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V. CONSTITUTIONALITY AND LEGALITY

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The Supreme Court of the United States has repeatedly held that mining and manufacture is not "commerce" within the meaning of the interstate-commerce clause in the Constitution and therefore not within the jurisdiction of the Federal Government. Even if the products of mines or manufacture ultimately find themselves in the channels of interstate commerce as an instance to their distribution or sale, their productive operations are not subject to Federal jurisdiction. Their actual instrumentalities of transportation, if interstate, may be subject to Federal control, but this does not change the rule as to their operations. However, in this connection, an important fact is that approximately 65 percent of our total production of captive-mine coal is used and consumed within the State of its production.

It is, therefore, submitted that the ownership and operation of captive-coal mines, viewed either as mining or as an integrated part of manufacture, are not subjects of Federal jurisdiction and that, therefore, this bill is unconstitutional.

These summarized conclusions of law can be easily substantiated by a multitude of Supreme Court and other decisions, if desired, but no attempt will be here made to argue the constitutional aspects of the bill. Our effort has been to demonstrate the impracticability and injustices of the bill and its failure to even serve its intended and declared purpose in respect to captive mines, but we would be remiss in our duty if we did not call attention to its clear unconstitutionality.

(Information referred to is as follows:) SCHEDULE A.--Schedule of United States Steel Corporation and Subsidiaries

Captive Coal Mine production in each district provided in S. 1417 compared to total district production, 1929 to 1933, inclusive

DISTRICT 1. H. C. FRICK COKE CO., PENNSYLVANIA; LORAIN STEEL CO.,

PENNSYLVANIA

Year

Total district

production

H, C. Frick

Coke Co. production

Lorain Steel Co. production

Percent of our captive-mine

production

1929
1930.
1931.
1932
1933

102, 479, 381
86, 043, 409
66, 998, 650
50, 270, 662
53, 919, 762

17,015, 646
12, 828, 170
7, 142, 760
3, 146, 214
4, 507, 400

165, 481
146, 392
121, 898

95, 352
109, 623

16.7 15.0 10.8 6.4 8.6

DISTRICT 2. NATIONAL MINING CO., PENNSYLVANIA; SHARON COAL & LIMESTONE

CO., PENNSYLVANIA

Year

Total district

production

National Mining Co. production

Sharon Coal

Percent of our & Limestone Co. pro

captive-mine duction

production

1929
1930.
1931.
1932.
1933

50, 254, 766
45, 924, 515
36, 791, 291
29, 632, 133
30, 925, 495

1, 295, 750
1, 542, 465
1, 474, 851

887, 152
904, 214

328, 593
326, 166
333, 823
188, 859
257, 969

3. 2 4.1 4.9 3.6 3.8

Year:

1929 1930. 1931.

DISTRICT 3. AMERICAN SHEET & TIN PLATE CO., OHIO

Company production Year: 145, 529

1932. 114, 039

1933. 63, 186

Company production 35, 257 62, 639

SCHEDULE A.-Schedule of United States Steel Corporation and Subsidiaries

Captive Coal Mine production in each district provided in S. 1417 compared to total district production, 1929 to 1933, incluiive-Continued

DISTRICT 6. UNITED STATES COAL & COKE CO., WEST VIRGINIA

STATEMENT OF M. F. GALLAGHER, CHICAGO, REP

THE INDIANA COAL TRADE BUREAU

Year

Total district
production

United States
Coal & Coke
Co. produc-

tion

Percent of our
captive-mino
production

Mr. GALLAGHER. Mr. Chairman, my name is M. F. G my address is 231 South La Salle Street, Chicago. I am am appearing in behalf of the Indiana Coal Trade B Indiana Coal Trade Bureau requested that I make a constitutional questions involved in the pending measure a statement briefly discussing the ground of what we con stitutionality.

The first question which naturally arises in connectior the other measure is the constitutional power of the Cong

1929, 1930. 1931. 1932. 1933.

57, 289, 000 51, 047, 000 43, 572, 000 36, 940,000 42, 020,000

4, 871, 275
2, 909, 281
1, 470, 049

564, 420
1, 255, 000

8.5 5.7 3.4 1.5 3.0

DISTRICT 7. UNITED STATES COAL & COKE CO., KENTUCKY

1929. 1930. 1931 1932. 1933.

46, 304, 737 40, 513, 563 32, 161, 643 26, 166, 116 28, 996, 515

2, 491, 638
2, 619, 055
1, 763, 783

568, 580
1, 129, 997

5.4 6.5 5.5 2.2 3.8

DISTRICT 9. TENNESSEE COAL, IRON & RAILROAD CO., ALABAMA

Year

Estimated total district production

Tennessee
Coal, Iron &
Railroad Co.
production

Percent of our
captive-mine
production

the law.

