SOUTH CAROLINA v. BAKER, SECRETARY OF THE TREASURY
No. 94, Orig.
Supreme Court of the United States
Argued December 7, 1987-Decided April 20, 1988
485 U.S. 505
Lewis B. Kaden argued the cause for plaintiff-in-intervention National Governors’ Association. With him on the briefs were James D. Liss, Barry Friedman, and Richard B. Geltman.
Solicitor General Fried argued the cause for defendant. With him on the brief were Acting Assistant Attorney General Durney, Deputy Solicitor General Lauber, Andrew J. Pincus, Michael L. Paup, and Francis M. Allegra.*
JUSTICE BRENNAN delivered the opinion of the Court.
Section 310(b)(1) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, 96 Stat. 596,
I
Historically, bonds have been issued as either registered bonds or bearer bonds. These two types of bonds differ in the mechanisms used for transferring ownership and making payments. Ownership of a registered bond is recorded on a central list, and a transfer of record ownership requires entering the change on that list.2 The record owner automatically receives interest payments by check or electronic transfer of funds from the issuer‘s paying agent. Ownership of a bearer bond, in contrast, is presumed from possession and is transferred by physically handing over the bond. The bondowner obtains interest payments by presenting bond coupons to a bank that in turn presents the coupons to the issuer‘s paying agent.
In 1982, Congress enacted TEFRA, which contains a variety of provisions, including § 310, designed to reduce the federal deficit by promoting compliance with the tax laws. Congress had become concerned about the growing magnitude of tax evasion; Internal Revenue Service (IRS) studies indicated that unreported income had grown from an estimated range of $31.1 billion to $32.2 billion in 1973 to a range of $93.3 billion to $97 billion in 1981. Compliance Gap: Hearing before the Subcommittee on Oversight of the Internal
“The committee believes that a fair and efficient system of information reporting and withholding cannot be achieved with respect to interest-bearing obligations as long as a significant volume of long-term bearer instruments is issued. A system of book-entry registration will preserve the liquidity of obligations while requiring the creation of ownership records that can produce useful information reports with respect to both the payment of interest and the sale of obligations prior to maturity through brokers. Furthermore, registration will reduce the ability of noncompliant taxpayers to conceal income and property from the reach of the income, estate, and gift taxes. Finally, the registration requirement may reduce the volume of readily negotiable substitutes for cash available to persons engaged in illegal activities.” S. Rep. No. 97-494, Vol. 1, p. 242 (1982).
Section 310 was designed to meet these concerns by providing powerful incentives to issue bonds in registered form.
South Carolina invoked the original jurisdiction of this Court, contending that § 310(b)(1) is constitutionally invalid under the Tenth Amendment and the doctrine of intergovernmental tax immunity. We granted South Carolina leave to file the instant complaint against the Secretary of the Treasury of the United States, South Carolina v. Regan, 465 U.S. 367 (1984), and appointed as Special Master the Honorable Samuel J. Roberts, 466 U.S. 948 (1984). The National Governors’ Association (NGA) intervened.4 After conducting hearings and taking evidence, the Special Master concluded that § 310(b)(1) was constitutional and recommended
II
We address the claim that § 310(b)(1) violates the Tenth Amendment first.5 South Carolina and the NGA contend, and the Master found, that § 310 effectively requires States to issue bonds in registered form, noting that if States issued bonds in unregistered form, competition from other nonexempt bonds would force States to increase the interest paid on state bonds by 28-35%, and that even though almost all state bonds were issued in bearer form before § 310 became effective, since then no State has issued a bearer bond. Report of Special Master 2, 23-24. South Carolina and the NGA thus argue that, for purposes of Tenth Amendment analysis, we must treat § 310 as if it simply banned bearer bonds altogether without giving States the option to issue nonexempt bearer bonds. The Secretary does not dispute the finding that § 310 effectively requires registration, see Brief for Defendant 19 (urging the Court to adopt all the Master‘s findings), preferring to argue that § 310 survives Tenth Amendment scrutiny because a blanket prohibition by Congress on the issuance of bearer bonds can apply to States without violating the Tenth Amendment. For the purposes of Tenth Amendment analysis, then, we treat § 310 as if it directly regulated States by prohibiting outright the issuance of bearer bonds.6
The Tenth Amendment limits on Congress’ authority to regulate state activities are set out in Garcia v. San Antonio Metropolitan Transit Authority, 469 U. S. 528 (1985). Garcia holds that the limits are structural, not substantive-i. e., that States must find their protection from congressional regulation through the national political process, not through judicially defined spheres of unregulable state activity. Id., at 537-554. South Carolina contends that the political process failed here because Congress had no concrete evidence quantifying the tax evasion attributable to unregistered state bonds and relied instead on anecdotal evidence that taxpayers have concealed taxable income using bearer bonds. It also argues that Congress chose an ineffective remedy by requiring registration because most bond sales are handled by brokers who must file information reports regardless of the form of the bond and because beneficial ownership of registered bonds need not necessarily be recorded.
