McCulloch v. Maryland: A $15,000 Bank Tax and the Power to Destroy

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The fight began with Alexander Hamilton and Thomas Jefferson in George Washington's cabinet. Hamilton wanted a national bank to manage war debt and chaotic state currencies, while Jefferson, a strict constructionist, noted that the word bank appears nowhere in the Constitution. The First Bank of the United States received a 20 year charter in 1791 and was allowed to expire in 1811, just before the War of 1812 exposed the cost of having no central bank. Congress then chartered the Second Bank, only 20 percent federally owned, whose aggressive loan calls in a postwar downturn made it hated in the states. In 1818 Maryland imposed a $15,000 annual tax on banks not chartered in the state, aimed squarely at the Baltimore branch.

Cashier James W. McCulloch kept issuing unstamped notes, and informer John James sued for a share of the penalty. With Daniel Webster arguing for the bank, Chief Justice John Marshall wrote a unanimous 1819 opinion that rejected Maryland's compact theory, rooted sovereignty in we the people, and read necessary and proper to cover any appropriate means to a legitimate end. He held that the power to tax involves the power to destroy, so Maryland's tax was unconstitutional. The episode follows the ruling to modern federal agencies, a 1904 decision of the High Court of Australia, and critics such as Raoul Berger, Gary Lawson and Nelson Lund who argue it invited federal overreach.

• Printers' use of a turned comma for Scottish names left McCulloch's name misspelled in the official report.
• Maryland's law included a bounty letting a successful informer keep half of the fine.
• Marshall pointed out that the first Congress, full of the Constitution's framers, had chartered the original bank and Washington had signed it.
• Arizona Department of Revenue v. Blaze Construction later allowed states to tax private federal contractors because the legal burden falls on the company.
• The hosts note that the bank's harsh debt collection is what prompted Maryland's tax in the first place.