A Wealth Taxation Is Constitutional

Calvin H. Johnson

The Constitution, Article I, department 9, clause 4, requires that a “direct tax” must hold upwardly apportioned with the states past times population.   Elizabeth Warren has proposed an annual wealth tax, reaching the charge per unit of measurement of 3% of wealth for those who receive got to a greater extent than than a $1 billion of wealth.
 

 Warren’s wealth taxation would hold upwardly constitutional.   The defining feature of a “direct tax,” according to the Founders, is that it is the sort of taxation inward which apportionment with the states past times population would hold upwardly appropriate too reasonable.    If apportionment with the states past times population is non appropriate too reasonable, the taxation is non a remove tax.
 

The master copy pregnant of “direct tax” was a taxation remove on states, that is, requisitions.  The term “direct tax” expanded, equally linguistic communication oft expands, to include the kinds of province taxes that could hold upwardly used to satisfy province requisitions.  But if a taxation could non hold upwardly reasonably too appropriately apportioned with states past times population, the taxation does non sufficiently resemble a province requisition too so the taxation is non direct.  Thus, for instance a taxation on imports was non a remove taxation because it could non hold upwardly known inward which province the goods would settle too which province should teach credit inward its quota nether a requisition.  Excises, duties too railroad vehicle taxes were 1 time considered remove taxes because they were portion of the organization of requisitions upon the states, but they were excluded from the Definition of “direct tax” 1 time it was known that they did non receive got the necessary reasonable too appropriate apportionability.
 

Today, apportionment of a wealth taxation past times population is non reasonable or appropriate.   Wealth per capita inward misfortunate Mississippi is exactly over one-half of wealth per capita inward rich Maryland.  Apportionment past times population would hateful that taxation rates inward Mississippi would receive got to hold upwardly almost twice the rates inward Maryland.  The final result has no policy justification, but would but arise past times necessity from the fact that Mississippi is such a misfortunate province that is has so petty taxation base of operations over which to spread its quota.  Because apportionment would non hold upwardly reasonable, a taxation on wealth today would non hold upwardly viewed equally remove using the Framers’ master copy reasoning.

The remove taxation authorities was created originally to apportion taxes to reach the relative wealth of the states.  Under the Articles of Confederation, the Congress could non taxation whatever private or transaction. It could enhance revenue alone past times requisitions, remove taxes on the states.   The Articles of Confederation determined province quotas according to the value of existent estate too improvements inside the state.  Pennsylvania pose inward assessments, however, that cutting its quota inward half. The other states thought that Pennsylvania was cheating, trying to pay less than its fair share.
 

In 1783, Congress proposed to amend the Articles past times using the population of the states to create upwardly one's remove heed province quotas for requisitions.  Population was thought at the fourth dimension to hold upwardly at to the lowest degree a fossil oil mensurate of the relative wealth of the states.  People motion to the cities too fertile farm solid ground where wealth is to hold upwardly had, so the to a greater extent than people a province had, the wealthier the province would be.  In allocating province taxation betwixt Philadelphia too the residual of Pennsylvania or betwixt Boston too the residual of Massachusetts, the Framers found, it made no substantial departure whether the province used population or existent estate value.   Because states could too would cheat on existent estate valuations, population was the best guess the Founders had for relative wealth.  The Founders abhorred the thought of a caput tax, or an equal amount of taxation on each person, equally manifestly unjust.  The 1783 proposal was non an effort to require caput taxes equally a way of raising revenue, but rather to create a organization that would reliably attain wealth of the states.
 

There was a difficult struggle inward 1783 betwixt North too South equally to how much slaves contributed to wealth.  The South argued that slaves contributed alone one-half equally much equally complimentary persons did to a state’s wealth, equally demonstrated past times the fact that wage rates inward the South were one-half of wage rates inward the North.  The North argued that slaves contributed at to the lowest degree what complimentary persons did to a state’s wealth because complimentary northern farmers did non proceed to piece of occupation next the offset freeze too northern women did non piece of occupation inward the fields.
 

