In McCulloch v. Maryland (1819) the Supreme Court ruled that Congress had implied powers under the Necessary and Proper Clause
of Article I, Section 8 of the Constitution to create the Second Bank
of the United States and that the state of Maryland lacked the power to
tax the Bank. Arguably Chief Justice John Marshall's
finest opinion, McCulloch not only gave Congress broad discretionary
power to implement the enumerated powers, but also repudiated, in
ringing language, the radical states' rights arguments presented by
counsel for Maryland.
At issue in the case was the constitutionality of the act of Congress
chartering the Second Bank of the United States (BUS) in 1816. Although
the Bank was controlled by private stockholders, it was the depository
of federal funds. In addition, it had the authority to issue notes
that, along with the notes of states' banks, circulated as legal tender.
In return for its privileged position, the Bank agreed to loan the
federal government money in lieu of taxes. State banks looked on the
BUS as a competitor and resented its privileged position. When state
banks began to fail in the depression of 1818, they blamed their
troubles on the Bank. One such state was Maryland, which imposed a
hefty tax on "any bank not chartered within the state." The Bank of the
United States was the only bank not chartered within the state. When
the Bank's Baltimore branch refused to pay the tax, Maryland sued James
McCulloch, cashier of the branch, for collection of the debt. McCulloch
responded that the tax was unconstitutional. A state court ruled for
Maryland, and the court of appeals affirmed. McCulloch appealed to the U.S. Supreme Court, which reviewed the case in 1819.
