Direct taxation vs indirect taxation, Pollock and the unnecessary 16th Amendment

Politics
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First of all, we have to distinguish between the modern vernacular and the Constitutional view of taxation.

image

The image above represents the modern vernacular regarding direct vs indirect taxation. Direct taxation is thought of as those taxes which cannot be shifted to another, while indirect taxation is thought of as those taxes that can be shifted to another payer.

However, that does not reflect the classical distinction of direct versus indirect taxation. In the classical vernacular, including the language in the Constitution, direct taxation is a VERY limited concept.

There are three possible forms of direct taxation:

  1. Capitation tax, directly on the head of every natural person.
  2. Real property tax, directly on the value of real property.
  3. Non real property tax, most likely to come in the form of a wealth tax. (Note at bottom)

The distinguishing feature of a direct tax is that it is laid DIRECTLY on persons or property.

The Federal Government has not laid anything remotely similar to a direct tax since the 1810’s. Some States, mostly southern, levied capitation taxes, though those pretty much disappeared once they became useless for regulating access to the ballot. Many States levy a tax on real property. Some cities have experimented with wealth taxes. But for the most part, direct taxation tends to play an extremely minor role in total taxation.

Under a proper interpretation of the Constitution, the above three forms are the only forms of taxation subject to the apportionment requirement.

All other forms of taxation known are transactional, taxed at the moment of the transfer of money or property. All transactional taxes are inherently indirect, thus not subject to the rule of apportionment.

A sampling of indirect taxation:

  1. Income taxes.
  2. Estate, inheritance and gift taxes.
  3. Taxation on rents.
  4. Taxation on interest, dividends and capital gains.
  5. Consumption taxes of any sort, including sales taxes.

The Congress had the lawful power to tax income from the moment the Constitution was ratified and did so to pay for the Civil War.

The Wilson-Gorman Tariff Act was a laudable effort by Bourbon Democrats to move away from high protective tariffs towards greater free trade. They paid for this change with a 2% income tax on those making over $4,000 a year.

Pollock v. Farmers' Loan & Trust Co. - Wikipedia. (must paste link in manually to work correctly)

Then came perhaps one of the most incompetently rendered decisions in Supreme Court history, Pollock v Farmers Loan and Trust Company. First of all, it was 5 to 4 and heavily criticized by the 4 (correct) dissenters.

It ultimately required the 16th Amendment to overturn this moronic decision, but modern courts have long refuted Pollock, as early as the years just following ratification of the 16th Amendment. Pollock was simply wrongly decided, period. Income taxes are transactional. Transactional taxes are inherently indirect taxes. Indirect taxes are not subject to the rule of apportionment. Pollock was derided by none other than Antonin Scalia when he participated in a case that overturned a similarly wrongful portion of Pollock relating to municipal bonds.

Even if the 16th Amendment was repealed, it would change nothing. Congress has the right impose un-apportioned indirect taxes, including an income tax. It has always had this power, even when it was unconstitutionally blocked by the Supreme Court for nearly 20 years.

It is a waste of time for Libertarians and Conservatives to bandy about a pipe dream.

If they want to pursue overall tax cuts in the framework of the existing system, fine.

Better to attack the spending angle. I could suggest entire Departments for elimination and the pruning of useless and damaging programs, such as the sugar subsidy.

As a fun aside, lets go the capitation tax route to replace the revenues lost by abolishing the personal income taxes, not counting revenues from the corporate income tax or payroll taxes.

It would vary slightly from State to State due to apportionment requirements.

But on average it would result in a $7,283.76 capitation tax on every man, woman and child, each and every year.

For a family of war, that would be an average yearly bill of $29,135.04.

Don’t think that would go over too well with the vast majority of the population. :smile:

(Note:)

Above, I talked about non-real property tax being a a possible direct tax, but even here it is weak at best. Congress enacted a tax on carriages, essentially a direct tax on personal property, not transactional. Yet the Supreme Court upheld it as not being a direct tax within the apportionment requirement in Hylton v United States, which ironically would be used over 200 years later to uphold Obamacare.

So the only unequivocal direct taxes which would clearly require apportionment are a capitation tax and a tax on real property.

