Joseph J. Thorndike is a contributing editor for Tax Notes.
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In 1819 Chief Justice John Marshall famously observed that "the power to tax is the power to destroy."1 But does Congress have a license to destroy at will? For two centuries, Americans have been debating that question, and lawmakers have seen their power ebb and flow with the vagaries of judicial and political opinion. One important episode in this long-running argument unfolded 90 years ago, when Congress tried to regulate child labor, and the Supreme Court said no.
The Progressive era, spanning the late 19th and the early 20th centuries, saw a surge in social reform movements. Most were led by well-heeled elites eager to relieve the plight of less fortunate neighbors. Progressives attacked any number of social ills and economic abuses, including poverty, political corruption, and economic monopolies.
Child labor was a favorite target for Progressive reformers. Children had always been a mainstay of the rural workforce, laboring alongside their parents to feed their families and prepare commodities for sale. But the Industrial Revolution transformed the image and reality of child labor. While Americans had embraced the image of a young child at work in the family field, they recoiled at the sight of children on the factory floor.
Over the course of the early 1900s, reformers organized to slow the spread of child labor. In 1904 they established the National Child Labor Committee, a quintessentially Progressive umbrella group dedicated to social reform. They also worked hard to mobilize public opinion, using techniques of mass communication and artistic persuasion (including the photographs of Lewis Hine, one of which accompanies this article).
In most parts of the country, lawmakers were willing to impose new limits on child labor. But Southern lawmakers proved reluctant, as local factory owners insisted that child labor was necessary if nascent Southern industries were going to compete with more established manufacturers in the North.2
Eventually, however, even the Southern states fell in line, with most barring labor by children under age 12 and limiting the number of hours for those above the cutoff. But critics insisted that such limited regulation was inadequate. Even worse, the rules were poorly enforced. In 1909 one survey found that 91.7 percent of mills operating in South Carolina were violating even the weak child labor regulations then in place.3
Increasingly, reformers looked to the federal government for help. In 1916 Congress responded with the Keating-Owen Act, which prohibited interstate trade in goods produced using child labor. The law barred children under 16 from working in mines and children under 14 from any other sort of factory work. It also prohibited children between the ages of 14 and 16 from working more than 8 hours a day, 6 days a week, or between the hours of 7 p.m. and 6 a.m.4
Southern mill owners were angry, insisting that Northern manufacturers were using the child labor regulations to kill off competition from low-wage Southern factories. More to the point, they argued that the law was unconstitutional. The 10th Amendment reserved to the states the power to regulate local manufacturing, they contended. The commerce clause could not be used to usurp this authority.
Mill owners soon found a federal judge who agreed. Judge James Edmund Boyd from the western district of North Carolina obligingly declared the law unconstitutional, and in June 1918, the Supreme Court agreed in a 5-4 decision. "Over interstate transportation, or its incidents, the regulatory power of Congress is ample," the Court declared, "but the production of articles, intended for interstate commerce, is a matter of local regulation."5
Undaunted by this rebuff, reformers turned to the federal government's power to tax, which most believed could shoulder the constitutional burden of regulating local business. The Court had previously accepted the regulatory use of taxation, even when a tax was clearly and transparently designed for nonrevenue purposes. The federal tax on oleomargarine, for instance, had been upheld in 1904, even though it was established solely to protect butter producers from competition by margarine producers.6
Meanwhile, the Child Bureau at the U.S. Labor Department reported that canneries were stepping up their employment of child workers. While inspecting 270 canneries in Maryland and Virginia, the agency found 1,094 workers under the age of 14. "The conditions under which the children worked," reported The New York Times, "were found to be generally bad, their hours of employment irregular, and the camps in which they lived unsanitary and crowded."7
Those reports spurred Congress to action. Sen. Atlee Pomerene, D-Ohio, introduced an amendment to the Revenue Act of 1918 imposing a 10 percent tax on the net profits of any company that violated child labor standards (using the same guidelines as the Keating-Owen law). Opponents objected that Congress couldn't use its taxing power to accomplish something the Court had already rejected when done using the commerce clause. Otherwise, as one opponent declared, the tax power "may become the Frankenstein which will utterly destroy all other constitutional powers and limitation, and will finally change both the form and substance of the government, after devouring the Constitution itself."8
Those complaints fell on deaf ears in Congress. The Revenue Act of 1918 (which was actually passed and signed in early 1919), imposed a 10 percent penalty tax on any company that employed workers under the age of 14 or put those between 14 and 16 to work for more than 8 hours a day. (The measure did, however, exempt employers who had, in good faith, accepted a bogus proof of age. Such deceptions were not uncommon because many parents were eager to put their children to work.)
Once again, Southern factory owners moved quickly to protect their cheap labor supply. They returned to the courtroom of Judge Boyd, the same federal judge who had invalidated the 1916 child labor law. On May 2, 1919, Judge Boyd found the new tax unconstitutional. And once again, the Supreme Court agreed.9
Writing for an 8-1 majority in May 1922, Chief Justice William Howard Taft argued that the government's power to tax could not be used to sidestep other restrictions on federal authority. "To give such magic to the word 'tax' would be to break down all constitutional limitation of the powers of Congress and completely wipe out the sovereignty of the states," he wrote.
The decision was a severe blow to opponents of child labor. They had lost several of the votes from the 1916 decision, including the court's leading Progressive, Justice Louis Brandeis. It would take more than a decade for the Court to rethink its stance on federal authority generally -- and the taxing power in particular. For most of the 1920s, with Republicans ascendant in the federal government, the Court's conservatism remained of more theoretical than practical interest. When the Great Depression prompted lawmakers to experiment with a range of unorthodox policy innovations, however, the justices again took center stage. The New Deal redefined the scope of federal authority, including the regulatory use of taxation. But before the expanded federal state could find a permanent place in American society, a new set of justices would have to loosen the court's definition of federal power.
1 McCulloch v. Maryland, 17 U.S. 316 (1819).
2 R. Alton Lee, A History of Regulatory Taxation, 125 (1973).
3 Id. at 126.
4 Id. at 128.
5 Hammer v. Dagenhart, 247 U.S. 251 (1918).
6 "State Rights and the Child Labor Tax Law," 22 Colum. L. Rev. 660 (1922).
7 "New Child Labor Measure," The New York Times, Nov. 16, 1918, p. 12.
8 Lee, supra note 2, at 133.
9 Bailey v. Drexel Furniture Co., 259 U.S. 20 (1922).
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