What happens when a federal “right” is not stated in the Constitution and is at odds with a state’s right? Sometimes it comes down to whether that “right” is truly necessary to be exerted for the wellbeing of the Republic. This case settles the argument in determining whether that “right” is written or implied.
What's at Stake
“Necessary and Proper” Clause, Federal Supremacy v. State Rights
The United States federal government was in poor health after the Revolutionary War. The USA was deeply in debt to other national governments but also to the 13 colonies which expected payback for spending so much of their own money winning the war.
Secretary of the Treasury, Alexander Hamilton, suggested that the federal government form its own bank to take care of its financial duties. Secretary of State Thomas Jefferson however was against this idea as the Constitution did not explicitly give that power to the federal government.
Hamilton countered by saying there was no law in the Constitution that said it couldn’t.
President George Washington agreed with Hamilton and in 1791 gave the go ahead for the formation of the First United States Bank but only with a 20-year life span. The US House of Representatives did not approve of an extension and so the First US Bank closed in 1811.
Many thought that the First US Bank worked very well and deserved to be brought back to life, especially to address the nation’s heavy debt due to the War of 1812.
In 1816 President James Madison approved a proposal to do so and the Second US Bank was formed, and once again, with a 20-year charter.
But the argument continued…that it was unconstitutional to set up a federal bank. President Andrew Jackson was against the formation of the bank and vetoed a bill to extend its life span and subsequently the bank was closed in 1836. All the money in the bank was subsequently distributed to the states.
So, where does James McCulloch fit in?
McCulloch was the president of the Second US Bank who in 1818 refused to pay a $15,000 tax levied by the State of Maryland against the bank. The Maryland tax laws stipulated that any out-of-state bank doing business within Maryland was subject to such a tax. Maryland also levied a fine of $2,500 against McCulloch for his refusal.
But this wasn’t just another state bank…this was the federal government’s bank they wanted to tax. Whoops, big mistake.
While the Maryland Court of Appeals sided with the State of Maryland the US Supreme Court did not.
Chief Justice John Marshall argued that while the US Constitution did not expressly give the power to the federal government to form a national bank it did allow the feds to do what is “necessary and proper” to carry out its business. In other words, although the power to form a national bank was not “enumerated” in the US Constitution the power was, nevertheless, “implied”.
This was the first time that our young republic was made to decide that while the nation is made up of states with their own laws, the US Constitution binds them altogether and that the power of the federal government is supreme to that of the states’ powers.
But what is often remembered about this case is what Marshall stated as a warning; that the “power to tax involves the power to destroy” and that in this case Maryland would not be allowed to weaken the national bank through taxation.
Unanimous decision 7-0 against Maryland. The federal government could set up its own bank inside Maryland’s border and Maryland did not have the power to tax it. The Constitution’s Necessary and Proper clause was upheld. No mention was made of the $2,500 fine (valued at almost $50,000 in 2019) but McCulloch probably gave a big sigh of relief!