Child Labor Tax Case
Encyclopedia
Bailey v. Drexel Furniture Co., 259 U.S. 20 (1922), was a case in which the U.S. Supreme Court
ruled the 1919 Child Labor Tax Law unconstitutional as an improper attempt by Congress to penalize employers using child labor. The Court indicated that the tax imposed by the statute was actually a penalty in disguise.
The Court later abandoned the philosophy underlying the Bailey case. For example, see United States v. Kahriger
, 345 U.S. 22 (1953), overruled on other grounds, Marchetti v. United States, 390 U.S. 39 (1968).
passed the Child Labor Tax Law which imposed an excise tax of 10 percent on the net profits of a company that employed children. The law defined child labor as “under the age of sixteen in any mine or quarry, and under the age of fourteen in any mill, cannery, workshop, factory, or manufacturing establishment.” The definition also included the use of children between the ages of fourteen and sixteen who worked more than eight hours a day or more than six days a week, or who worked between the hours of 7:00 p.m. and 6:00 a.m.”
Drexel was a furniture manufacturing company in North Carolina.
On September 21, 1921, a collector from the Bureau of Internal Revenue (now the Internal Revenue Service
) assessed $6,312.79 in excise taxes for employing a child under fourteen during the 1919 tax year. Drexel paid the tax under protest and sued for a refund.
did not need to meet a standard as long as it was geographically uniform. In addition, the government contended that the tax was merely an excise tax
levied by Congress under its broad power of taxation under Article One of the Constitution. The lower court ruled in favor of the company.
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are associated with penalties, not with taxes.” “[A] court must be blind not to see that the so-called tax is imposed to stop the employment of children within the age limits prescribed.” Taft said that the court must commit itself to the highest law of the land and the duty of the court, even though it requires them to refuse legislation designed to promote the highest good. He went on to say that the good sought in unconstitutional legislation leads citizens and legislators down a dangerous path of breaching the constitution and recognized standards. In addition, Congress could take control of many areas of public interest, which the States have control over reserved by the Tenth Amendment, by enacting regulating subjects and enforcing them by a so-called “tax.” This would break down the constitutional limitations on Congress and eliminate the sovereignty of States. A tax is a source of revenue for the government, while a penalty is a regulation and punishment for a certain behavior.
Previously, in Hammer v. Dagenhart
, 247 U. S. 251, the Court ruled a law prohibiting the transportation in interstate commerce of goods manufactured with child labor was unconstitutional. After the court rejected both attempts by Congress to regulate child labor, Congress proposed a constitutional amendment which would give the national government the power to regulate and prohibit child labor. Unlike most proposed amendments, this did not have a deadline for state’s ratification. The proposed amendment eventually failed to achieve ratification, as many states passed their own child labor laws, making a federal amendment unnecessary. In addition, in 1938, Congress enacted Section 212 of the Fair Labor Standards Act
which prohibited the transportation of goods in interstate commerce made from "oppressive child labor."
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
ruled the 1919 Child Labor Tax Law unconstitutional as an improper attempt by Congress to penalize employers using child labor. The Court indicated that the tax imposed by the statute was actually a penalty in disguise.
The Court later abandoned the philosophy underlying the Bailey case. For example, see United States v. Kahriger
United States v. Kahriger
United States v. Kahriger, 345 U.S. 22 , was a United States Supreme Court ruling that held certain provisions of the Revenue Act of 1951 were constitutional, in particular sections related to an occupational tax on persons involved in gambling....
, 345 U.S. 22 (1953), overruled on other grounds, Marchetti v. United States, 390 U.S. 39 (1968).
Background
On February 24, 1919, CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
passed the Child Labor Tax Law which imposed an excise tax of 10 percent on the net profits of a company that employed children. The law defined child labor as “under the age of sixteen in any mine or quarry, and under the age of fourteen in any mill, cannery, workshop, factory, or manufacturing establishment.” The definition also included the use of children between the ages of fourteen and sixteen who worked more than eight hours a day or more than six days a week, or who worked between the hours of 7:00 p.m. and 6:00 a.m.”
Drexel was a furniture manufacturing company in North Carolina.
On September 21, 1921, a collector from the Bureau of Internal Revenue (now the Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
) assessed $6,312.79 in excise taxes for employing a child under fourteen during the 1919 tax year. Drexel paid the tax under protest and sued for a refund.
