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Friday, December 20, 2024

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Glogower's The Constitutional Limits To The Taxing Power

This week, David Elkins (Netanya, Google Scholar) reviews Ari Glogower (Northwestern; Google Scholar), The Constitutional Limits to the Taxing Power, 93 Fordham L. Rev. 782 (2024).

Elkins (2018)

Moore v. United States, decided in June of this year, has sparked a renewed interest in Constitutional issues by tax scholars. Much of the discussion focuses on the issue of whether the term “income” as used in the sixteenth amendment requires realization. Others have gone further, asserting that under the original Constitution, Congress has the power to impose tax on income, whether realized or not, and the sixteenth amendment was therefore unnecessary. At the heart of this broader outlook lies the Constitutional mandate that direct taxes be apportioned among the states by population. This provision would probably invalidate almost any direct tax except a capitation tax. For example, if an income tax were to be apportioned among the states proportionally by population, the tax rate in poorer states would need to be higher than it is in richer states. Thus, a key question is what the Constitution means by the term “direct tax.” The broader one interprets this term, the more one narrows Congress’s power to choose the tax base that it wishes, and vice versa.

It is into this issue that Ari Glogower ventures with this week’s feature article. He begins by arguing that the apportionment requirement was included in the Constitution primarily as part of the compromise on representation with regard to slavery: if enslaved persons are to count as 3/5 of a free person for purposes of representation, then they also must count as 3/5 of a free person for the purpose of direct taxation. A secondary purpose was to alleviate Southern concerns that they would be subject to disproportional taxes on land and persons (although I would note that he does not explain why the uniformity clause, which provides that all Duties, Imposts and Excises shall be uniform throughout the United States, would not be sufficient in this regard).

For the first century following the adoption of the Constitution, the Supreme Court construed the term “direct tax” narrowly. In Hylton (1796), it interpreted the term to include only taxes that could in practice be apportioned. Thus, a tax on wagons was held not to be a direct tax. Dicta during most of the nineteenth century suggest that only taxes on land or capitation taxes are direct taxes. In 1895, Pollock moved the apportionment requirement into center stage and read it as a fundamental Constitutional dictate preventing coalitions of states from imposing onerous taxation on other states. Specifically, it held that direct taxes include not only capitation taxes and taxes on land, but also taxes on personal property and even taxes on income deriving from such property.

The holding in Pollock was overturned by the sixteenth amendment, which authorized Congress to lay and collect taxes on income without apportionment among the States. Nevertheless, its lasting legacy is its broad interpretation of the apportionment requirement, which continues to influence understandings of how the Constitution limits Congress’s taxing power today. Macomber (1920) resurrected the Pollock apportionment requirement by holding that unrealized income is not “income” in the sixteenth amendment sense of the term and therefore cannot be imposed unless apportioned among the states by population. In Moore (2024), the Court narrowly approved the Mandatory Repatriation Tax by holding that it was not, in fact, a tax on unrealized income. Nevertheless, four of the justices indicated that a tax on unrealized income would be unconstitutional.

The article argues that the Court’s nineteenth century narrow interpretation of apportionment and Pollock’s broad interpretation represent two fundamentally different understandings of the provision and its consequences for the taxing power: either apportionment was a minor footnote to the Constitution, or it was an essential restraint on the taxing power and a structural feature of federalism. The article goes on to describe some basic problems with the broad interpretation, including its nonconformance to the intended function of the provision, its doctrinal inconsistency and jurisprudential uncertainty, and its capacity to serve as a shield for the rich, enabling them to avoid Congress’s taxing power, while potentially allowing for high and even oppressive rates of tax on lower-income taxpayers.

Prof. Glogower then asks whether, in spite of the weakness of the broad interpretation of “direct taxes,” it is not perhaps preferable to have some restriction on Congressional power of taxation than none at all (other that the single explicit restriction that precludes the imposition of Tax or Duty on Articles exported from any State). His answer is that even without the apportionment requirement, there are restrictions on Congressional taxation power. The first is the requirement that any tax legislation needs to pass both houses of Congress, including a number of procedural impediments in the Senate, and be presented to the President. This, he argues, necessitates a relatively broad consensus for any tax measure to be enacted, and he brings as examples recent initiatives that failed to attract sufficient support or were substantively modified during the legislative process. The second is the Constitutional prohibition of taking private property for public use without just compensation. While the distinction between a tax and a taking is not always clear, the taking provision will proscribe certain types of exactions of property. The third is equal protection. True, economic legislation that does not infringe upon fundamental Constitutional rights or involve suspect classification is not subject to strict scrutiny. Nevertheless, some tax legislation might not survive scrutiny even under a rational basis standard. The fourth is due process, which has been applied, for example, in the case of retroactive taxation. He sums up by arguing that despite their unique features and applications in the case law, these constitutional constraints collectively embed a set of common substantive principles and values.

This article is a welcome contribution to the growing literature discussing Constitutional restrictions on Congressional taxing power.

Here’s the rest of this week’s SSRN Tax Roundup:

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