Although Garcia left open the possibility that some extraordinary defects in the national political process might render congressional regulation of state activities invalid under the Tenth Amendment, the Court in Garcia had no occasion to identify or define the defects that might lead to such invalidation. See id., at 556. Nor do we attempt any definitive articulation here. It suffices to observe that South
B
The NGA argues that § 310 is invalid because it commandeers the state legislative and administrative process by coercing States into enacting legislation authorizing bond registration and into administering the registration scheme. They cite FERC v. Mississippi, 456 U. S. 742 (1982), which left open the possibility that the Tenth Amendment might set some limits on Congress’ power to compel States to regulate on behalf of federal interests, id., at 761-764. The extent to which the Tenth Amendment claim left open in FERC survives Garcia or poses constitutional limitations independent of those discussed in Garcia is far from clear. We need not, however, address that issue because we find the claim discussed in FERC inapplicable to § 310.
Because, by hypothesis, § 310 effectively prohibits issuing unregistered bonds, it presents the very situation FERC distinguished from a commandeering of state regulatory machinery: the extent to which the Tenth Amendment “shields the States from generally applicable federal regulations.” 456 U. S., at 759. Section 310 regulates state activities; it does not, as did the statute in FERC, seek to control or influence the manner in which States regulate private parties. The NGA nonetheless contends that § 310 has commandeered the state legislative and administrative process because many state legislatures had to amend a substantial number of statutes in order to issue bonds in registered form and because state officials had to devote substantial effort to determine how best to implement a registered bond system. Such “commandeering” is, however, an inevitable consequence of regulating a state activity. Any federal regulation demands compliance. That a State wishing to engage in cer-
III
South Carolina contends that even if a statute banning state bearer bonds entirely would be constitutional, § 310 unconstitutionally violates the doctrine of intergovernmental tax immunity because it imposes a tax on the interest earned on a state bond. We agree with South Carolina that § 310 is
The Secretary and the Master, however, suggest that we should uphold the constitutionality of § 310 without explicitly overruling Pollock because § 310 does not abolish the tax exemption for state bond interest entirely but rather taxes the interest on state bonds only if the bonds are not issued in the form Congress requires. In our view, however, this suggestion implicitly rests on a rather mischievous proposition of law. If, for example, Congress imposed a tax that applied exclusively to South Carolina and levied the tax directly on the South Carolina treasury, we would be obligated to adjudicate the constitutionality of that tax even if Congress allowed South Carolina to escape the tax by restructuring its state government in a way Congress found more to its liking. The United States cannot convert an unconstitutional tax into a constitutional one simply by making the tax conditional. Whether Congress could have imposed the condition by direct regulation is irrelevant; Congress cannot employ unconstitutional means to reach a constitutional end. Under Pollock, a tax on the interest income derived from any state bond was considered a direct tax on the State and thus unconstitutional. 157 U. S., at 585-586. If this constitutional rule still applies, Congress cannot threaten to tax the interest on state bonds that do not conform to congressional dictates. We thus decline to follow a suggestion that would force us to embrace implicitly a proposition of law far more controversial than the current validity of Pollock‘s ban on taxing state bond interest, and proceed to address whether Pollock should be explicitly overruled.9
South Carolina cannot bring a facial challenge to § 310 rather than an as-applied challenge.
This general rule was based on the rationale that any tax on income a party received under a contract with the government was a tax on the contract and thus a tax “on” the government because it burdened the government‘s power to enter into the contract. The Court in Pollock borrowed its reasoning directly from the decision in Weston exempting federal bond interest from state taxation:
“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 on the con-tract. The extent of this influence depends on the will of a distinct government. To any extent, however in-considerable, it is a burthen on the operations of gov-ernment. . . . The tax on government stock is thought by this court to be a tax on the contract, a tax on the [government‘s] power to borrow money . . . and consequently to be repugnant to the Constitution.” Pollock, supra, at 586, quoting Weston, supra, at 467, 468.