The power of the Congress to enact this law must be d derived at all

, from the commerce clause. The comme the Federal Constitution has been considered by the Su in a number of important decisions in connection w industry; and that Court has repeatedly held that the coal is a local and intrastate operation, and its regula exclusively to the States.

In the case of Heisler v. Thomas Colliery Co., 260 U Court considered this question in view of an argument made that 80 percent of the coal which was being produc shipped outside the State of Pennsylvania, and it was arç production of the coal in Pennsylvania was necessarily a state commerce, because there could be no interstate that coal unless it was produced. But the Supreme C that contention, and held that the production of coal wi even though that coal is intended for interstate shipme and intrastate operation.

Now, the language of the Supreme Court in that cases to apply directly to the measure which you have underc The Court said:

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Its possibility, or, indeed, the certainty, of exportation of a pro from a State, determines it to be interstate commerce before the cor its movement from the State, it would seem to follow that it is in from the instant of its growth or production; and in the case of co in the ground.

Senator MINTON. That has been in the record, Mr. 6 your information, and it will not be necessary for you further. You may argue from it anything you like.

Mr. GALLAGHER. În two other districts, one where was indicted for impeding the production of coal, the inc quashed because the production of coal, under a dec Supreme Court, was not interstate commerce.

Coal mining is not interstate commerce, says the Sup and the power of Congress does not extend to its regulatic

Now, there are several other cases to that effect, but I an attempt to bring the coal operators under this law imposition of a tax with a drawback in the event they Federal code. Stiline to l'1 ?

Court i child-labor cases, where a 10-percent tax was levied on of factories in which children were employed; and the Suy

Senator NEELY. The subcommittee will adjourn until 2:30.
(Whereupon, at 12:40 p. m., a recess was taken until 2:30 p. m.)

That same question arose before the chill!

AFTERNOON SESSION The subcommittee reconvened at the expiration of the recess, 2:30 p. m.

Senator NEELY. Mr. Gallagher is recognized.

STATEMENT OF M. F. GALLAGHER, CHICAGO, REPRESENTING

THE INDIANA COAL TRADE BUREAU

Mr. GALLAGHER. Mr. Chairman, my name is M. F. Gallagher and my address is 231 South La Salle Street, Chicago. I am a lawyer and am appearing in behalf of the Indiana Coal Trade Bureau. The Indiana Coal Trade Bureau requested that I make a study of the constitutional questions involved in the pending measure and present a statement briefly discussing the ground of what we consider unconstitutionality.

The first question which naturally arises in connection with this or the other measure is the constitutional power of the Congress to enact the law.

The power of the Congress to enact this law must be derived, if it is derived at all, from the commerce clause. The commerce clause of the Federal Constitution has been considered by the Supreme Court in a number of important decisions in connection with the coal industry; and that Court has repeatedly held that the production of coal is a local and intrastate operation, and its regulation belongs exclusively to the States.

In the case of Heisler v. Thomas Colliery Co., 260 U. S., 245, the Court considered this question in view of an argument strenuously made that 80 percent of the coal which was being produced was being shipped outside the State of Pennsylvania, and it was argued that the production of the coal in Pennsylvania was necessarily a part of interstate commerce, because there could be no interstate commerce in that coal unless it was produced. But the Supreme Court rejected that contention, and held that the production of coal within a State, even though that coal is intended for interstate shipment, is a local and intrastate operation.

Now, the language of the Supreme Court in that case seemed to me to apply directly to the measure which you have under consideration. The Court said:

Its possibility, or, indeed, the certainty, of exportation of a product or article from a State, determines it to be interstate commerce before the commencement of its movement from the State, it would seem to follow that it is in such commerce from the instant of its growth or production; and in the case of coals, as they lie in the ground.

Senator MINTON. That has been in the record, Mr. Gallagher, for your information, and it will not be necessary for you to quote it further. You may argue from it anything you like.

Mr. GALLAGHER. In two other districts, one where a labor union was indicted for impeding the production of coal, the indictment was quashed because the production of coal, under a decision of the Supreme Court, was not interstate commerce.

Coal mining is not interstate commerce, says the Supreme Court, and the power of Congress does not extend to its regulation as such.

Now, there are several other cases to that effect, but here we have an attempt to bring the coal operators under this law through the imposition of a tax with a drawback in the event they accept the Federal code.

That same question arose before the Supreme Court in one of the child-labor cases, where a 10-percent tax was levied on the products

, of factories in which children were employed; and the Supreme Court

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held that indirect, coercive tax was, in fact, the regulation of manufacture and was invalid as manufacture and production within the State are not within the regulatory power of the Congress.

Senator MINTON. What would you say about the levying of that tax, if it were admitted, which was levied against something against the power of Congress to regulate? For instance, suppose it was within the power of Congress to regulate the coal industry within the commerce clause,

Mr. GALLAGHER. I would say that the tax would then be unconstitutional on another ground, which I will discuss later. I am going to deal specifically with that under another amendment of the Constitution. It is a direct tax, and, that being apportioned among the States according to population, directly contravenes a positive provision of the Constitution.

