Mr. Root:  May I ask the Senator from Texas if I am right in inferring from the statement which he has just made that he does not seriously question the constitutional power of the Congress to impose this tax on corporations?

Mr. Bailey:  Mr. President, I answer the Senator frankly that I do not....  I think the rule was and is that Congress can levy any tax it pleases except an export tax.  Of course a direct tax must be apportioned and an indirect tax must be uniform.  But the uniformity rule simply requires that wherever the subject of taxation is found, the tax shall operate equally upon it.

I believe that Congress can tax all red-headed men engaged in a given line of business if it pleases....  I have no doubt if the tax fell upon every red-headed man in Massachusetts the same as in Mississippi or Texas and all other states, the law imposing such a tax would be perfectly valid.

[Footnote 1:  Congressional Record for July 6, 1909, pp. 4251 to 4252.]

The difficulty with this reasoning is that it overlooks the fact that the privilege of being red-headed is not a franchise granted by a sovereign state.  From the viewpoint of constitutional law it may well be that Congress can tax a privilege conferred by the gods where it would be powerless to tax a franchise granted by the Legislature of New Jersey.

XI

THE CORPORATION TAX DECISION

The immediate consequences of the decision of the United States Supreme Court[1] affirming the constitutionality of the federal corporation tax are so slight that its profound significance is likely to be overlooked.  Until it was merged with the general income tax the exaction was not burdensome and proved easy of collection.  The thing upon which it fell—­the privilege of doing business in a corporate capacity—­is an abstraction which makes little appeal to the sympathies or the moral sense.  The public, more concerned with present conditions than with the passing of a theory, is indifferent.

[Footnote 1:  Flint v.  Stone Tracy Co., 220 U.S., 107]

Thus it has sometimes been with the turning points in the affairs of nations.  They came quietly and without observation, and it remained for the historians to mark the actual parting of the ways.

The Supreme Court holds, and in its opinion reiterates many times, that the tax is upon the privilege of doing business in a corporate capacity.

Right here is the crux of the matter.  Corporate capacity is not a right granted by the National Government.  It is something which Congress can neither give nor take away.  In the division of powers which marked the creation of our dual government the power to confer corporate capacity was reserved to the states.  The decision, therefore, comes to this:  Congress can by taxation burden the exercise of a privilege which only a state can grant.  And the power to tax, it must be remembered, involves the power to destroy.  This seems a long step from the theory of the men who founded the Republic.