Thus, although a tax was collected from an independent pri-vate party, the tax was considered to be “on” the government because the tax burden might be passed on to it through the contract. This reasoning was used to define the basic scope of both federal and state tax immunities with respect to all types of government contracts.11 See, e. g., Coronado Oil,
terpreted to confer a greater tax immunity on the Federal Government than on States because all the people of the States are represented in the Federal Government whereas all the people of the Federal Government are not represented in individual States. Helvering v. Gerhardt, 304 U. S. 405, 412 (1938); McCulloch v. Maryland, 4 Wheat. 316, 435-436 (1819); New York v. United States, 326 U. S. 572, 577, and n. 3 (1946) (opinion of Frankfurter, J.). In fact, the federal tax immunity has always been greater than the States’ immunity. The Federal Government, for example, possesses the power to enact statutes immunizing those with whom it deals from state taxation even if intergovernmental tax immunity doctrine would not otherwise confer an immunity. See, e. g., Graves v. New York ex rel. O‘Keefe, 306 U. S. 466, 478 (1939). The States lack any such power. Also, although the Federal Government has always enjoyed blanket immunity from any state tax considered to be “on” the Government under the prevailing methodology, the States have never enjoyed immunity from all federal taxes considered to be “on” a State. See infra, at 523, and n. 14. To some, Garcia v. San Antonio Metropolitan Transit Authority, 469 U. S. 528 (1985), may suggest further limitations on state tax immunity. We need not, however, decide here the extent to which the scope of the federal and state immunities differ or the extent, if any, to which States are currently immune from direct nondiscriminatory federal taxation. It is enough for our purposes that federal and state tax immunity cases have always shared the identical methodology for determining whether a tax is “on” a government, and that this identity has persisted even though the methodology for both federal and state immunities has changed as intergovernmental tax immunity doctrine shifted into the modern era. See Graves, supra, at 485.
The rationale underlying Pollock and the general immunity for government contract income has been thoroughly repudiated by modern intergovernmental immunity case law. In Graves v. New York ex rel. O‘Keefe, 306 U. S. 466 (1939), the Court announced: “The theory . . . that a tax on income is legally or economically a tax on its source, is no longer tenable.” Id., at 480. The Court explained:
“So much of the burden of a non-discriminatory general tax upon the incomes of employees of a government, state or national, as may be passed on economically to that government, through the effect of the tax on the price level of labor or materials, is but the normal incident of the organization within the same territory of two governments, each possessing the taxing power. The burden, so far as it can be said to exist or to affect the government in any indirect or incidental way, is one which the Constitution presupposes. . . .” Id., at 487.
See also James v. Dravo Contracting Co., 302 U. S. 134, 160 (1937) (the fact that a tax on a Government contractor “may increase the cost to the Government . . . would not invalidate the tax“); Helvering v. Gerhardt, 304 U. S. 405, 424 (1938). The thoroughness with which the Court abandoned the burden theory was demonstrated most emphatically when the Court upheld a state sales tax imposed on a Government
“The Government, rightly we think, disclaims any contention that the Constitution, unaided by Congressional legislation, prohibits a tax exacted from the contractors merely because it is passed on economically, by the terms of the contract or otherwise, as part of the construction cost to the Government. So far as such a non-discriminatory state tax upon the contractor enters into the cost of the materials to the Government, that is but a normal incident of the organization within the same territory of two independent taxing sovereignties. The asserted right of the one to be free of taxation by the other does not spell immunity from paying the added costs, attributable to the taxation of those who furnish supplies to the Government and who have been granted no tax immunity. So far as a different view has prevailed, we think it no longer tenable.” Id., at 8-9 (citations omitted).
King & Boozer thus completely foreclosed any claim that the nondiscriminatory imposition of costs on private entities that pass them on to States or the Federal Government unconstitutionally burdens state or federal functions. Subsequent cases have consistently reaffirmed the principle that a nondiscriminatory tax collected from private parties contracting with another government is constitutional even though part or all of the financial burden falls on the other government. See Washington v. United States, 460 U. S. 536, 540 (1983); United States v. New Mexico, 455 U. S. 720, 734 (1982); United States v. County of Fresno, 429 U. S. 452, 460-462, and n. 9 (1977); United States v. City of Detroit, 355 U. S. 466, 469 (1958).
