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James Ely: The Direct Tax Clauses Revisited
Michael Ramsey

James W. Ely (Vanderbilt University - Law School) has posted ‘One of the Safeguards of the Constitution:’ The Direct Tax Clauses Revisited (Brigham-Kanner Property Rights Journal, Volume 12) (79 pages) on SSRN.  Here is the abstract:

This article investigates the direct tax clauses of the Constitution, which require that such taxes levied by Congress must be apportioned among the states according to population. In practice, the apportionment rule was cumbersome and discouraged reliance on direct taxes as a source of federal revenue. Proposals for a federal tax on wealth have triggered renewed interest in the direct tax provisions. This article examines the history and purpose of the direct tax clauses, and takes a new look at the heading judicial opinions interpretating these provisions.

The framers of the Constitution were well aware of the need for Congress to raise revenue independently of the states. At the same time, the United States had just emerged from the Revolutionary War, a struggle caused in large part by a dispute over the power to impose taxation. Consequently, the framers were also concerned to prevent abuses of the authority to levy taxes. They were particularly fearful of direct taxation which fell squarely on the party being taxed, and so the Constitution restricted reliance on such forms of taxation by the apportionment requirement. The framers envisioned that Congress would primarily impose indirect tax on consumable items, and reserve any direct taxes for emergencies. Clearly they regarded the restriction on direct taxation was important. It bears emphasis that the apportionment rule is the only restriction on Congress to be placed twice in the Constitution.

The crucial distinction was between direct and indirect taxation. The Constitution itself offers meagre guidance and debates at the constitutional convention and state ratifying convention were sketchy. At issue in Hylton v. United States, a contrived case submitted on a set of fictitious facts, was the validity of a congressional tax on carriages, The Court found the levy to be indirect and thus constitutional without apportionment. The three justices who authored opinions, however, in problematic dicta, adopted a narrow understanding of direct taxes, suggesting that the only direct taxes were capitation taxes and taxes on land. Although these questions were not before the Court, this dicta was treated as a definitive interpretation of the direct tax clauses throughout much of the nineteenth century.

Challenges to the 1894 income tax caused the Supreme Court to make a fresh examination of the history and purpose of the constitutional limitations on direct taxes. In Pollock v. Farmers’ Loan & Trust Company a divided Court struck down the income tax as an unapportioned direct tax. Adopting a boarder reading of the constitutional provisions, it reasoned that taxes on personal property as well as on land, and the income therefrom, were direct. The Sixteenth Amendment, adopted in 1913, authorized Congress to levy income taxes without apportionment, but did not abrogate the direct tax clause with respect to other levies..

The historical record points to the conclusion that a tax on existing wealth is a direct tax and therefore unconstitutional unless apportioned among the states according to population.