The 1783 proposal compromised past times counting slaves at three-fifths of a person, both sides despairing of doing whatever better.  The whole 1783 proposal was ultimately vetoed past times New York for an unrelated reason—that the proposal would receive got also imposed a federal customs duty, called the “impost.”   Even so, the 3/5ths ratio was carried over into the Constitution equally a measuring of wealth, because it was a settled compromise betwixt North too South over an intensely fought issue—how best to mensurate province wealth.
 

 The term “direct tax” was coined inward these debates over the 1783 proposal to amend the Articles of Confederation.  Direct taxes were taxes imposed remove on states, that is, requisitions.  The alone indirect taxation inward the 1783 proposal was an impost or custom duty on imports. The Congress viewed the impost equally “indirect” because nobody knew inward which province the imported goods would settle; hence it could non hold upwardly determined which province should teach credit toward paying its requisition quota.
 

Over time, the term, “direct tax,” expanded, equally flexible linguistic communication oft expands, to include the province taxes (other than their imposts) that could hold upwardly used past times the states to  satisfy a requisition upon the state.   Commonly “direct tax” referred to all taxes on dry out land, that is, everything but the imposts.  In 1796, the Treasury made an inventory of “Direct Taxes” to educate for a proposed requisition; this was exactly an inventory of the existing province taxes that would hold upwardly used to satisfy the requisition.   In the debates on constitutional ratification, the speakers could non accurately listing all the province taxes, fifty-fifty for their habitation state, but they did know the functional Definition that remove taxes were the taxes that were portion of the requisition system. 
 

In these debates, however, “direct tax,” never included taxes that could not hold upwardly reasonably apportioned with the states.  The whole betoken of a remove taxation was that it was useful for a requisition.  The offset instance of a taxation that could non easily hold upwardly apportioned past times province was the impost tax, but, the thought of a indirect taxation was consistently employed to refer to all taxes that were effectively non-apportionable.
 

Take the instance of railroad vehicle taxes at number inward the 1796 Supreme Court instance of Hylton v. United States.  Under Hamilton’s hypothetical, New York had 10-times equally many carriages per capita equally Virginia.  Virginia rates on carriages nether a dominion of apportionment past times population thence would receive got to hold upwardly 10-times higher than N.Y. rates because Virginia had besides few carriages.  Carriage taxes were a mutual colonial luxury tax—and they had been listed equally a remove taxation on the Treasury inventory.  But requiring apportionment inward this case, too imposing 10-times higher taxes inward Virginia was absurd.  The railroad vehicle taxation would receive got made no feel if it had to hold upwardly apportioned past times province population.
 

Hylton shows that the thought of a remove taxation was almost functionality, non formalism.  It was to a greater extent than oft than non agreed that apportionment would hold upwardly unworkable.  Did this hateful that the taxation was thence unconstitutional because it was non apportioned?  No—it meant alone that the taxation was non direct!  As Justice Chase’s thought pose it, “the Constitution evidently contemplated no taxes equally remove taxes but alone such equally Congress could lay inward proportion to the census. The dominion of apportionment is alone to hold upwardly adopted inward such cases where it tin reasonably apply.” (emphasis added).  As Justice Iredell pose it, “[a]s all remove taxes must hold upwardly apportioned, it is evident that the Constitution contemplated none equally remove but such equally could hold upwardly apportioned.” The Hylton rationale with the most "cogency too force," equally Justice Joseph Story pose it, was that "no taxation could hold upwardly a remove one, inward the feel of the Constitution, which was non capable of apportionment according to the dominion set downwards inward the Constitution." Because a taxation on carriages could non hold upwardly reasonably apportioned, that meant that it was non a remove taxation equally a affair of law.
 

Each of the Justices in Hylton had participated actively inward the originating debates on apportionment too each contributed at to the lowest degree a few paragraphs to the historical record.  They were the Founders, soundless walking upon this Earth.  They knew the history.
 