With the rationale for conferring a tax immunity on parties dealing with another government rejected, the government
In sum, then, under current intergovernmental tax immunity doctrine the States can never tax the United States directly but can tax any private parties with whom it does business, even though the financial burden falls on the United States, as long as the tax does not discriminate against the United States or those with whom it deals. See Washington, supra, at 540; County of Fresno, supra, at 460-463; City of Detroit, supra, at 473; Oklahoma Tax Comm‘n, supra, at 359-364. A tax is considered to be directly on the Federal Government only “when the levy falls on the United States itself, or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities.” New Mexico, supra, at 735. The rule with respect to state tax immunity is essentially the same, see, e. g., Graves, supra, at 485; Mountain Producers Corp., supra, at 386-387, except that at least some nondiscriminatory federal taxes can be collected directly from the States even though a parallel state tax could not be collected directly from the Federal Government.14 See generally n. 11, supra.
New York v. United States, 326 U. S. 572 (1946). See id., at 579-581, 583 (opinion of Frankfurter, J., joined by Rutledge, J.); id., at 586 (Stone, C. J., concurring, joined by Reed, Murphy, and Burton, JJ.); id., at 591 (Douglas, J., dissenting, joined by Black, J.). Two Justices reasoned that any nondiscriminatory tax on a State was constitutional, even if directly collected from the State. See id., at 582-584 (Frankfurter, J., joined by Rutledge, J.). Four other Justices declined to hold that every nondis-criminatory tax levied directly on a State would be constitutional because “there may be non-discriminatory taxes which, when laid on a State, would nevertheless impair the sovereign status of the State quite as much as a like tax imposed by a State on property or activities of the national govern-ment. Mayo v. United States, 319 U. S. 441, 447-448 (1943). This is not because the tax can be regarded as discriminatory but because a sovereign government is the taxpayer, and the tax, even though non-discriminatory, may be regarded as infringing its sovereignty.” 326 U. S., at 587 (Stone, C. J., concurring, joined by Reed, Murphy, and Burton, JJ.) (emphasis added) (the cited discussion from Mayo stressed the difference between levying a tax on a government and on those with whom the government deals); see also 326 U. S., at 588 (“Only when and because the subject of taxation is State property or a State activity must we consider whether such a non-discriminatory tax unduly interferes with the performance of the State‘s functions of government“). The four Justices then concluded that the tax at issue was constitutional even though directly levied on the State because recognizing an immunity would “accomplish a withdrawal from the taxing power of the nation a subject of taxation of a nature which has been traditionally within that power from the beginning.” Ibid. We need not concern ourselves here, however, with the extent to which, if any, States are currently immune from direct federal taxation. See n. 11, supra. For our purposes, the important principle New York reaffirms is that the issue whether a nondiscriminatory federal tax might nonetheless violate state tax immunity does not even arise unless the Federal Govern-ment seeks to collect the tax directly from a State.
TEFRA § 310 thus clearly imposes no direct tax on the States. The tax is imposed on and collected from bondhold-ers, not States, and any increased administrative costs in-curred by States in implementing the registration system are not “taxes” within the meaning of the tax immunity doctrine. See generally United States v. Mississippi Tax Comm‘n, 421 U. S. 599, 606 (1975) (describing tax as an enforced contribu-tion to provide for the support of government). Nor does § 310 discriminate against States. The provisions of § 310 seek to assure that all publicly offered long-term bonds are issued in registered form, whether issued by state or local
States at the mercy of a congressional power to destroy them via excessive taxation. Post, at 533-534. The nondiscrimination principle at the heart of modern intergovernmental tax immunity case law does not leave States unprotected from excessive federal taxation-it merely recognizes that the best safeguard against excessive taxation (and the most judicially manage-able) is the requirement that the government tax in a nondiscriminatory fashion. For where a government imposes a nondiscriminatory tax, judges can term the tax “excessive” only by second-guessing the extent to which the taxing government and its people have taxed themselves, and the threat of destroying another government can be realized only if the taxing gov-ernment is willing to impose taxes that will also destroy itself or its constituents.
IV
Because the federal imposition of a bond registration re-quirement on States does not violate the Tenth Amendment and because a nondiscriminatory federal tax on the interest earned on state bonds does not violate the intergovernmental tax immunity doctrine, we uphold the constitutionality of § 310(b)(1),16 overrule the exceptions to the Special Master‘s Report, and approve his recommendation to enter judgment for the defendant.
It is so ordered.
JUSTICE KENNEDY took no part in the consideration or decision of this case.
JUSTICE STEVENS, concurring.