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:popcorn: :popcorn: :popcorn:

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In order to distinguish a direct tax from one which is indirect, within the meaning of our Constitution, the following historical documentation appears to shed sufficient light to conclude, direct taxes are those which are assessed to the individual by government, are oppressive and not avoidable, while indirect taxes are costs added by government to things or events which individuals are free to acquired or reject.

As an advocate to adopting the Constitution, James Wilson (who was a prominent delegate to the Constitutional Convention) pointed out during Pennsylvania’s ratification debates that:

“In this Constitution, a power is given to Congress to collect imposts [an indirect type of tax], which is not given by the present Articles of Confederation. A very considerable part of the revenue of the United States will arise from that source; it is the easiest, most just, and most productive method of raising revenue; and it is a safe one, because it is voluntary. No man is obliged to consume more than he pleases, and each buys in proportion only to his consumption." Elliots VOL II, page 467 Wilson

So, a characteristic of an indirect tax is one which is voluntarily paid during the taxpayer’s consumption, and safe because no man is obliged to consume more than he pleases.

As to direct taxation, Oliver Elsworth, also a delegate to the Convention from Connecticut provides the following characteristics distinguishing a direct tax from one which is indirect.

”Direct taxation can go but little way towards raising a revenue. To raise money in this way, people must be provident; they must constantly be laying up money to answer the demands of the collector. But you cannot make people thus provident. If you would do any thing to the purpose, you must come in when they are spending, and take a part with them. This does not take away the tools of a man’s business, or the necessary utensils of his family: it only comes in when he is taking his pleasure, and feels generous; when he is laying out a shilling for superfluities, it takes twopence of it for public use, and the remainder will do him as much good as the whole.”

Elsworth goes on to note:

“The experiments, which have been made in our own country, show the productive nature of indirect taxes. The imports into the United States amount to a very large sum. They never will be less, but will continue to increase for centuries to come. As the population of our country increases, the imports will necessarily increase. They will increase, because our citizens will choose to be farmers; living independently on their freeholds, rather than to be manufacturers, and work for a groat a day.”

”On the other hand, direct taxes are not voluntary, nor, in general, are they avoidable. And with respect to direct taxes, the anti-federalist minority of the Convention of Pennsylvania warned that direct taxation “…is a tax that, however oppressive in its nature, and unequal in its operation, is certain as to its produce and simple in its collection; it cannot be evaded like the objects of imposts or excise …” ___ Connecticut ratification debates Elliot’s VOL II, page 92

Contrary to your above asserted generalization, the irrefutable fact is, Congress is forbidden to impose any tax which takes the form of a direct tax, unless it is apportioned among the states, and that restriction holds true regardless of a name attached to the tax such as an “income tax”.

If a tax is named an “income tax” and takes the form of an indirect tax, it may be laid without apportionment. But if it should take the form of a direct tax, it is forbidden by our Constitution unless apportioned.

Aside from that I will say you are absolutely correct that if the 16th Amendment were simply “repealed”, and by that I mean erased from our Constitution, it would not change anything within the meaning of our Constitution as Congress has always had the power to lay and collect a tax calculated from what is generally called “income”, but only if such a tax took the form of an indirect tax.

This fact is established in Flint v. Stone Tracy Co., 220 U.S. 107 (1911) [decided before the 16th amendment was adopted] where an income tax was upheld by the court as being an indirect tax (an excise tax) " . . . on the privilege of doing business in a corporate capacity . . . "

Now, in regard to the Hylton case which you mentioned, I researched this case many, many years ago!

The carriages in question were consider articles of luxury and an excise tax was laid upon luxury making the tax indirect. This distinction to tax carriages as a luxury is made known in crystal clear language in the “Act laying duties upon carriages for the conveyance of persons.”

"Provided always, That nothing herein contained shall be construed to charge with a duty, any carriage usually and chiefly employed in husbandry, or for transporting or carrying, goods, wares, merchandise, produce or commodities.”

However, taxes laid upon property are considered to be direct taxes and this fact was also stated during the House Debates with reference to a tax upon carriages!