Assuming that Congress had the constitutional power to regulate the production of coal within the States, I suggest for your consideration the further proposition that under the provisions of this bill there are many restrictions on the freedom of the owner and operator which, under the decisions of the Supreme Court are a deprivation of liberty without due process of law.

Now, to call an industry a public utility does not make it one. The Supreme Court has said time and time again that that is a matter for judicial inquiry, and, unless in its essence and substance it is a public utility, a declaration to that effect in the statute is unavailing. And the Supreme Court passed on a statute in Kansas which held that coal or fuel was a public utility, and declared that that declaration of the Kansas legislature was ineffective because the business of producing and selling coal was no more affected with a public interest than numerous other commercial activities which the Court mentions in its opinion.

The Court in later cases referes to that case and again in the case dealing with the manufacture and sale of artificial ice which was declared in Oklahoma to be a public utility, the Court held the enactment void.

Now, here we have a statute which singles out the production of coal and describes it as a public utility and then proceeds with an extensive and detailed regulation of the business as to wages, working hours, conditions of employment, and prices, on the theory that it is a public utility.

The Supreme Court, I think, will first consider passing on that, on the question as to whether or not coal in its essence and substance is a public utility; and, if it adheres to its previous decisions, it can only hold that it is not; and, if it is not a public utility, this detailed regulation of the business of the owner and operator must fall, because it deprives him of that freedom in the conduct of his buiness which the Supreme Court say the Constitution was intended to guarantee.

This law cannot function without certain taxes which are provided for in the act. Section 9 of article I of the Federal Constitution provides that direct taxes shall be made in proportion to the census among the various States. You cannot levy a Federal direct tax without spreading it throughout the country according to population,

In the case of Pollock the income tax was held unconstitutional because it was not spread throughout the State according to population. That led to the sixteenth amendment giving Congress the power to levy an income tax.

Now, this 10 cents per ton tax is a direct tax. The measure reads: "A tax of 10 cents per ton on the annual bituminous coal output.

." It is a direct tax on the owner of coal of 10 cents a ton for every ton of coal passing through the tipple, whether it is sold or whether it is consumed at the tipple; whether shipped in commerce or not it is a direct tax of 10 cents a ton on the entire coal output.

Senator Minton. How would the Government justify a tax on gasoline?

Mr. GALLAGHER. That is a sales tax.
Senator MINTON. What is the difference?

Mr. GALLAGHER. It can only be justified on the theory that that is an excise tax levied on the seller of gasoline for the privilege of so doing. Here you have a direct tax, just like a real-estate tax, or a tax on any personal property, a tax of 10 cents per ton on the annual bituminous coal output.

This 25-percent tax seems to be equally subject to the same criticism. It is not a sales tax, although at first reading it might appear to be such. It is a 25-percent tax on coal even though it is produced by the consumer. Coal produced in so-called " 'captive mines" owned by the consumer of that coal is subject to this 25-percent tax.

The Supreme Court has not upheld a Federal sales tax, except in cases of sales on exchanges; and the Supreme Court in upholding a tax on sales on exchanges, such as stock exchanges or boards of trade, has emphasized in so doing that there are certain facilities being used by the vendor of the commodity which justifies Congress in levying an exchange tax on such sales.

The Supreme Court said that a tax upon the privilege of selling property in an exchange and of thus using facilities there offered for making a sale differs radically from a tax on a sale made in any place. The latter tax takes no notice of any kind of privilege or facility, and the fact of a sale alone is regarded.

So if you considered these taxes as sales taxes, and I submit that they cannot be properly considered as sales taxes for the reasons suggested; nevertheless, they would be of doubtful validity. It strikes me that that is an insuperable objection to this law on à constitutional ground that it levies on this industry direct taxes that are not apportioned as required by the Constitution.

There is one other feature of the law that I will briefly mention, and then I am through. It seems to us palpably class legislation. The tax is to be used for two purposes. Forty percent of the amount collected has to go into a sinking fund to be applied to the payment of interest on the redemption of an issue of bonds to be used for the purchase of a national coal reserve. The other 60 percent is to be deposited in a fund and used for the rehabilitation of miners who have been displaced from employment by withdrawal from coal lands under the act. In other words, there is a direct tax of 10 cents per ton on the producers of coal for the purposes of establishing a coal reserve which, presumably, is for the benefit of the entire country.

The measure provides for the purchase and establishment of a coal reserve for use in times of peace and in war, according to the act, and for the benefit of the whole Nation, and it levies the tax for that purpose on a single industry—the coal industry.

Now, take also the matter of the rehabilitation of miners. The measure proposes there a broad social experiment, the care of men out

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