Although the Court properly finds support for its holding in Garcia v. San Antonio Metropolitan Transit Authority,
JUSTICE SCALIA, concurring in part and concurring in the judgment.
I join in the Court‘s judgment, and in its opinion except for Part II. I do not join the latter because, as observed by THE CHIEF JUSTICE, post, at 529-530, it unnecessarily casts doubt upon FERC v. Mississippi, 456 U. S. 742 (1982), and be-cause it misdescribes the holding in Garcia v. San Antonio Metropolitan Transit Authority, 469 U. S. 528 (1985). I do not read Garcia as adopting-in fact I read it as explicitly dis-claiming-the proposition attributed to it in today‘s opinion, ante, at 512-513, that the “national political process” is the States’ only constitutional protection, and that nothing ex-cept the demonstration of “some extraordinary defects” in the operation of that process can justify judicial relief. We said in Garcia: “These cases do not require us to identify or define what affirmative limits the constitutional structure might impose on federal action affecting the States under the Commerce Clause. See Coyle v. Oklahoma, 221 U. S. 559 (1911).” 469 U. S., at 556 (emphasis added). I agree only that that structure does not prohibit what the Federal Gov-ernment has done here.
CHIEF JUSTICE REHNQUIST, concurring in the judgment.
Today the Court reaches two results regarding § 310(b)(1) of TEFRA that I believe are analytically distinct. First, the Court finds that § 310(b)(1) does not violate the Tenth Amendment by compelling States to issue bonds in regis-tered form. Second, the majority concludes that the statute
The Special Master appointed by the Court made a number of factual determinations about the impact that the TEFRA registration requirements would have upon the States. Most notably, the Special Master found that the registration requirements have had no substantive effect on the abilities of States to raise debt capital, on the political processes by which States decide to issue debt, or on the power of the States to choose the purpose to which they will dedicate the proceeds of their tax-exempt borrowing. After an exhaus-tive investigation, the Special Master summarized: “TEFRA has not changed how much the States borrow, for what pur-poses they borrow, how they decide to borrow, or any other obviously important aspect of the borrowing process.” Re-port of Special Master 118.
This well-supported conclusion that § 310(b)(1) has had a de minimis impact on the States should end, rather than begin, the Court‘s constitutional inquiry. Even the more expansive conception of the Tenth Amendment espoused in National League of Cities v. Usery, 426 U. S. 833 (1976), recognized that only congressional action that “operate[s] to directly dis-place the States’ freedom to structure integral operations in areas of traditional governmental functions,” runs afoul of the authority granted Congress. Id., at 852. The Special Master determined that no such displacement has occurred through the implementation of the TEFRA requirements; I see no need to go further, as the majority does, to discuss the possibility of defects in the national political process that spawned TEFRA, nor to hypothesize that the Tenth Amend-
JUSTICE O‘CONNOR, dissenting.
The Court today overrules a precedent that it has honored for nearly 100 years and expresses a willingness to cancel the constitutional immunity that traditionally has shielded the interest paid on state and local bonds from federal taxation. Henceforth the ability of state and local governments to fi-nance their activities will depend in part on whether Con-gress voluntarily abstains from tapping this permissible source of additional income tax revenue. I believe that state autonomy is an important factor to be considered in review-ing the National Government‘s exercise of its enumerated powers. Garcia v. San Antonio Metropolitan Transit Au-thority, 469 U. S. 528, 581 (1985) (O‘CONNOR, J., joined by Powell and REHNQUIST, JJ., dissenting). I dissent from the decision to overrule Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429 (1895), and I would invalidate Congress’ at-tempt to regulate the sovereign States by threatening to deprive them of this tax immunity, which would increase their dependence on the National Government.
Section 310(b)(1) of the Tax Equity and Fiscal Responsi-bility Act of 1982 (TEFRA),
The Court never expressly considers whether federal tax-ation of state and local bond interest violates the Constitu-tion. Instead, the majority characterizes the federal tax exemption for state and local bond interest as an aspect of intergovernmental tax immunity, and it describes the decline of the intergovernmental tax immunity doctrine in this cen-tury. But constitutional principles do not depend upon the rise or fall of particular legal doctrines. This Court has a continuing responsibility “to oversee the Federal Govern-ment‘s compliance with its duty to respect the legitimate in-terests of the States.” Garcia, supra, at 581 (O‘CONNOR, J., joined by Powell and REHNQUIST, JJ., dissenting). In my view, the Court shirks its responsibility because it fails to inquire into the substantial adverse effects on state and local governments that would follow from federal taxation of the interest on state and local bonds.