Mr. Sedgwick said that "a capitation tax, and taxes on land and on property and income generally, were direct charges, as well in the immediate as ultimate sources of contribution. He had considered those, and those only, as direct taxes in their operation and effects. On the other hand, a tax imposed on a specific article of personal property, and particularly if objects of luxury, as in the case under consideration, he had never supposed had been considered a direct tax, within the meaning of the Constitution."SEE: House of Representatives, Tuesday, May 6th, 1794,page 644

Finally, if we want to end the evil connecting to what we refer to as federal “income taxes” that can be done be adopting the Fair Share Balanced Budget Amendment into our Constitution which begins:

The Sixteenth Amendment is hereby repealed, and Congress is henceforth forbidden to lay any tax or burden calculated from profits, gains, sales, interest, salaries, wages, tips, inheritances or any other lawfully realized money.

NOTE: the above words would return us to our Founding Father’s original tax plan as they intended it to operate! They would also end the experiment with allowing Congress to lay and collect taxes calculated from lawfully earned “incomes” which now oppresses Americas’ economic engine and robs the bread which working people have earned when selling the property each has in their own labor!

JWK

If, by calling a tax indirect when it is essentially direct, the rule of protection [apportionment] could be frittered away, one of the great landmarks defining the boundary between the nation and the states of which it is composed, would have disappeared, and with it one of the bulwarks of private rights and private property. POLLOCK v. FARMERS’ LOAN & TRUST CO., 157 U.S. 429 (1895) JUSTICE FULLER

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if it were not a direct tax they would not have needed a constitutional amendment to pass it, but they did, because it is. you can deny that 3000 more times and it won’t be any more true than it was in the crock of ■■■■ post I commented on

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The poster stated why they felt they had to pass the 16th Amendment…because of the terrible decision that was Pollock, which liberal and conservative jurists alike have rejected.

You could make a counter-argument that at the time the amendment was passed, legal observers and experts were of different minds over whether income taxes were direct or indirect taxes, but Pollock was still in force, and that is why the 16th Amendment was suggested and then passed.

This was the actual reality of the day…so while Safiel may be exaggerating a bit, his argument is not, in fact, a crock. It’s backed up by available evidence and documents from the time.

And subsequent rulings have moved the argument much more firmly on the side of income taxes being indirect, transactional taxes as opposed to a direct tax, and therefore Safiel’s conclusion that a repeal of the 16th Amendment would not have impact on the legality of income taxes not apportioned holds quite a bit of water.

The 16th Amendment wasn’t passed because everyone agreed an income tax was a direct tax, or that objectively it is.

And its passage did not settle the question, either…all it did was establish that income taxes were free of the apportionment requirement. The legal battle over whether they were direct or indirect taxes went on.

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Well, why was it passed? What were the intentions behind adopting the 16th Amendment?

Mr. BARTLETT of Georgia. “Therefore the decision, [Pollock] in effect, puts the dollar of the millionaire beyond the pale of being equitably taxed according to his wealth, unless a constitutional amendment be invoked… However, there should be some method by which the untold wealth and riches of this Republic may be compelled to bear their just burdens of government and contribute an equitable share of their incomes to supply the Treasury with needed taxes”.

As I see it, the fairest of all taxes is of this nature [a tax on gains, profits and unearned income], laid according to wealth, and its universal adoption would be a benign blessing to mankind. The door is shut against it, and the people must continue to groan beneath the burdens of tariff taxes and robbery under the guise of law." 44 Cong. Rec. 4414 (1909).

Mr. HEFLIN. “An income tax seeks to reach the unearned wealth of the country and to make it pay its share.” 44 Cong. Rec. 4420 (1909).

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Your response did not refute the point I made in the slightest.

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you posted before my response was edited to clarified.

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Your question is a different debate altogether.

This one is about whether income taxes are direct taxes or not.

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Did you not write: “The 16th Amendment wasn’t passed because everyone agreed an income tax was a direct tax . . .”

If you did write that the question arises: Well, why was it passed? What were the intentions behind adopting the 16th Amendment? And, to answer that question, we find the following in the Congressional Record when the 16th Amendment was being debated.

Mr. BARTLETT of Georgia. “Therefore the decision, [Pollock] in effect, puts the dollar of the millionaire beyond the pale of being equitably taxed according to his wealth, unless a constitutional amendment be invoked… However, there should be some method by which the untold wealth and riches of this Republic may be compelled to bear their just burdens of government and contribute an equitable share of their incomes to supply the Treasury with needed taxes”.

