Summarize this.
After the War of 1812, the U.S. government needed to borrow money to pay off war debts. At this time in history, each state had its own bank. This meant that the U.S. government had to work with multiple state banks to borrow money. To solve this problem, in 1816 Congress decided to set up the Second Bank of the United States with branches in multiple states. Many of the states opposed the national bank because it meant that their state banks had to compete with the national bank for business.
Many states were unhappy with the Second Bank of the United States. One of those states was Maryland. To show its unhappiness, Maryland passed a law that required the national bank to pay a heavy tax to the state of Maryland. This was a move to destroy the Baltimore branch of the Second Bank of the United States. James McCulloch, cashier of the Baltimore branch, had to pay a $15,000 annual tax. When McCulloch refused to pay the tax, a Maryland court convicted him and fined him $2,500. He appealed the decision to the Maryland Court of Appeals and lost again. The dispute then ended up in the Supreme Court of the United States, with Chief Justice John Marshall presiding.
Did Congress have the power to establish a national bank?
McCulloch Argument:
Congress debated the creation of the national bank a few years ago. Members of Congress believed they had the right to create the Second Bank of the United States, citing the Necessary and Proper Clause (Article I, Section 8, Clause 18). The members believed that the bank was a "necessary and proper" way for Congress to conduct the financial operations of the nation. Congress referred to these as "implied powers," stating that the Constitution only provides a framework and cannot specifically outline every detail of national operations.
Maryland Argument:
The Constitution does not directly grant the power to charter a national bank. It is also not an implied power. Therefore, Congress did not have the right to establish a national bank. The states should determine the right to establish a bank.
Was the Maryland law that taxed nationally chartered banks unconstitutional, interfering with federal powers?
McCulloch Argument:
The Supremacy Clause (Article VI, Clause 2) states that federal law takes priority over state law. The bank is a federal function which no state may interfere. If Maryland can tax the national bank, it could interfere enough to cause the bank to close.
Maryland:
Maryland is a sovereign state; it has the right to tax individuals and businesses in its state borders.
The Judgement
The Supreme Court unanimously (7–0) ruled in favor of McCulloch and the federal government. The case was important because it established a precedent for the relationships between the federal government and the state governments. It stated that the federal government had powers the Constitution did not list, known as implied powers. These implied powers granted Congress the constitutional right to establish a national bank. They said that states had the power to tax within their borders. However, the state of Maryland did not have the power to tax a federal establishment. Maryland's decision to tax the national bank was an attempt to destroy the bank. The state challenged the supremacy of federal power.