Hardly anyone agrees with this, but I think the Founders, many of them anyway, thought the apportionment rule for direct taxes wasn’t a glitch. It was intended to be a real limitation on the congressional taxing power; it worked by making direct taxation cumbersome, and often impossible. Many Founders thought direct taxation was dangerous—it lacked built-in protections against governmental overreaching—and it was therefore to be used only in emergencies like war, when revenue needs outweigh other concerns. In ordinary times the government would be funded by taxes on consumption like excises, which don’t have to be apportioned. Apportionment might have been a silly way to prevent abusive taxation, but the rule wasn’t mindless. And no apportioned direct tax has been enacted since 1861.
The Sixteenth Amendment is often said to have given Congress the power to tax income, but Congress always had that power. The question answered by the Amendment was whether an income tax is a direct tax that has to be apportioned. (An apportioned income tax would be absurd; one hopes Congress would never enact such a tax.) The Supreme Court in Pollock v. Farmers’ Loan & Trust Co. (1895), which struck down the unapportioned 1894 income tax, had said the tax was direct, at least insofar as the taxed income came from property. By making it clear that apportionment isn’t required for a “tax on incomes,” however, the Amendment made the modern, unapportioned income tax possible. That’s why the Amendment was (and is) so important.
Pollock had been a surprise because the dictum in Suede Low Citi Sneakers Classic Top Unisex Puma UK Adults 7 qwx1EIT (1796)—that the only direct taxes are capitations and land taxes—had been accepted throughout most of the nineteenth century. But, buried in its bombastic language, the Pollock majority actually did a nice job of tying its conclusion to Hylton: a tax on income from property is equivalent to a tax on the property itself.
And the Pollock Court said the unapportioned Civil War income tax, upheld in Springer v. United States (1881), largely reached income from services, not property—as if that made a difference. The services-property distinction wasn’t mentioned in Springer, but interpreting Springer in that way made it possible to strike down the 1894 tax while not repudiating precedent.
Following (or pretending to follow) precedent often makes it easier for a decision to gain acceptance, but that didn’t happen with Pollock. Because of Hylton and Springer, almost all commentators at the time thought Pollock was clearly wrong. Nevertheless, with the case on the books—whether rightly decided or not—an unapportioned income tax was impossible without a constitutional amendment.
Although motivated by Pollock, the Sixteenth Amendment was agnostic about that case’s merits. If Pollock was wrong, the Amendment was legal surplusage. If Mens Cotswold Avening Brogue Boots Chukka Pollockwas right, the Amendment changed the law. Either way, an income tax doesn’t have to be apportioned.
But the Amendment gives its blessing only to “taxes on incomes,” and it seems that a direct tax not “on incomes” is unaffected by the Amendment (and therefore probably politically impossible today). What direct taxes remain subject to apportionment? Some have argued that the Amendment was intended to return us to the Hylton understanding—that “direct taxes” includes, at most, capitations and land taxes. Maybe so, but that interpretation accepts the suspect notion that apportionment can’t apply to forms of taxation unknown to the Founders—a peculiar way to interpret a limitation on congressional power.
This essay is part of a discussion about the Sixteenth Amendment with
Joseph R. Fishkin, Professor, University of Texas School of Law,
William E. Forbath, Lloyd M. Bentsen Chair in Law and Associate Dean for Research, University of Texas School of Law.
Read the full discussion here.
In any event, the Supreme Court has had no recent occasion to focus on the Amendment. The general scholarly understanding is that the taxing power is so broad that, if Congress says a tax is on “income,” apportionment isn’t required. But that view would permit Congress to define the limits on its own power. And that conception conflicts with old judicial decisions holding that, for an unapportioned tax to be protected by the Amendment, it really must be on “income.”
The preeminent example is Eisner v. Macomber (1920), where the Court struck down an unapportioned income tax as applied to certain stock dividends. Although the income tax as a whole was valid—it was direct, but exempted from apportionment by the Amendment—the Court held that the tax on stock dividends effectively fell on property, not income. During the 1920s, the Court repeatedly said that Congress couldn’t circumvent apportionment by labeling a levy an “income” tax, or hiding a non-income component within the income-tax base.
Rejected though they are by most scholars today, those old cases might still have life. In Chief Justice Roberts’ 2012 opinion in NFIB v. Sebelius (2012), upholding the Obamacare “penalty” for failure to acquire health insurance, both Pollock and Macomber were cited favorably. By citing Pollock, the Court accepted the proposition that a tax on any property (including the income from that property), not just land, is direct. (That was a slight, but reasonable, expansion of Brogue Chukka Mens Cotswold Avening Boots Hylton. Interest on bonds should be treated the same as rents from land.) And the citation to Macomber implied that the meaning of “incomes” may still matter: a tax isn’t on income just because Congress says it is.
But Chief Justice Roberts may not have been thinking about any of this; the citation to Macomber might just have been a throwaway. And, even if the distinctions between direct and indirect taxes and between taxes on income and other taxes retain constitutional significance, and I think they do, characterization issues have declined in importance because of the Sixteenth Amendment. The unapportioned, individual income tax is such a cash cow that Congress has little incentive to enact potentially questionable taxes—where classifying the tax as direct or indirect might be problematic—or to include something in the income-tax base that might not be “income.” Why risk repudiation by the courts with so many constitutionally safe revenue-raisers available?
If Congress does look to new sources of revenue, however—because of burgeoning budget deficits, say—the old interpretive issues may return. The Amendment isn’t of only historical significance.
Erik M. Jensen Coleman P. Burke Professor Emeritus of Law, Case Western Reserve University School of Law