301 U.S. 548, 57 S. Ct. 883, 81 L. Ed. 1279 (1937)
The Social Security Act was enacted on August 14, 1935.1 Title IX of the Act imposes an excise tax upon every employer of eight or more persons.2 The tax is measured by a percentage of the total wages paid during the calendar year.3 The rate begins at one percent in 1936, rises to two percent in 1937, and reaches three percent thereafter.4
Section 902 allows a credit against this tax for contributions paid by the employer into an unemployment fund under a state law that has been certified by the Social Security Board as meeting the minimum criteria prescribed by the statute.5 The credit does not exceed ninety percent of the federal tax.6 The proceeds of the Title IX tax go into the general Treasury and are not earmarked.
The petitioner, Charles C. Steward Machine Company, is an Alabama corporation subject to the tax.7 It paid a tax amounting to $46.14 for the eight months beginning January 1, 1936.8 It filed a claim for refund which was rejected by the Commissioner of Internal Revenue.9 The company then brought suit in federal district court to recover the payment, asserting that the statute conflicted with the Constitution.10
The District Court gave judgment for the defendant, the Collector of Internal Revenue.11 The Circuit Court of Appeals for the Fifth Circuit affirmed the judgment.12 The Supreme Court granted certiorari because an important question of constitutional law was involved.13
Title III of the Act authorizes appropriations from the Treasury to assist states in administering their unemployment compensation laws.14 Payments are made only to states whose laws satisfy prescribed criteria.15 States that enact qualifying unemployment compensation laws receive the benefit of the credit for their employers.16 Those that do not see their employers pay the full federal tax.17
Whether Title IX of the Social Security Act imposes a valid excise tax upon employers?18
Yes. The tax is described in the statute as an excise and is laid with uniformity throughout the United States as a duty upon the relation of employment.21 The petitioner, an Alabama corporation subject to the tax, paid a tax amounting to $46.14 for the eight months beginning January 1, 1936, confirming its application to employers of eight or more. The classification is not arbitrary because the line must be drawn somewhere and the selection of eight is not so disparate as to make the classification invalid under the Fifth Amendment.22
Title IX of the Social Security Act imposes a valid excise tax upon employers.23
Whether the credit allowed under Title IX for contributions to state unemployment funds coerces the states in violation of the Tenth Amendment?24
No. The credit allowed for state contributions is not a coercion that violates the Tenth Amendment.28 The states are free to adopt or reject the scheme of unemployment compensation. The petitioner paid the tax after the state of Alabama had not yet adopted a qualifying law at the time of payment.29 The problem of unemployment is national in scope.30
The statute is an attempt to find a way in which the states and the nation can cooperate in solving a problem that is national in area and dimensions.31 It does not call for a surrender by the states of powers essential to their quasi-sovereign existence.32
The credit allowed under Title IX for contributions to state unemployment funds does not coerce the states in violation of the Tenth Amendment.33
Related opinions on this issue
Justice McReynolds concluded that the provisions of the Social Security Act exceed the power granted to Congress.34 He viewed the legislation as unduly interfering with the orderly government of the State by her own people and otherwise offending the Federal Constitution.35 He quoted extensively from President Pierce's 1854 veto message to illustrate that the federal government lacks authority to provide for the indigent or to assume duties of public philanthropy within the states.36
In his view the decision opens the way for practical annihilation of state autonomy.37
Joined by Justice Van Devanter
Justice Sutherland dissented on the ground that the administrative provisions of the Act invade the governmental administrative powers of the several states reserved by the Tenth Amendment.38 A state cannot by contract or statute surrender the execution of any of its governmental powers to the federal government.39 The requirement that the state deposit its unemployment funds in the federal treasury upon terms that restrict withdrawal to specific purposes constitutes such a surrender.40
Although the state is not coerced into adopting the law, the federal government supervises and censors the state's administration of its own law, denying the state the supremacy and freedom from external interference contemplated by the Constitution.41
Justice Butler concluded that the statutory scheme is repugnant to the Tenth Amendment.42 The Constitution grants the United States no power to pay unemployed persons or to require the states to enact laws or to raise or disburse money for that purpose.43 The tax and credit device was intended to enable federal officers virtually to control the exertion of powers of the states in a field in which they alone have jurisdiction.44
If valid, the device may be made effective to enable federal authorities to induce state enactments for any purpose within the realm of state power.45
Whether Title IX of the Social Security Act involves an unconstitutional delegation of legislative power?46
No. The statute does not involve an unconstitutional delegation of legislative power. The standards prescribed are definite. The Board is to certify if the state law satisfies the criteria set forth in the statute with sufficient definiteness as applied to the minimum criteria for state unemployment compensation laws under Title IX.50
Title IX of the Social Security Act does not involve an unconstitutional delegation of legislative power.51
Whether the classification of employers subject to the tax under Title IX is arbitrary or capricious under the Fifth Amendment?52
No. The classification of employers subject to the tax under Title IX is not arbitrary or capricious under the Fifth Amendment.55 The selection of those who employ eight or more is a reasonable classification.56 Small employers may be exempted without making the classification invalid as the line must be drawn somewhere and the petitioner as an employer of eight or more fell within the taxed class.57
The classification of employers subject to the tax under Title IX is not arbitrary or capricious under the Fifth Amendment.
Whether Title III of the Social Security Act is separable from Title IX?58
Title III of the Social Security Act is separable from Title IX because the essential provisions of Title III authorize appropriations but do no more than authorize future appropriations.59 Title IX would stand intact if Title III were expunged with the presence of a severability clause making the conclusion even clearer.60
Yes. Title III of the Social Security Act is separable from Title IX.61 Title III does no more than authorize appropriations to be made in the future for the purpose of assisting states in the administration of their unemployment compensation laws.62 The title might be expunged while Title IX would stand intact as confirmed by the severability clause in the Act.63
Title III of the Social Security Act is separable from Title IX.