In Welch v. Henry et al., the U.S. Supreme Court ruled in favor of a Wisconsin law that retroactively taxed dividends received by residents from corporations doing business within the state, even if those dividends were earned before the tax law was enacted. The petitioner, Guy B. Welch, argued that this violated his rights under both due process and equal protection clauses of the Fourteenth Amendment as well as Article I Section 10 of the Constitution which prohibits states from passing any "Law impairing Obligation of Contracts". However, Justice Benjamin N Cardozo writing for majority held that there was no constitutional violation because taxation is not considered an obligation of contract and therefore cannot be impaired by subsequent legislation; moreover it does not violate due process or equal protection principles unless it's so arbitrary and unreasonable to amount to confiscation.

In the dissenting opinion for Welch v. Henry, Justice McReynolds argued that the retroactive application of a state income tax law was unconstitutional. He believed it violated due process rights under the Fourteenth Amendment because taxpayers could not have anticipated or planned for such a change in their financial obligations to the government. The justice also expressed concern about potential abuses of power by legislative bodies if they were allowed to impose taxes retroactively without any limitations on how far back they could reach into citizens' past earnings. This, he felt, would undermine public confidence in taxation systems and potentially destabilize economic conditions as people might be less willing to engage in business activities out of fear that their profits could be unexpectedly taxed at higher rates later on.