After the founding of the United States, one of the first things the new government had to address was the debt the nation had incurred fighting the Revolutionary War. Secretary of the Treasury Alexander Hamilton came up with a plan to create the Bank of the United States, a national bank, in order to absorb state debts from the war and to create a national currency. But not everyone agreed that the federal government had the power to create a bank!
One of the bank’s most vocal opponents was Thomas Jefferson, who argued that it was not within the federal government’s explicit powers to create a national bank and that doing so was an overreach of federal power. Despite opposition to the bank, Congress passed the first charter of the Bank of the United States in 1791, granting it the power to operate for twenty years.
But when it came time to renew the bank’s charter in 1811, the measure was defeated in Congress by one vote. It would take another five years for Congress to pass the second charter of the Bank of the United States, but in 1816, the national bank was reestablished.
Once again, conflict flared over whether Congress had the power to create a national bank. In 1816, Congress chartered/established The Second Bank of the United States.
The government of Maryland did not want a national bank and did not want a branch in Maryland. Nevertheless, the branch opened in 1817. The state of Maryland decided to tax the Baltimore branch of the Bank of the United States in an effort to run it out of business. In 1818, the State of Maryland passed legislation to impose taxes on the bank. James W. McCulloch, the cashier of the Baltimore branch of the bank, refused to pay the tax. The Maryland Court of Appeals court held that the Second Bank was unconstitutional because the Constitution did not provide a textual commitment for the federal government to charter a bank.
Did Congress have the authority to establish the bank?
Did the Maryland law unconstitutionally interfere with congressional powers?
Court’s Decision: Unanimous for Maryland
In a unanimous decision, the Court held that Congress had the power to incorporate the bank and that Maryland could not tax instruments of the national government employed in the execution of constitutional powers.
Pursuant to the Necessary and Proper Clause (Art. I, Section 8), Chief Justice Marshall noted that Congress possessed powers not explicitly outlined in the U.S. Constitution. Marshall redefined “necessary” to mean “appropriate and legitimate,” covering all methods for furthering objectives covered by the enumerated powers. Marshall also held that while the states retained the power of taxation, the Constitution and the laws made in pursuance thereof are supreme and cannot be controlled by the states.
Chief Justice Marshall explained the Court’s decision this way:
“The government which has a right to do an act, and has imposed on it the duty of performing that act, must, according to the dictates of reason, be allowed to select the means . . . The power of creating a corporation is never used for its own sake, but for the purpose of effecting something else. No sufficient reason is, therefore, perceived, why it may not pass as incidental to those powers which are expressly given, if it be a direct mode of executing them.”
Impact/Why it matters: McCulloch v. Maryland has had two significant effects on what federalism means for the United States:
1. The federal government has powers that are not listed in the Constitution. The decision in McCulloch v. Maryland enhanced federal power and gave the federal government ways to achieve the responsibilities that were given to it in the Constitution.
2. Federalism is a system of shared power between state governments and the national government, but the decision in McCulloch v. Maryland established and reaffirmed the fact that the United States has a strong central government and that federal law has authority over state law. Imagine if states could just ignore federal laws: how would that affect how much authority the federal government has? This case ensured that the original intention of the Constitution to make a strong central government was met and guaranteed that states cannot interfere with powers given to the federal government.