

dise is laden at any port or place in the United States upon

any vessel belonging wholly or in part to a subject of a for-

eign country, and is taken thence to a foreign port or place

to be reladen and reshipped to any other port in the

United States, either by the same or by another vessel, for-

eign or American, with intent to evade the provisions relat-

ing to the transportation of merchandise from one port or

place of the United States to another port or place of the

United States in a vessel belonging wholly or in part to a

subject of any foreign power, the merchandise shall, on its

arrival at such last-named port or place, be seized and for-

feited to the United States, and the vessel shall pay a ton-

nage duty of 50 cents per net ton.

* * *

Sec. 591. Fraud—Penalty—Personal.—If any consignor,

seller, owner, importer, consignee, agent, or other person

or persons enters or introduces, or attempts to enter or

introduce, into the commerce of the United States any

imported merchandise by means of any fraudulent or false

invoice, declaration, affidavit, letter, paper, or by means of

any false statement, written or verbal, or by means of any

false or fraudulent practice or appliance whatsoever, or

makes any false statement in any declaration under the

provisions of section 485 of this Act without reasonable

cause to believe the truth of such statement, or aids or

procures the making of any such false statement as to any

matter material thereto without reasonable cause to

believe the truth of such statement, or is guilty of any will-

ful act or omission by means whereof the United States

shall or may be deprived of the lawful duties, or any por-

tion thereof, accruing upon the merchandise, or any por-

tion thereof, embraced or referred to in such invoice,

declaration, affidavit, letter, paper, or statement, or

affected by such act or omission, such person or persons

shall upon conviction be fined for each offense a sum not

exceeding $5,000, or be imprisoned for a time not exceed-

ing two years, or both, in the discretion of the court: Pro-

vided, That nothing in this section shall be construed to

relieve imported merchandise from forfeiture by reason

of such false statement or for any cause elsewhere pro-

vided by law.

Sec. 592. Same—Penalty against goods [Applies to

same individuals and causes as Sec. 591] shall be subject to

forfeiture, which forfeiture shall only apply to the whole of

the merchandise or the value thereof in the case or pack-

1340 ERA 7: The Emergence of Modern America

age containing the particular article or articles of mer-

chandise to which such fraud or false paper or statement

relates. The arrival within the territorial limits of the

United States of any merchandise consigned for sale and

remaining the property of the shipper or consignor, and

the acceptance of a false or fraudulent invoice thereof by

the consignee or the agent of the consignor, or the exis-

tence of any other facts constituting an attempted fraud,

shall be deemed, for the purposes of this paragraph, to be

an attempt to enter such merchandise notwithstanding no

actual entry has been made or offered.

Sec. 593. Smuggling and clandestine importations.—

(a) If any person knowingly and willfully, with intent to

defraud the revenue of the United States, smuggles, or

clandestinely introduces, into the United States any mer-

chandise which should have been invoiced, or makes out

or passes, or attempts to pass, through the customhouse

any false, forged, or fraudulent invoice, every such person,

his, her, or their aiders an abettors, shall be deemed guilty

of a misdemeanor, and on conviction thereof shall be fined

in any sum not exceeding $5,000, or imprisoned for any

term of time not exceeding two years, or both, at the dis-

cretion of the court.

(b) If any person fraudulently or knowingly imports or

brings into the United States, or assists in so doing, any

merchandise, contrary to law, or receives, conceals, buys,

sells, or in any manner facilitates the transportation, con-

cealment, or sale of such merchandise after importation,

knowing the same to have been imported or brought into

the United States contrary to law, such merchandise shall

be forfeited and the offender shall be fined in any sum not

exceeding $5,000 nor less than $50, or be imprisoned for

any time not exceeding two years, or both. Whenever, on

trial for a violation of this section, the defendant is shown

to have or to have had possession of such goods, such pos-

session shall be deemed evidence sufficient to authorize

conviction, unless the defendant shall explain the posses-

sion to the satisfaction of the jury.

Sec. 594. Seizure of vessels and vehicles.—Whenever

a vessel or vehicle, or the owner or master, conductor,

driver, or other person in charge thereof, has become sub-

ject to a penalty for violation of the customs-revenue laws

of the United States, such vessel or vehicle shall be held

for the payment of such penalty and may be seized and

proceeded against summarily by libel to recover the same:

Provided, That no vessel or vehicle used by any person as

a common carrier in the transaction of business as such

common carrier shall be so held or subject to seizure or

forfeiture under the customs laws, unless it shall appear

that the owner or master of such vessel or the conductor,

driver, or other person in charge of such vehicle was at the

time of the alleged illegal act a consenting party or privy

thereto.

Sec. 595. Warrant.—If any collector of customs or

other officer or person authorized to make searches and

seizures shall have cause to suspect the presence in any

dwelling house, store, or other building or place of any

merchandise upon which the duties have not been paid, or

which has been otherwise brought into the United States

contrary to law, he may make application, under oath, to

any justice of the peace, to any municipal, county, State, or

Federal judge, or to any United States commissioner, and

shall thereupon be entitled to a warrant to enter such

dwelling house in the daytime only, or such store or other

place at night or by day, and to search for and seize such

merchandise: Provided, That if any such house, store, or

other building, or place in which such merchandise shall

be found, is upon or within ten feet of the boundary line

between the United States and a foreign country, such por-

tion thereof as is within the United States may forthwith

be taken down or removed.

Sec. 596. Buildings on boundary.—Any person who

receives or deposits in such building upon the boundary

line between the United States and any foreign country, or

carries any merchandise through the same, or aids therein,

in violation of law, shall be punishable by a fine of not more

than $5,000, or by imprisonment for not more than two

years, or both.

Sec. 597. Concealment.—If any merchandise is fraud-

ulently concealed in, removed from, or repacked in any

bonded warehouse, or if any marks or numbers placed

upon packages deposited in such a warehouse be fraudu-

lently altered, defaced, or obliterated, such merchandise

and packages shall be subject to forfeiture, and all persons

convicted of the fraudulent concealment, repacking, or

removal of such merchandise, or of altering, defacing, or

obliterating such marks and numbers thereon, and all per-

sons aiding and abetting therein shall be liable to the same

penalties as are imposed by section 593 of this Act.

Sec. 598. False seals.—If any unauthorized person

affixes or attaches or in any way willfully assists or encour-

age the affixing or attaching of a customs seal or other fas-

tening to any vessel or vehicle, or of any seal, fastening, or

mark purporting to be a customs seal, fastening, or mark;

or if any unauthorized person willfully or maliciously

removes, breaks, injures, or defaces any customs seal or

other fastening placed upon any vessel, vehicle, ware-

house, or package containing merchandise or baggage in

bond or in customs custody, or willfully aids, abets, or

encourages any other person to remove, break, injure, or

deface such seal, fastening, or mark; or if any person mali-

ciously enters any bonded warehouse or any vessel or vehi-

cle laden with or containing bonded merchandise with

intent unlawfully to remove or cause to be removed there-

from any merchandise or baggage therein, or unlawfully

removes or causes to be removed any merchandise or bag-

Postwar Economy 1341