Charles C. Steward Machine Co. v. Davis
Facts
Title IX of the Social Security Act imposed an excise tax on employers of eight or more, measured by wages paid. An employer could receive a credit of up to 90 percent of the federal tax for contributions made under a state unemployment compensation law that had been certified as meeting federal minimum criteria. The tax proceeds went into the federal Treasury and were not earmarked, while Title III merely authorized future appropriations to assist states in administering unemployment laws. Petitioner challenged the federal tax and related provisions as unconstitutional.
Issue
Whether the employer tax and related credit scheme in the Social Security Act were unconstitutional because the tax was not a valid uniform excise, because its exemptions were arbitrary, because the credit mechanism coerced states in violation of the Tenth Amendment, or because the Act required states to surrender essential sovereign powers.
Rule
Congress may impose a uniform excise on the employment relation, and the constitutional uniformity required of excises is geographic, not intrinsic. Classifications and exemptions in federal taxation are valid if supported by policy and practical convenience and are not arbitrary. A federal tax coupled with a credit for state action is not invalid under the Tenth Amendment when the arrangement amounts to inducement rather than coercion and the encouraged state action bears a legitimate relation to national fiscal and welfare interests. Title III is separable from Title IX where it merely authorizes future appropriations and Title IX can stand independently.
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