The Constitution's financial terms, part I: Taxes vs. non-taxes

|The Volokh Conspiracy |

The Constitution authorizes Congress to "lay and collect Taxes, Duties, Imposts and Excises" (Art. I, § 8, cl. 1), but requires that "direct Taxes" be apportioned among the states by population (Art. I, § 2, cl. 3 & Art. I, § 9, cl. 4).

The Supreme Court's decision in NFIB v. Sebelius, the Court's first Affordable Care Act case, was the latest in a long line of cases and commentary that have construed the constitutional term "Taxes" too broadly—and defined the constitutional phrase "direct Taxes" much too narrowly.

In this series of four posts, I discuss the original legal force of those and other financial terms in the Constitution. The "original legal force" is how Founding Era courts would have applied the Constitution, under the interpretive rules of the time. The original legal force is closely related to, but not always the same, as the original public meaning. This series is based, for the most part, on my forthcoming article in Case Western Reserve Law Review: "What the Constitution Means by 'Duties, Imposts, and Excises'—and 'Taxes' (Direct or Otherwise)."

The founding generation often referred to government financial exactions collectively as "impositions." The subject was a prominent feature of public discussion throughout the Founding Era (1763-1791).

The subject of impositions owed its prominence to several causes. First, before the American Revolution, the British Parliament and colonial legislatures levied impositions on their citizens. So also did the American states during time between Independence and the final ratification of the Constitution. Legislation of this kind was often resented and sparked heated public debate.

Second, impositions were central to the conflict with Great Britain. Although American colonists usually conceded the power of Parliament to levy impositions on America for the purpose of regulating commerce among units of the British Empire, the colonists strongly objected to parliamentary "taxes." In a series of widely popular pamphlets, colonial lawyers such as John Dickinson and Richard Bland defined the difference. "Taxes," in their view, were exactions imposed, not to regulate, but for the sole purpose of raising a general revenue. Other impositions, even if they incidentally raised revenue, were not taxes. This was not necessarily the line drawn in British dictionaries, but it became the understanding in America.

Third, after the Revolution, impositions remained central to public debate because of controversy over Congress's inability to levy them, and congressional efforts to obtain such a power. The congressional journals from those years are filled with material discussing the subject.

Finally, impositions were an important component of the debates over the drafting and ratification of the Constitution. By the Constitution's Taxation Clause, the framers proposed that Congress be authorized "to lay and collect Taxes." By other provisions, such as the Commerce Clause, they proposed that Congress receive powers understood to include regulatory impositions. Their continuing recognition of a line between revenue-raising and regulatory exactions was reflected in such constitutional phrases as "Regulation of Commerce or Revenue" (Art. I, § 9, cl. 6). It also was reflected in the compromise embodied in the Origination Clause (Art. I, § 7, cl. 1), which required initial passage in the lower house of Congress for "Bills for Raising Revenue" but stopped short of adopting the rule, prevailing in Great Britain and some American states, that regulatory impositions arise in the lower house as well.

All of these constitutional issues commanded significant public attention during the ratification process (1787-90).

The historical record thus offers a rich store of material elucidating the Founding Era definitions of the Constitution's financial terms. The quality of the record is enhanced by the fact that, with one significant exception and a few isolated deviations, it shows a consistent understanding of all those terms.

The one exception pertained to the definition of "taxes." Pre-Revolutionary pamphleteers referred to them as impositions for the sole purpose of raising a general revenue. By the time the Constitution was adopted, however, taxes generally were defined as impositions for the principal purpose of raising a general revenue. People recognized that if a "tax" was adopted primarily for revenue-raising purposes, it remained a tax if it incidentally affected behavior. Thus, a revenue-raising tariff might have the incidental effect of favoring domestic farmers and manufacturers, but still qualify as a tax.

On the other hand, a levy adopted to fund a program of regulation or primarily to influence behavior (such as the Affordable Care Act's penalty for not carrying individual health insurance) was not considered a tax and therefore was not authorized by the Constitution's Taxation Clause. Such an imposition was outside Congress's power to enact, unless some other enumerated power could be found to support it.

Next time: duties, excises, imposts and tonnage.