As I see it, the fairest of all taxes is of this nature [a tax on gains, profits and unearned income], laid according to wealth, and its universal adoption would be a benign blessing to mankind. The door is shut against it, and the people must continue to groan beneath the burdens of tariff taxes and robbery under the guise of law." 44 Cong. Rec. 4414 (1909).

Mr. HEFLIN. “An income tax seeks to reach the unearned wealth of the country and to make it pay its share.” 44 Cong. Rec. 4420 (1909).

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Well, isn’t this interesting? Safiel starts a thread in which assertions and conclusions are made, and when a RESPONSE IS POSTED addressing those assertions and conclusions , Safiel appears to have abandoned the thread.

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Message them or use the @.

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The reality, as I have documented, was to get at the “unearned” income of the rich. Not the earned wages working people earn when selling the property each has in their own labor,

Why do you make stuff up?

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No the question does not arise. That’s a separate debate.

This thread is not debating the morality or the motivations behind the income tax amendment. This thread is about showing that it is not at all obvious that the income tax was considered a direct tax.

You are free to have that debate if you wish.

But you don’t get to dictate terms.

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With regard to distinguishing a tax as being direct or indirect within the meaning of our Constitution, I provided sufficient documentation HERE to answer that question.

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Actually, I have done no such thing.

I don’t do this rapid fire back and forth crap which needlessly expands threads to hundreds or thousands of posts. I wait and consolidate.

I will get around to answering in my own good time, which will be just momentarily.

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I reject your characterization of direct vs indirect.

A direct tax is ONLY a tax levied DIRECTLY on the head of a person or the property of a person. As such, direct taxes are very limited. Capitation taxes and real property taxes.

EVERYTHING else is transactional, thus indirect. Income is a transaction, the payment of money in return for a person selling their time, labor, skills, education, etc. to an employer. The income is NOT property during the process of the exchange, but is merely a transaction and thus taxable as an indirect tax. Income taxes may be freely taxed without apportionment, as they are transactional and thus indirect.

Oppressive is a subjective term and thus useless to define the nature of a tax. There are people that feel oppressed that they are forced to pay any tax at all, even a minor amount. Other people pay their much more substantial taxes without complaint.

And taxation should NOT be avoidable. We are a republic of laws and the duly enacted laws require the taxes we all currently pay. Nobody has a right to avoid taxation.

You DO have the right to vote for the President, Senators and Representatives who may, by law, adjust the tax structure more to you liking.

You have frequently depended on Pollock to sustain your viewpoint. Pollock was an outlier. It was a 5 to 4 decision and derided by the minority Justices. By the 1920’s, Pollock was implicitly rejected and portions of it were explicitly overruled.

An income tax is an effective revenue raising mechanism.

Tariffs, tonnages and excises can raise, at best, about 5% of the national revenue.

Sales taxes are regressive, landing heavier on the poor who may spend the majority or even all of their income on consumables, while the middle class is heavily hit, while the upper class, spending a much smaller percentage on consumables is lightly hit. And they are an inefficient way to raise revenue. And “tax rebates” would require the government to collect the same information they collect via income tax, to ensure that a person claiming a tax rebate is actually entitled to one.

You describe people as having “property” in their own labor. Obviously, people “sell” that property to their employer and receive a wage. An exchange, transactional, taxable.

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You mention above:

“A direct tax is ONLY a tax levied DIRECTLY on the head of a person or the property of a person”

You then write:

“direct taxes are very limited. Capitation taxes and real property taxes.”

So, which is it? “Property” or only “Real Property”?

What historical documentation do you base your opinion on or are you simply offering your personal opinion?

Keep in mind the constitutional language itself “Capitation, or other direct, Tax” makes it clear that something else is involved.

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What provision in the federal constitution grants power to Congress to lay and collect a transactional tax? Are you talking about an “excise” tax like the one in Flint vs Stone Tracy Co.?

.

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I have no idea what you are referring to here. Provide an example. When I mention the Pollock case it has been with reference to a fundamental principle stated by the court, e.g., “If, by calling a tax indirect when it is essentially direct, the rule of protection [apportionment] could be frittered away, one of the great landmarks defining the boundary between the nation and the states of which it is composed, would have disappeared, and with it one of the bulwarks of private rights and private property.” POLLOCK v. FARMERS’ LOAN & TRUST CO., 157 U.S. 429 (1895) JUSTICE FULLER

Do you not agree with that principle, and just happens to be what we are here discussing?