Clarifying The Uncertainty Over Direct And Indirect Taxes In Moore v. United States

Rob Natelson (Montana; Google Scholar), Clarifying the Uncertainty over Direct and Indirect Taxes in Moore v. United States:

The Supreme Court's June 20 decision in Moore v. United States continues the long-standing controversy over the Constitution's distinction between "direct" and "indirect" taxes. Writing for the Court, Justice Brett Kavanagh stated that "Generally speaking, direct taxes are those taxes imposed on persons or property" while indirect levies are "imposed on activities and transactions." Apparently based on that standard, he concluded that income taxes are indirect.

In her concurring opinion, Justice Ketanji Brown Jackson wrote, "[I]t appears the category [of direct taxes] was originally intended to encompass only land and head taxes."

From an originalist standpoint, these statements are wrong. A full review of the historical record leaves little doubt that the direct/indirect distinction was both clear to the Founders and quite different from either description in Moore.

Although the difference between direct and indirect taxes probably did not affect the result in Moore, it continues to be consequential. It governed the result in National Federation of Independent Business v. Sebelius, the 2012 case that upheld the penalty in the Affordable Care Act (ACA) for not purchasing health insurance. The Court held that (1) the penalty, although intended primarily to affect behavior and not raise revenue, was a tax, and (2) that it was an indirect tax.

For reasons set forth below, both holdings were erroneous—the product, I believe, of the fact that parties and amici both under-briefed the tax issue. The Founding-era record shows that the ACA penalty was not a tax. And that if it were a tax, it would be a capitation, and therefore direct.

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