Procedural history
Drexel’s main argument was that the tax was an unconstitutional attempt to regulate manufacturing. The United States argued that the statute as an indirect taxIndirect tax
The term indirect tax has more than one meaning.In the colloquial sense, an indirect tax is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax...
did not need to meet a standard as long as it was geographically uniform. In addition, the government contended that the tax was merely an excise tax
Excise
Excise tax in the United States is a indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are far from uniform throughout the United States...
levied by Congress under its broad power of taxation under Article One of the Constitution. The lower court ruled in favor of the company.
Issue presented
Did Congress violate the Constitution by passing the Child Labor Tax Law as a means to regulate or eliminate child labor, a power reserved to the states under the Tenth AmendmentTenth Amendment to the United States Constitution
The Tenth Amendment to the United States Constitution, which is part of the Bill of Rights, was ratified on December 15, 1791...
?
Holding
Chief Justice Taft's Court declared the tax on child labor was unconstitutional because it was a penalty, not a tax, on employment of children. In addition, the Child Labor Tax Law is a regulation on businesses instead of a tax.Reasoning
Taft argued the law describes a set course for businesses and when they deviate from that course, a payment is enacted. Taft said, “ScientersScienter
Scienter is a legal term that refers to intent or knowledge of wrongdoing. This means that an offending party has knowledge of the "wrongness" of an act or event prior to committing it. For example, if a man sells a car to his friend with brakes that do not work, and he does not know about the...
are associated with penalties, not with taxes.” “[A] court must be blind not to see that the so-called tax is imposed to stop the employment of children within the age limits prescribed.” Taft said that the court must commit itself to the highest law of the land and the duty of the court, even though it requires them to refuse legislation designed to promote the highest good. He went on to say that the good sought in unconstitutional legislation leads citizens and legislators down a dangerous path of breaching the constitution and recognized standards. In addition, Congress could take control of many areas of public interest, which the States have control over reserved by the Tenth Amendment, by enacting regulating subjects and enforcing them by a so-called “tax.” This would break down the constitutional limitations on Congress and eliminate the sovereignty of States. A tax is a source of revenue for the government, while a penalty is a regulation and punishment for a certain behavior.
Implications
One possible criticism is that the decision in Drexel was a reversal of the Supreme Court’s position on excise taxes since the early 19th century and that this decision is out of line with Supreme Court rulings before and after. As a general rule, the court repeatedly favored the federal power to tax. In other cases, the court has upheld Congress’s excise tax on narcotics, marijuana, and firearms. Even with the firearms case, the Court admitted the law was unmistakably a legislative purpose to regulate rather than tax.Previously, in Hammer v. Dagenhart
Hammer v. Dagenhart
Hammer v. Dagenhart, 247 U.S. 251 , was a United States Supreme Court decision involving the power of Congress to enact child labor laws...
, 247 U. S. 251, the Court ruled a law prohibiting the transportation in interstate commerce of goods manufactured with child labor was unconstitutional. After the court rejected both attempts by Congress to regulate child labor, Congress proposed a constitutional amendment which would give the national government the power to regulate and prohibit child labor. Unlike most proposed amendments, this did not have a deadline for state’s ratification. The proposed amendment eventually failed to achieve ratification, as many states passed their own child labor laws, making a federal amendment unnecessary. In addition, in 1938, Congress enacted Section 212 of the Fair Labor Standards Act
Fair Labor Standards Act
The Fair Labor Standards Act of 1938 is a federal statute of the United States. The FLSA established a national minimum wage, guaranteed 'time-and-a-half' for overtime in certain jobs, and prohibited most employment of minors in "oppressive child labor," a term that is defined in the statute...
which prohibited the transportation of goods in interstate commerce made from "oppressive child labor."
See also
- List of United States Supreme Court cases, volume 259
- Lochner eraLochner eraThe Lochner era is a period in American legal history in which the Supreme Court of the United States tended to strike down laws held to be infringing on economic liberty or private contract rights, and takes its name from a 1905 case, Lochner v. New York. The beginning of the period is usually...
- Lochner v. New YorkLochner v. New YorkLochner vs. New York, , was a landmark United States Supreme Court case that held a "liberty of contract" was implicit in the due process clause of the Fourteenth Amendment. The case involved a New York law that limited the number of hours that a baker could work each day to ten, and limited the...
(1905)