My Northwestern colleague, Steve Calabresi, asked me to post this on his behalf:
In an earlier post on the Volokh Conspiracy, I described Professors Akhil Reed Amar’s and Vikram David Amar’s disagreement with an amicus brief that former Attorney General Edwin Meese III, Professor Gary Lawson, and I filed in Moore v. United States. An issue in that case is whether a wealth tax is a “direct tax”, which has to be apportioned among the states according to their respective populations. The Amar brothers claim that the only things that are direct taxes are capitation (head) taxes and land taxes. They say falsely that on their side they have George Washington, Alexander Hamilton, the three Supreme Court justices who wrote opinions in the 1796 case, Hylton v. United States, 3 U.S. 171, Abraham Lincoln, and Chief Justice John Roberts. I completely and totally disagree.
First, all that George Washington did or said that is relevant to this case is that he asked Alexander Hamilton to defend in the Supreme Court a federal tax statute that said it imposed a duty, which is an indirect tax, on the use of carriages, which in the 1790’s were luxury goods subject to duties in England and Massachusetts. Washington expressed no opinion whatsoever on the line between direct and indirect taxes.
Second, Alexander Hamilton himself said in his brief for the United States in Hylton v. United States, 3 U.S. (3 Dall.) 171 (1796) that:
“The following are presumed to be the only direct taxes.
Capitation or poll taxes.
Taxes on lands and buildings.
General assessments, whether on the whole property of individuals, or on their whole real or personal estate; all else must of necessity be considered as indirect taxes.”
In other words, Alexander Hamilton himself said that wealth taxes were direct taxes in Hylton. Now to be fair to the Amar brothers, it is true that on other occasions Hamilton said direct taxes were only capitations or land taxes, but Hamilton was the most nationalist member of the Philadelphia Constitutional Convention. He favored a President and a Senate that served for life terms; the abolition of the states; and the federal appointment of “territorial” governors. Alexander Hamilton was without a doubt the most nationalist of the Framers at Philadelphia, and even he admitted that a wealth tax was a direct tax in his brief in Hylton v. United States.
Third, the Amar brothers left out of their brief the following very relevant statement by Justice Samuel Chase:
“As it was incumbent on the plaintiff’s counsel in error, so they took great pains to prove that the tax on carriages was a direct tax: but they did not satisfy my mind. *** I think, an annual tax on carriages for the conveyance of persons, may be considered as within the power granted to congress to lay duties [which are indirect taxes]. *** I am inclined to think, but of this I do not give a judicial opinion, that the direct taxes contemplated by the constitution, are only two, to wit, a capitation *** and a tax on land.”
Justice Chase thus went out of his way to say that the very language in his opinion which the Amar brothers rely on is dicta and not the holding.
Fourth, the Amar brothers say nothing at all about the understanding in the state ratifying conventions at a time when the proceedings at the Philadelphia Convention were still a deeply kept secret. The Philadelphia proceedings were kept a secret on purpose so that the original understanding by the Thirteen State Ratifying Conventions of the Philadelphia Convention’s text would prevail over the private intentions of the Framers of the Constitution. Astonishingly, the Amar brothers even tout as a virtue the fact that one of the three justices to render an opinion, in Hylton, Justice William Paterson, the author of the failed New Jersey Plan at the Philadelphia Constitutional Convention, attended and knew what had happened at the Philadelphia Ratifying Convention, and then broke the Convention’s secrecy rules about its own deliberations! Support from such a duplicitous loser at Philadelphia would seem to count against and not in favor of reliance on the miscreant’s actions.
The Amar brothers rely on Justice Patterson who grouses about his loss at the Philadelphia Convention to southerners who were worried about northern taxation of slaves and undeveloped land in the South. But, Justice Patterson specifically says that
“If congress, for instance, should tax, in the aggregate or mass, things that generally pervade all the states in the Union, then, perhaps, the rule of apportionment would be the most proper, especially if an assessment was to intervene. This appears to be the practice of some of the states, to have been considered as a direct tax. Whether it be so, under the constitution of the United States is a matter of some difficulty; but as it is not before the court, it would be improper to give any decisive opinion upon it.”
Justice Iredell says only that since the carriage tax cannot be apportioned, it must be a duty, which is what Congress called it when it was passed, i.e. an indirect tax. He never directly says that direct taxes are only capitations or land taxes.
In any event, Hylton was a feigned case over which the Supreme Court did not even have jurisdiction. Brief of Amici Curiae Former Attorney General Edwin Meese III and Professors Steven G. Calabresi and Gary S. Lawson Supporting Petitioners at 26-27.
What really matters is what was said and understood at the state ratifying conventions since it was those conventions, and not the back room deals that were made about slavery at Philadelphia, which made the Constitution the supreme law of the land. Future Chief Justice John Marshall speaking at the Virginia Ratifying convention said: “The objects of direct taxes are well understood.” Marshal listed them as “Lands, slaves, stock [i.e., business capital] of all kinds, and a few other articles of domestic property.” Future Chief Justice Oliver Ellsworth speaking at the Connecticut Ratifying Convention said that targets of direct taxes included (he did not say “were limited to” the “tools of a man’s business … necessary utensils of his family” thus corroborating Marshall’s references to “stock” and “domestic property.” After the Pennsylvania Ratifying Convention, delegates in the Anti-Federalist minority, which cared deeply about the direct/indirect taxes line, issued a statement that identified the subjects of direct taxes as those on polls (as confirmed by the Constitution) and on “land, cattle, trades, occupations, etc.” The “Federal Farmer”, a highly regarded Anti-Federalist paper lists as objects of Congress power of direct taxation, “polls, lands, houses, labour, etc.” See generally, Robert Natelson, What the Constitution Means by “Duties, Imposts, and Excises” – and “Taxes” (Direct or Otherwise), 66 Case West. L. Rev. 297, 308-09 (2015). See also Erik M. Jensen, The Apportionment of “Direct Taxes”: Are Consumption Taxes Constitutional?, 97 Colum. L. Rev. 2334 (1997).