Perhaps fifty-fifty to a greater extent than powerful than the Supreme Court inward defining “direct tax,” is that the expert feel reflected inward the acre English linguistic communication language enforced apportionability equally the defining feature of remove tax. 
 

Early inward the ratification debates, of import speakers similar Brutus too the Federal Farmer used “excises” too “duties” equally examples of a remove taxation — they would hold upwardly used past times the states to satisfy requisitions too they were non indirect imposts. John Taylor of Caroline argued earlier the Supreme Court inward Hylton that the railroad vehicle taxation was a remove excise tax.
 

But treating excises too duties equally apportionable was impossible, 1 time the Constitution was adopted.  The Constitution clearly states that excises too duties must receive got uniform rates across all states.  One cannot simultaneously comply with uniform rates inward all states too also apportion the taxation past times province past times population (counting slaves at three-fifths).  The business is impossible, too would hateful that at that topographic point could never hold upwardly a constitutional excise or duty!  One should non translate the acre linguistic communication of the Constitution to demand an impossible result.  Hence excises too duties could non hold upwardly “direct” taxes.   Excises too duties ceased to hold upwardly referred to equally remove taxes 1 time the ordinary speaker of the English linguistic communication language realized they could non hold upwardly apportioned.
 

In 1783, of course, many speakers assumed that taxes on existent estate or wealth could hold upwardly reasonably apportioned. In the 1783 proposal, population was used equally a substitute for existent estate values equally a mensurate of the relative wealth of the states.  Since province population was used equally a mensurate of  state wealth inward the proposal, the supposition was that wealth per capita would hold upwardly equal with the dissimilar states.
 

The Constitutional Convention inward Philadelphia debated whether votes inward the House should hold upwardly apportioned past times wealth or past times population.  There was a large but minority contingent at the Convention who believed that apportionment should hold upwardly past times wealth, offset because wealth would contribute to war, too second, because those who owned the province should run it.  The dispute betwixt those who believed that the House should correspond wealth too that the House should correspond people was settled on the supposition that the wealth too population of states would e'er hold upwardly the truthful mensurate of each other.  For this reason, it is fairly mutual for debaters to beak of taxes on existent estate or wealth taxation equally remove because it was to a greater extent than oft than non assumed that the value of existent estate or full wealth would hold upwardly proportionate to population inward the diverse states.
 

This seems foreign to us today, but at that topographic point is expert ground to remember that it was 1 time a reasonable assumption, specially during the Founding period. Under that assumption, whatever federal wealth or existent estate taxation would obtain revenues from each province roughly proportional to that state’s population (as measured past times the 3/5ths formula).  To hold upwardly sure, the South too North would disagree almost the formula. The South would insist that 3/5ths dominion overcounted, patch the North would insist that it undercounted wealth  But if the population too slave count were sufficiently correct, province requisitions would make the same final result equally a federal existent estate tax.
 

Madison told Hamilton when Hamilton was appointed equally the offset Secretary of the Treasury that nosotros needed a federal existent estate taxation earlier “preoccupancy past times the states became an impediment.” Hamilton did non accept upwardly the suggestion, but the Constitution allowed it if he had.
 

But at some betoken inward history, existent estate too wealth taxes ceased to hold upwardly remove taxes because they could non reasonably too appropriately reverberate apportionment past times population.   Mississippi forthwith would receive got taxation rates, nether apportionment, that would hold upwardly twice the charge per unit of measurement inward Maryland because Mississippi is roughly one-half equally rich too that is non appropriate or reasonable.  Without the feature of reasonable too appropriate apportionability, wealth too existent estate taxes cannot hold upwardly direct.
 

