27 Argument for the United States. Mr. Sumners frankly stated that the sixth classification, the political subdivisions, implied proceedings that would be unconstitutional under the Ashton case. He felt, however, it was not only the right, but the duty of Congress to present the question once more to this Court, since the decision, if allowed to stand, threatened grave impairment to the powers of the States, in that it forbade them to authorize their political subdivisions to enter into bankruptcy proceedings. The case before this Court does not involve the sixth subdivision, but involves subdivision 1, so that if it be held that the law is constitutional in its application to this particular district, even though it could be held unconstitutional as applied to districts covered by subdivision 6, we are entitled to prevail. The power to legislate on the subject of bankruptcies frequently has been passed upon by this Court. And the constitutional development of this clause at the hands of this Court in over a century has followed out the general conception of the breadth and sweep of that power as it seems to have been entertained at the time the power was given. The whole method and purpose of bankruptcy has changed with that century of interpretation. Bankruptcy as it existed at the time, and as it existed in the first Bankruptcy Act passed by the Federal Government in 1800, was a remedy of the creditor, a further remedy, against the debtor. It is now a new opportunity in life, and a clear field for further efforts to the bankrupt, unhampered by the pressure and discouragement of preexisting debts. Certainly if that is the purpose of this Act, no reason appears why it should be extended to private debtors and not to public debtors. Many subdivisions of the bodies which composed the United States at the time of the Constitu 81638-38-3 Argument for the United States. 304 U.S. tional Convention were themselves at that time in default, and in need, but there was no suggestion that public debtors should be excluded from the benefits of the bankruptcy power, although, we must grant, at that time the bankruptcy power was conceived to be a narrower power than it has since become. There is equal urgency for applying this Act to public debtors an urgency equal to any that has ever existed for extending it to private debtors. The statistics are in the brief, and I will not dwell upon them at length, but over 2,000 improvement districts. were in default in 1934. Cities as large as Detroit and Miami and Asheville were in default. 41 of the 48 States had defaults within their borders. The defaulted bonds were between one billion and two billion eight hundred million, and in 1938, when the Congress was reconsidering this matter, over 3,000 units of government were found to be in default. The creditors in those cases stood without a practicable remedy. There is usually no property of a district subject to execution. Taxpayers are not personally liable. Mandamus to lay taxes is futile, because it results only in assessments that are defaulted. Tax sales drive down the value of property, and add further tax delinquencies. The experience of those creditors who were themselves largely instrumental in the pressure which brought about the enactment of these Acts-the experience of those creditors was that they were without practicable remedies. This was because, though the only possible remedy was a remedy by agreement, it was almost always subject to defeat. Even though a great majority of the creditors agreed with the district on a practical course to restore some value to the defaulted bonds and to rehabilitate the district so that it could go on and exercise its public functions, any creditor who had a high estimate of the nuisance value of his particular security was in a 27 Argument for the United States. position to block the settlement, which required unanimous action. Therefore the only remedy available to districts, or available to creditors, is the practicable plan of composition, in which nuisance values shall be ruled out, and in which equality of treatment of these creditors will prevail. And it is clear that that power, as attempted to be exercised by this statute, is within the general bankruptcy power of the Congress. It is equally clear it is not within the power of the State. The States granted their power over bankruptcies to the Federal Government. They were expressly forbidden to pass laws impairing the obligation of contracts. It seems impossible to say that a statute of Congress which exercises a power twice denied to the States-denied once by delegation to the Federal Government, and denied once by express prohibition-can be an invasion of States' rights. There is one thing the States can do. The State can connive at repudiation. It can refuse to extend remedies. It can fall back on its power to nullify a contract and refuse to approve. That, neither in point of good finance, nor of good morals, is a desirable situation. In order that the situation may be frankly faced, and that sounder remedies may be practicably applied, there must be an escape from the limitation imposed upon the State, and that escape must be found in the power of the Federal Government. This power not only was delegated to the United States, but it was denied to the States, and it is clear the Tenth Amendment under such circumstances has no function whatever to perform in this case. Once a delegated power is found there is then no room for the operation of the Tenth Amendment. There is then no question of state sovereignty involved, since we have a granted power. Argument for the United States. 304 U.S. Then there is the argument advanced here that from the necessities of our form of government, because of the dual nature of our system, there is a necessity to preserve the independence of the State and to protect its sovereignty, and that therefore this power, even though it be a delegated power, cannot be exercised if it impinges upon what would be called sovereign powers or independent powers of the State. I submit that the Tenth Amendment itself denies that argument. If the Federal Government must point out the delegation of its powers, the Tenth Amendment equally holds the advocates of the rights of sovereignty of the States to the wording of the instrument. It clearly prohibits using the theory of necessity, the theory of the nature of government, or other philosophical reasons, for cutting down granted powers. Now, there is an effort in the brief of our adversary to compare this power with the taxing power, and to hold that because there are certain immunities to the State and to state agencies under the taxing power, a similar immunity must be written into the bankruptcy power. That argument starts by asserting the theory that the bankruptcy power is found in the same subsection of the Constitution as the grant of the taxing power. So are the powers to regulate interstate commerce, and to punish counterfeiters. The taxing and bankruptcy powers are not parallel powers; and no argument based on the one can be applied to the other. The power of the Federal Government to tax is subject to qualification, and the bankruptcy power is not. The power to tax is to provide for the common defense and the general welfare, and hence it may very well be that where you have a plan of which the tax is a part, such as this Court held the Agricultural Adjustment Act to be, or the Child Labor Act, then you are led to an inquiry as to whether the taxing plan itself is local or is general, is national or 117 27 Argument for the United States. is within powers reserved to localities. The very nature of the taxing power, as it exists in the Federal Government, may demand that inquiry; but there is no such qualification in the bankruptcy clause. That requires only uniformity. When we consider immunity as it exists in the States from federal taxes, and as it exists in the Government from state taxation, we are dealing with a totally different thing. The power of taxation derives from the relationship of sovereign and subject. That relationship derived originally from the duty of a sovereign to protect, and from the duty of the subject to assist the sovereign in maintaining that protection. We find no State has assumed such a duty toward the Federal Government; we find no State has assumed a relationship toward the Federal Government which in the nature of the taxing power makes it applicable, one to the other. The very nature of the taxing power implies that it is exerted by the sovereign against the citizen, and not against another governmental body, regardless of whether the relationship is that of an equal sovereign, or that of a subsidiary governmental group. Tax burdens, of course, are involuntary burdens and, as this Court has said, may be destructive. The power to tax may be the power to destroy, and it may be laid. upon a State as a State only when it has assumed that obligation, or if the liability to taxation is to be implied from the nature of the activities of the taxpayer. Bankruptcy is an entirely different kind of power. It is merely the opening, in this case, of a forum to which this State may resort, as we may open a forum to which foreign creditors or foreign debtors may resort. No compulsion upon any State or State agency is here involved. This is a voluntary Act, and it raises no questions under the Eleventh Amendment. |