Facts of the Case
The Steward Machine Company challenged the validity of a tax imposed by the Social Security Act of 1935. The Act imposed a tax on employers of eight or more employees to fund unemployment compensation. If a state had established an approved compensation plan, however, the taxpayer could credit up to 90% of the federal tax paid to the state unemployment fund. Steward argued that with the Act, Congress surpassed its powers outlined in the Tenth Amendment.
Questions
Did the Act arbitrarily impose taxes in violation of the Fifth Amendment or subvert principles of federalism?
Conclusions
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In a 5-to-4 decision, the Court held that the tax under the Social Security Act was a constitutional exercise of congressional power. Writing for the majority, Justice Benjamin N. Cardozo found that the tax did not coerce the states in contravention of the Tenth Amendment. The Court underscored the high rate of unemployment and poorly performing economy in concluding that the tax would benefit the general welfare. According to the majority, the Act would benefit both the states and the federal government. The majority rejected the argument that the Act provision was void as involving an unconstitutional attempt to coerce the States to adopt unemployment compensation legislation approved by the Federal Government.
In dissenting opinions, Justices McReynolds, Sutherland, Van Devanter, and Butler viewed the Social Security Act as a Congressional overreach. These dissenters came to be known collectively as the Four Horsemen, the conservative members of the Court who opposed President Franklin D. Roosevelt’s New Deal agenda.
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