The betoken of the Constitution was non to brand taxes impossible, but to brand them functional too slow to collect.  The Constitution was adopted to supercede the Articles of Confederation because states had ignored their supposedly mandatory calls for requisitions.  The Founders were desperate.  In the adjacent too inevitable war, the Congress would bespeak to borrow again.  It had to keep payments on the state of war debts.  No fatal restrictions on taxation revenue could hold upwardly appropriate, equally Hamilton argued, because emergencies calling for to a greater extent than taxation revenue “cannot hold upwardly fixed or bounded, fifty-fifty inward imagination.”  The thought that Congress wanted to forbid itself from raising federal taxes when it needed them badly misunderstands what the Constitution is about.
 

To hold upwardly sure, the Anti-Federalists opposed a federal remove tax—by which they meant a dry out solid ground or internal taxation other than the impost.  In fact, opposition to a federal remove taxation was the topic most pop to the opposition.  Future President too anti-Federalist James Monroe declared that to homecoming the Constitution condom too proper, he would accept away 1 powerfulness alone – “I hateful that of remove tax.”  But Anti-Federalist opposition to remove taxes had no influence on the Federalists—or on the constitutional text.  The Federalists were non almost to bound the taxing powerfulness past times getting rid of the possibility of levying remove taxes.  As Washington explained to Jefferson inward far-off Paris, if the novel Congress was non to receive got the remove tax, how was it to repay the state of war debts too redeem the Congressional honor?  If it did non receive got the remove tax, the province mightiness equally good revert to the confederation form.
 

Over the adjacent hundred years later Hylton, the Supreme Court held that a taxation on wealth, on income, too on the principal too income of insurance companies were constitutional because apportionment of those taxes past times province population was non reasonable.  Treating reasonable too appropriate apportionability equally the defining feature of remove taxation was settled doctrine, and, moreover, it had rigid roots inward the Founders’ understandings.
 

If yous know nil almost the history or master copy business office of remove tax, so it is slow to misinterpret Article I, department 9, clause 4’s requirement of apportionment past times population.  One mightiness conclude that taxes must collect the same amount of taxation per somebody inward each province (and originally alone 3/5ths of that amount from slaves).   That ignorant misreading makes it audio similar the remove taxation is protecting wealth from an set on past times tax.  That was non the Framers’ purpose. By the Gilded Age, however, protecting wealth from taxation seemed similar a expert thought for the v justices inward the 5-4 bulk inward Pollock v. Farmer’s Trust inward 1895.  The bulk held that the 1894 income taxation was unconstitutional.
 

We forthwith receive got access to meliorate history than Pollock had. Apportionment is a organization to attain wealth, non to protect it.   It is non an private right against taxation but a agency of collecting taxes on wealth that were originally collected through province requisitions. The rules regarding remove taxation were never intended equally an impediment on the taxing powerfulness of the United States.
 

Pollock is also a condemnation of closed reading of the text equally a sufficient the world for constitutional adjudication.   Every reading of the text, ripped from its historical rationale, infuses to a greater extent than of the concerns of the reader a century or to a greater extent than away too less too less of the master copy system.  To the Pollock bulk of 5,  the income taxation was an set on on wealth that the requirement of apportionment would protect us from.  In fact, 1 time yous empathise the history, apportionment was adopted to attain the wealth of the states, non to protect wealth from taxation.   Constitutional interpretation requires a careful digging of the master copy programme too how it functions, which destroys the Pollock interpretation.
 

In whatever case, Pollock is forthwith confined to the dustbin of history.  The Supreme Court itself thereafter creatively distinguished Pollock for every taxation that came earlier it, including taxes that were apparently aimed at wealth.  The 16^th Amendment, endorsed past times 2 thirds of the Congress too iii quarters of the states, pose the terminal smash inward Pollock’s coffin.
 

The Founders believed inward the wealth tax. Apportionment was designed to attain wealth past times taxing states according to a proxy for relative wealth, using the best measuring of wealth that was so available. To plough a requirement designed to locomote inward easier to taxation wealth into a dominion exempting wealth from taxation is to plough the Founders’ pregnant upside down.
 

Calvin H. Johnson is John T. Kipp Chair at the University of Texas Law School. You tin attain him past times email at CJohnson at law.utexas.edu