City of Spokane v. Fed. Nat'l Mortg. Ass'n, No. 13-35655 (9th Cir. Dec. 30, 2014).
Here is a case whose outcome seems to be dictated by one of the Supreme Court’s most important decisions, McCulloch v. Maryland, issued nearly two centuries ago. There, the Supreme Court upheld congressional power to charter the Second Bank of the United States, and, in addition, held that Maryland could not constitutionally tax the Bank. It was that second holding that prompted Chief Justice Marshall’s famous dictum, “the power to tax involves the power to destroy”—a dictum often misquoted as “the power to tax is the power to destroy.” To this misquotation, Justice Holmes later responded, “The power to tax is not the power to destroy while this Court sits.”
The present case is about Fannie Mae and Freddie Mac, which were federally chartered enterprises designed to expand the secondary market for mortgages. Bailed out by the federal government in 2008, they are now defunct. The City of Spokane, however, says they should have paid their local excise taxes, but did not. To counter this claim, Fannie and Freddie’s conservator, the Federal Housing Finance Agency, relies on federal statutes providing that Fannie Mae and Freddie Mac were exempt from state and local excise taxes. In response, Spokane says that Congress didn’t have the power to enact those exemptions.
The Ninth Circuit, relying in large part on McCulloch, says that because Congress had the power under the Commerce Clause to create Fannie and Freddie, Congress also had the power under the Necessary and Proper Clause to exempt Fannie and Freddie from local taxes: “a power to create implies a power to preserve,” including to preserve from taxes. Nor do the exemptions violate the Tenth Amendment. If they did, McCulloch would have come out differently.