The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
In this series of four posts, I discuss the original legal force of the terms the Constitution employs to denote financial exactions. 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 previous posts considered the difference between "Taxes" and other financial impositions and the definitions of the Constitution's terms "Duty," "Excise," "Impost," and "Tonnage."
A succession of courts and commentators, culminating in Chief Justice Roberts' opinion in NFIB v. Sebelius, has expressed confusion about the scope of the constitutional term "direct Tax." They usually end up defining it narrowly to include only capitations and property taxes, and sometimes only real property taxes. The Sebelius opinion, for example, stated:
Even when the Direct Tax Clause was written it was unclear what else, other than a capitation … might be a direct tax …. A tax on going without health insurance does not fall within any recognized category of direct tax. It is not a capitation. Capitations are taxes paid by every person, "without [as Justice Samuel Chase once suggested] regard to property, profession, or any other circumstance." … The payment is also plainly not a tax on the ownership of land or personal property. The shared responsibility payment is thus not a direct tax that must be apportioned among the several States.
Yet the future Chief Justice John Marshall, speaking at the Virginia ratification convention, did not consider the term "direct tax" at all unclear. He told his audience, apparently without losing credibility, that "The objects of direct taxes are well understood."
Who was right?
John Marshall was right. The historical record leaves little doubt as to the objects of direct taxation.
The Constitution's text designates capitations (head or poll taxes) as "direct." But Justice Samuel Chase erred when he suggested in Hylton v. United States that capitations were paid "without regard to property, profession, or any other circumstance." To be sure, capitations often were fixed initially at sum of money per head, and they therefore could be more regressive than other levies. But legislatures commonly graded or lifted capitations for all sorts of reasons.
For example, legislatures frequently reduced and eliminated the poll tax due from the poor. They also granted complete or partial exemptions to persons who lived in particular places, who had reached (or not reached) a stated age, who were married, or who pursued particular occupations. The Massachusetts legislature, for example, exempted soldiers and the staff of Harvard College and "settled Ministers of the Gospel [and] Grammar School-Masters." The Connecticut legislature exempted the president of Yale University.
In fact, when such practices are taken into account, the Affordable Care Act's insurance penalty, if it be considered a tax at all, is best classified as a capitation. The income and other criteria for determining its size and scope are fully consistent with categorizing it as such.
I am uncertain where the notion arose that, in addition to capitations, only land or property taxes were "direct." One possible explanation is that the British Parliament and some American state legislatures referred to their respective direct tax statutes as "the land tax." But that title was a misnomer. Those statutes were not limited to land. They were omnibus laws that imposed specified rates on a wide range of items.
For example, the British Parliament's "land tax" imposed rates, not only on real property and associated hereditments, but on (1) debts due to the taxpayer, (2) business and personal chattels, and (3) earnings, pensions, and annuities sourced from public funds. Similarly, Pennsylvania's "land tax" levied not only on land, but on livestock, slaves, and indentured servants.
In fact, most American direct tax statutes imposed their rates on all sorts of items. For example, a 1779 Connecticut direct tax law levied on polls and real estate, but also on:
- all individual net wealth exceeding £50;
- several kinds of livestock;
- instrumentalities of transportation, including ships and other vessels, and coaches and other vehicles;
- clocks and watches;
- silver plate;
- income from interest received on loans;
- traders' and shopkeepers' inventory;
- the profits of ironworks and other enterprises; and
- the businesses of attorneys at law and speculators.
Admittedly, the line between direct and indirect taxes was not always crystalline. One might argue that a particular Massachusetts "excise" levied on cider mill production was really a direct tax rather than an excise. As in Hylton v. United States, one might quarrel over whether an annually-imposed levy on consumer-owned carriages was direct or indirect. Nevertheless, contemporaneous tax statutes, public discussion, newspapers, treatises, and governmental publications render rather clear the fundamental difference between the categories: A tax was direct if laid on one's status or on one's living or livelihood—that is, if it was levied on heads, on the ordinary effects of daily life, or on production. Taxes on wealth, property, businesses, and income were all direct. Taxes were indirect (and was therefore duties) if imposed on the consumption or on certain specific transactions, such as importing, exporting, and issuing legal documents.
As I explain in my article, the distinction between direct and indirect levies was primarily political and moral rather than economic.