XI
THE CORPORATION TAX DECISION
The immediate consequences of the decision of the United States Supreme Court[1] affirming the constitutionality of the federal corporation tax are so slight that its profound significance is likely to be overlooked. Until it was merged with the general income tax the exaction was not burdensome and proved easy of collection. The thing upon which it fell—the privilege of doing business in a corporate capacity—is an abstraction which makes little appeal to the sympathies or the moral sense. The public, more concerned with present conditions than with the passing of a theory, is indifferent.
[Footnote 1: Flint v. Stone Tracy Co., 220 U.S., 107]
Thus it has sometimes been with the turning points in the affairs of nations. They came quietly and without observation, and it remained for the historians to mark the actual parting of the ways.
The Supreme Court holds, and in its opinion reiterates many times, that the tax is upon the privilege of doing business in a corporate capacity.
Right here is the crux of the matter. Corporate capacity is not a right granted by the National Government. It is something which Congress can neither give nor take away. In the division of powers which marked the creation of our dual government the power to confer corporate capacity was reserved to the states. The decision, therefore, comes to this: Congress can by taxation burden the exercise of a privilege which only a state can grant. And the power to tax, it must be remembered, involves the power to destroy. This seems a long step from the theory of the men who founded the Republic.
Nearly fifty years ago the Supreme Court stated the theory as follows:
The states are, and they must ever be, co-existent with the
National Government. Neither may destroy the other. Hence the
Federal Constitution must receive a practical construction.
Its limitations and its implied prohibitions must not be
extended so far as to destroy the necessary powers of the
States, or prevent their efficient exercise.[1]
[Footnote 1: Railroad Co. v. Peniston, 18 Wall., 5.]