shall, held "that a tax on stock of the United States, held by an individual citizen of a State, is a tax on the power to borrow money on the credit of the United States, and can not be levied on the authority of a State consistently with the Constitution," and, further, "that if the right to impose a tax exists, it is a right which, in its nature, acknowledges no limits. It may be carried to any extent within the jurisdiction of the State or corporation which imposes it, which the will of such State or corporation may prescribe. Can anything," continued the Chief Justice, "be more dangerous or more injurious than the admission of a principle which authorizes every State and every corporation in the Union which possesses the right of taxation to burden the exercise of this (borrowing) power at their discretion?" A tax on the stock or bonds of a State is therefore a tax on the borrowing power of such State.
The court further held that a tax of this description was a tax upon contracts,[1] using the following language: "Congress has power to borrow money on the credit of the United States. The stock it issues is evidence of a debt created by the exercise of this power. The tax in question is a tax upon the contract subsisting between the Government and the individual. It bears directly upon the contract. While subsisting and in full force, the power operates upon the contract the instant it is framed, and must imply a right to affect that contract. If the States and corporations throughout the Union possess the power to tax a contract for the loan of money, what shall arrest the principle in its application to every other contract? What measure can Government adopt which will not be exposed to its influence? The right to tax the contract to any extent, when made, must operate upon the power to borrow before it is exercised, and have a sensible influence
- ↑ What interpretation the Supreme Court puts upon the word "contract," as found in that clause of the Constitution of the United States which provides "that no State shall pass any law impairing the obligations of contracts," is made clear by the following language employed by Chief-Justice Marshall in giving the opinion of the court in the celebrated case of the Trustees of Dartmouth College vs. Woodward: "The term contract must be understood as intended to guard against a power of at least doubtful utility, the abuse of which had been extensively felt, and to restrain the Legislature in future from violating the right to property; that anterior to the formation of the Constitution a course of legislation had prevailed in many if not all of the States which weakened the confidence of man in man, and embarrassed all transactions between individuals, by dispensing with a faithful performance of engagements. To correct this mischief by restraining the power which produced it, the State Legislatures were forbidden ‘to pass any law impairing the obligations of contracts’—that is, of contracts respecting property, under which some individual could claim a right to something beneficial to himself; and that, since the clause in the Constitution must in construction receive some limitation, it may be confined, and ought to be confined, to cases of this description—to cases within the mischief it was intended to remedy."