Abraham Lincoln correctly believed, along with the Meese, Calabresi, and Lawson amicus brief, that federal income taxes were indirect taxes because they involved a transaction where a man sells his labor for a price. In general, direct taxes are those, which fall “straight” on a person like a capitation or wealth tax, and indirect taxes are those that fall on a “transaction” like a tariff, a sales tax, a gift tax, an income tax, or a transaction.
The Constitution uses the words “Duties, Imposts, and Excises – all of which are subject to the rule of uniformity, not apportionment—as being in the words of the Hylton v. United States opinion writers “indirect taxes.”
Samuel Johnson’s 1755 Dictionary of the English Language defines the word “indirect” in the phrase ‘indirect taxes” to have the following undesirable meanings in the 1790’s:
[indirect, Fr. indirectus, Lat.]
1. Not strait; not rectilinear.
2. Not tending otherwise than obliquely or consequentially to a point; as, an indirect accusation.
3. Wrong; improper.
The tender prince
Would fain to have come with me to meet your grace;
But by his mother was perforce with-held.
—— Fy, what an indirect and peevish course
Is this of hers?
Shakespeare’s Richard III.
4. Not fair; not honest.
Think you, that any means under the sun
Can assecure so indirect a course?
Daniel’s Civil War.
Those things which they do know they may, upon sundry indirect considerations, let pass; and although themselves do not err, yet may they deceive others.
O pity and shame! that they who to live well
Enter’d so fair, should turn aside, to tread
Indirect dealing will be discovered one time or other, and then he loses his reputation.
A federal wealth tax, like a capitation, or federal real estate tax would fall “straight” upon the taxpayer, and it would not fall in a “rectilinear” or “oblique” way. Indirect taxes are on transactions like importing goods; paying a sales tax; inheriting money; receiving a gift of money; or exchanging your labor for a salary. This is why Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429 (1895), which held that rental income from land, was a direct tax was wrongly decided and elicited such a cry of concern from the left, the right, and the center in American politics. In the wake of that decision, many leftists called for abolishing the. direct/indirect line in the Taxation Clause altogether.
President William Howard Taft deliberately and knowingly chose a much narrower formulation for the Sixteenth Amendment – one that is consistent with Taft’s constitutional philosophy.
“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Nothing in here about authorizing wealth taxes, Professor Bruce Ackerman. Nothing in here , Professor Ackerman, about taxing unrealized capital gains in violation of Eisner v. Macomber, 252 U.S. 189 (1920). See Brief amici curiae of Professors of Law and Linguistics in support of neither party filed Sept. 6, 2023.
The linguistics-oriented amicus brief just cited uses a corpus linguistics approach to the original understanding of “We the People” who ratified the Sixteenth Amendment, which reveals that it covered only realized capital gains. I understand that the original understanding of tax law professors, in 1913, was that income was any accretion to wealth, but the people who made the Sixteenth Amendment law understood it as requiring realization of capital gains. Sorry again, Professor Ackerman, but Eisner v. Macomber, 252 U.S. 189 (1920) was rightly decided given the original public meaning of the Sixteenth Amendment!
The Amar brothers are right that a few people at the Framing, like Justice Chase, in his Hylton v. United States dicta expected as an original matter that the Direct Taxes Clauses would be applied only to capitations and land taxes. But, a few people at the Framing thought the Commerce Clause was only about trade and barter and not about recreational traveling by land or boat, with or without lottery tickets, across state lines. And, more than a few people—in fact most people—expected when the Equal Protection Clause was enacted that it was somehow consistent with segregated public schools and laws against interracial marriage.
Today, we realize that it is gross error to rely on the original expected applications of the Constitution as opposed to the plain meaning of its text. Jack Balkin, Living Originalism (2011). This is true of the text in clauses that granted power, like the Commerce; Necessary and Proper; and Taxation Clauses, see National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012) (which is correct as to the Commerce, Necessary and Proper, and Taxation Clauses). The tax penalty for failing to buy health insurance in NFIB v. Sebelius only kicked in for those who owed more than some $43,000 a year on their income taxes, which are exempted from the requiring of “apportionment among the several States, and without regard to any census or enumeration.” U.S. Const. amdm. XVI.
The plain meaning of the text obviously trumps original expected applications that school segregation, or anti-miscegenation laws, are consistent with the birth equality conferred by Section 1 of the Fourteenth Amendment. Akhil Reed Amar, America’s Constitution, A Biography 349-392 (2005). And, for the same reasons, the original meaning of “direct” taxes as being all such taxes that fall straight on an individual and not on a transaction trump Justice Samuel Chases sloppy original expectation, expressed only in what he admits is dicta, that “direct taxes” are only land and capitation taxes. Other taxes, like a wealth tax, fall straight upon a person as well as capitation and land taxes.
“We must remember that it is a Constitution we are expounding. McCullough v. Maryland, 17 U.S. 316 (1819). “Let the requirement that direct taxes be apportioned be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.” Id. Prohibiting a national wealth tax without apportionment according to the census, is plainly adopted to achieving the end of the Direct Tax Clauses. Such a prohibition consists with “the letter and spirit of the constitution” and is thus appropriate as that word is defined in McCullough v. Maryland.