Long-term debt obligations are an essential source of fund-ing for state and local governments. In 1974, state and local governments issued approximately $23 billion of new munici-pal bonds; in 1984, they issued $102 billion of new bonds. Report of Special Master 20. State and local governments rely heavily on borrowed funds to finance education, road construction, and utilities, among other purposes. As the Court recognizes, States will have to increase the interest rates they pay on bonds by 28-35% if the interest is subject to the federal income tax. Ante, at 511. Governmental op-
In the pivotal cases which first set limits to intergovern-mental tax immunity, this Court paid close attention to the practical effects of its decisions. The Court limited the government‘s immunity only after it determined that appli-cation of a tax would not substantially affect government operations. Thus in the first case to uphold federal income taxation of revenue earned by a state contractor, this Court observed that “neither government may destroy the other nor curtail in any substantial manner the exercise of its pow-ers.” Metcalf & Eddy v. Mitchell, 269 U. S. 514, 523-524 (1926). When this Court extended its holding to the case of a state tax on a federal contractor, it expressly noted that the tax “does not interfere in any substantial way with the performance of federal functions.” James v. Dravo Con-tracting Co., 302 U. S. 134, 161 (1937). In upholding the application of the federal income tax to income derived from a state lease, this Court decided that mere theoretical con-cerns about interference with the functions of government did not justify immunity, but that “[r]egard must be had to substance and direct effects.” Helvering v. Mountain Pro-ducers Corp., 303 U. S. 376, 386 (1938). In Helvering v. Gerhardt, 304 U. S. 405 (1938), this Court upheld the appli-cation of the federal income tax to income earned by a state employee, because there is “[no] immunity when the burden on the state is so speculative and uncertain that if allowed it would restrict the federal taxing power without affording any corresponding tangible protection to the state government.” Id., at 419-420.
The instant case differs critically from the cases quoted above because the Special Master found that, if the interest on state and local bonds is taxed, the cost of borrowing by state and local governments would rise substantially. This
I do not think the Court‘s bipartite test adequately accom-modates the constitutional concerns raised by the prospect of applying the federal income tax to the interest paid on state and local bonds. This Court has a duty to inquire into the devastating effects that such an innovation would have on state and local governments. Although Congress has taken a relatively less burdensome step in subjecting only income from bearer bonds to federal taxation, the erosion of state sovereignty is likely to occur a step at a time. “If there is any danger, it lies in the tyranny of small decisions-in the prospect that Congress will nibble away at state sovereignty, bit by bit, until someday essentially nothing is left but a gut-ted shell.” L. Tribe, American Constitutional Law 381 (2d ed. 1988).
Federal taxation of state activities is inherently a threat to state sovereignty. As Chief Justice Marshall observed long ago, “the power to tax involves the power to destroy.” McCulloch v. Maryland, 4 Wheat. 316, 431 (1819). Justice Holmes later qualified this principle, observing that “[t]he power to tax is not the power to destroy while this Court sits.” Panhandle Oil Co. v. Mississippi ex rel. Knox, 277 U. S. 218, 223 (1928) (Holmes, J., joined by Brandeis and Stone, JJ., dissenting). If this Court is the States’ sole pro-tector against the threat of crushing taxation, it must take seriously its responsibility to sit in judgment of federal tax initiatives. I do not think that the Court has lived up to its constitutional role in this case. The Court has failed to en-force the constitutional safeguards of state autonomy and
Notes
Similarly, JUSTICE O‘CONNOR would have us judge the constitutionality of each tax imposing an indirect burden on state and local governments by determining whether the tax had “substantial” adverse effects on those governments. Post, at 531-533. We fail to see how this substantiality test distinguishes taxes on state bond interest from taxes on state employ-ees’ salaries. More importantly, we disagree with JUSTICE O‘CONNOR‘S apparent assumption that if this Court does not undertake the open-ended and administratively daunting inquiry required by her test, we leave“There is not, and there cannot be, any unchanging line of demarcation between essential and non-essential governmental functions. Many gov-ernmental functions of today have at some time in the past been non-governmental. The genius of our government provides that, within the sphere of constitutional action, the people-acting not through the courts but through their elected legislative representatives-have the power to determine as conditions demand, what services and functions the public welfare requires.” Id., at 546, quoting Gerhardt, 304 U. S., at 427 (Black, J., concurring).