In the 1945 case of Cherry Cotton Mills, Inc. v. United States, the Supreme Court ruled on a matter concerning federal taxation and bankruptcy law. The issue at hand was whether or not unpaid taxes could be collected from a bankrupt company's estate before other creditors were paid back their debts owed by the company. Cherry Cotton Mills had declared bankruptcy and still owed substantial sums in income and excess profits tax to the government for years prior to its declaration of bankruptcy. The court held that under Section 64b(7) of the Bankruptcy Act, these unpaid taxes constituted expenses necessary for preserving an insolvent corporation’s estate within six months preceding filing for reorganization under Chapter X (formerly section 77B). Therefore, they should be given priority over claims made by general unsecured creditors when distributing assets from a debtor's estate during liquidation proceedings in bankruptcy cases.

In the dissenting opinion for Cherry Cotton Mills, Inc. v. United States, Justice Robert H. Jackson argued that the majority's decision to uphold a tax on excess profits was an overreach of Congressional power and violated principles of fairness in taxation. He contended that Congress had exceeded its constitutional authority by imposing a retroactive tax increase without providing taxpayers with any warning or opportunity to adjust their behavior accordingly. Furthermore, he believed this action undermined confidence in the stability and predictability of federal tax laws, which could have negative implications for economic activity and investment decisions going forward. In his view, such arbitrary changes in law were more characteristic of "despotic" governments than democratic ones committed to upholding individual rights and liberties.