The Constitution's financial terms, part IV: The apportionment rule

|The Volokh Conspiracy |

This is the last of four posts that 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; the definitions of the Constitution's terms "Duty," "Excise," "Impost" and "Tonnage;" and the distinction between direct and indirect taxes. This Part IV examines the Constitution's requirement that direct taxes be apportioned among the states by population.

The apportionment rule appears twice in the Constitution. Article I, § 1, cl. 3 originally provided that

Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three-fifths of all other Persons [i.e., slaves].

Article I, § 9, cl. 4 stated that "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken."

The Constitution's apportionment rule has spawned commentary suggesting that the rule was an endorsement of slavery. My investigation did not find that to be the case.

Behind the apportionment requirement was this unifying principle: At least in the lower legislative chamber, taxation should be coupled with representation. This principle had been a justification for the Revolution, and no one active in the debates over the Constitution seems to have overtly disagreed with it. The framers saw the practical application of this principle in an apportionment rule that tailored each state's tax burden to its congressional representation.

In addition to the taxation/representation principle, there were at least two other considerations behind the decision to apportion direct taxes. First, apportionment was the prevailing custom: England apportioned direct taxes by counties and other localities, and most, if not all, states similarly allocated them among local units. The Articles of Confederation allocated requisitions among states according to their respective land values.

Second, the Founders generally subscribed to the view that government was a public trust and should be conducted on fiduciary principles. They particularly emphasized the duty of impartiality—that is, in equal circumstances, equal treatment of those served. The apportionment rule is one of several constitutional provisions designed to assure impartial federal treatment of the several states. Without the apportionment rule, a congressional majority from one group of states might vote to extract a disproportionate share of revenue from the rest.

Yet apportionment could be administratively clumsy. It also might work injustice among similarly situated individuals who happened to reside in different states. So there was an argument for limiting its scope. The manner in which the framers did so was to apply the apportionment rule to direct taxes only. For indirect taxes, the framers substituted a ban on federal taxation of exports and a requirement that indirect taxes and "Regulations of Commerce or Revenue" be uniform throughout the nation.

There were at least three reasons for limiting apportionment to direct taxes:

  • The apportionment rule was problematic when applied to import and export duties because accidents of geography resulted in much higher import and export activity in some states than in others.
  • The protection offered by apportionment was more crucial for direct than for indirect levies, since more direct than indirect taxes were imposed on status rather than on transactions, which could render it difficult for a citizen to raise the funds to pay the tax collector.
  • Limiting apportionment to direct taxes likely would restrict it to taxes rarely imposed. The framers expected the new federal government to rely, at least in times of peace, almost exclusively on indirect levies. One reason was that direct taxes were profoundly unpopular in every part of the country (and not just in the South).

What of the specific apportionment formula? Was the decision to count five slaves for every three free persons an expression of racism and an endorsement of slavery? Not really.

The framers needed to find a new way to apportion direct taxes because the Confederation system of allocating requisitions by state land values had proved impractical. Apportionment by actual taxes paid likewise seemed unworkable.

In arriving at the apportionment formula, the starting point was collective agreement that each state's contribution in federal taxes should be a function of (1) the state's population (2) and its wealth. Experience strongly suggested that, for the most part, wealth followed population. In other words, population usually was a good proxy for wealth.

What was usually true, however, was not true always. Slavery created a valuation problem. The conundrum was this:

  • Slaves contributed to a state's wealth, so if one of two similar states with the same free population also contained slaves, then the state containing slaves would produce more tax revenue, but
  • although slaves produced wealth, they did not produce as much wealth as an equal number of free people. This was because slaves could not sell their labor or talents in the free market, where incentives for production were strongest and labor and talents fully valued. Thus, given two similar and equally populous states, one entirely free and the other slaveholding, the state entirely free would produce more tax revenue.

To attune state representation to projected tax contributions, therefore, the framers needed to calculate the tax productivity of each slave as some fraction of the tax productivity of each free person. As it happened, the Confederation Congress already had estimated this fraction as three-fifths.

Madison's summary of the 1783 congressional debates that produced the formula show that the considerations leading to it were purely economic. They included the respective imports and exports from states relying, or not relying, on slavery; the effect of climatic differences on productivity; the levels of consumption of free and unfree persons; and, most important, the fact that slaves did not have the same positive incentives to produce that motivated free people. During the deliberations, moreover, the term "free white inhabitants" was altered to drop the word "white," thereby including with full parity the 60,000 free African Americans then living in the United States. Also included at full parity were Indians who paid taxes—i.e., those subject to direct state rather than tribal authority.

American slavery was the product of racism (among other causes), but the apportionment formula was not. It was an acknowledgment that people—of any race—produce more wealth, and therefore more tax revenue, when they operate in free markets rather than under conditions of command and control.

The framers adopted the apportionment rule unanimously and the three-fifths formula with equal votes from the North and South.

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