United States v. Butler, 297 U.S. 1; 56 S. Ct. 312; 80 L. Ed. 477 (1936)
Facts—In accordance with the Agricultural Adjustment Act of 1933, the secretary of agriculture ordered the payment of crop reduction benefits on cotton. To meet these, processing taxes were levied on the processors. The act provided also for the levying of taxes upon existing stocks of floor goods that would have been subject to processing taxes had the law been effective earlier. The receiver for a Massachusetts cotton mill, the Hoosac Mills Corporation, attacked the constitutionality of these processing and floor taxes.
Question—Is this processing tax on agricultural products a proper exercise of the federal taxing power?
Decision—No.
Reasons—J. Roberts (6–3). The act invaded the rights reserved to the states. It was a statutory plan to regulate and control agricultural production that was beyond the power delegated to the federal government. “Resort to the taxing power to effectuate an end which is not legitimate, not within the scope of the constitution, is obviously inadmissible.”
The tax was based on the general welfare clause of the Constitution. This limits rather than enlarges the power to tax. The law took money from one group for the benefit of another group. This was not a tax.
The act was not optional; it forced the farmer to comply with it under threat of financial ruin. Congress cannot invade state jurisdiction to compel individual action. “At best it is a scheme for purchasing with federal funds submission to federal regulation of a subject reserved to the states.”
J. Stone’s dissent emphasized the need for judicial self-restraint and for limiting itself to a review of the constitutionality rather than the wisdom of legislation.
Note— In Mulford v. Smith, 307 U.S. 38 (1939), the Court practically, if not formally, overruled Butler.