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McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), was a landmark U.S. Supreme Court decision that defined the scope of the U.S. Congress's legislative power and how it relates to the powers of American state legislatures. The dispute in McCulloch involved the legality of the national bank and a tax that the state of Maryland imposed on it. In its ruling, the Supreme Court established firstly that the "Necessary and Proper" Clause of the U.S. Constitution gives the U.S. federal government certain implied powers that are not explicitly enumerated in the Constitution, and secondly that the American federal government is supreme over the states, and so states' ability to interfere with the federal government is restricted.
The court determined that the federal government had the right and power to establish a federal bank and that states lacked the ability to tax the federal government. Marshall arrived at the judgment that "the power to tax includes the right to destroy" after the Federal Government prevailed in the case.
The shared governance system between the federal and state governments is referred to as federalism. It is easier to understand how the states and the federal government negotiate the balance of power because they each have both exclusive and concurrent powers. The U.S. Constitution grants only a limited number of powers to the federal government, leaving all remaining powers in the hands of the states. Local governments are established by state governments, who also give them some authority inside their borders. Federalism restricts the scope of government by dividing it into two sovereign powers the federal government and the state governments—and limiting the influence of each. The separation of powers pits one arm of the government against another, assigns each branch specific duties, and calls for them to share power, all of which create internal restraints.
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