In the case of South Carolina v. Bailey in 1932, the U.S Supreme Court ruled that a state cannot tax federal securities. The State of South Carolina had imposed an inheritance tax on the estate of a resident who owned United States bonds at his death. The executor of this estate, Bailey, challenged this taxation as unconstitutional under Article VI Supremacy Clause and Section 3701 Revised Statutes which exempted these bonds from state or local taxation except for estate or inheritance taxes. However, the Supreme Court held that even though Congress has allowed states to impose such taxes on other types of property within their jurisdiction, it did not mean they could do so with respect to Federal obligations like government bonds. Therefore, any attempt by a state to levy such taxes was deemed invalid due to its conflict with federal law and policy.

In the dissenting opinion for South Carolina v. Bailey, it was argued that the majority's decision to uphold a state law requiring cotton growers to reduce their acreage in order to stabilize prices infringed upon individual rights and exceeded states' police powers. The dissenting justices believed that this law violated the 14th Amendment by depriving individuals of property without due process of law. They contended that while states have broad authority under their police powers, these powers do not extend so far as to allow them to control how much of a particular crop an individual can grow on his or her private land. This type of regulation, they argued, is more akin to economic planning than legitimate exercise of police power aimed at protecting public health or safety. Therefore, they concluded that such laws are unconstitutional intrusions into personal liberty and property rights.