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).
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:
- Farzana Afrin (Cal. State Fullerton), Novia (Xi) Chen (Houston), Sabrina Chi (Cal. State Fullerton) & Anh Persson (Illinois), The Effect of Private Country-by-Country Reporting on Mergers and Acquisitions (2024)
- Reuven S. Avi-Yonah (Michigan) & Nessa Ní Chasaide (Maynooth), Should Ireland Have Taxed Apple? (2024)
- Reuven S. Avi-Yonah (Michigan), David Gamage (Missouri), Goldburn Maynard Jr. (Kelly) & Alex Zhang (Emory), Letter to President Biden Regarding Mr. Charles Little John (2024)
- CA Brijesh Baranwal, Income Tax Appellate Tribunal (ITAT): Laws, Regulations, Procedures, and Updates Under the New Regime (2024)
- Sudipta Basu (Temple) & Dmitri Byzalov (Temple), How to Use Higher Moments to Capture Accounting Constructs (2024)
- Katie Boylen (Wisconsin), Stacie Kelley Laplante (Wisconsin) & Mary Vernon (Illinois), Multi-jurisdictional Taxing Rights: Determinants and Implications (2024)
- Carly Burd (North Carolina State), Protectionist trade policy, firm performance, and taxes (2024)
- Lucas de Lima Carvalho (LATPF), Divergences Between GLOBE and Accounting Carrying Values, 115 Tax Notes Int’l 1797 (2024)
- Karolína Červená (Pavol Jozef Šafánik Univ. in Kosice) & Anna Vartašova (Pavol Jozef Šafánik Univ. in Kosice), Real property tax collection in Slovakia in the context of sustainable local self-government: tax arrears analysis, in Interaction of Law and Economics: Sustainable Development (2024)
- Stephen L. Curtis (Cross Border Analytics), Frankenstein’s Implant: Is Stryker Due for a Monstrous Periodic Adjustment? (2024)
- Marilyn Hajj (Virginia), Frequently Unanswered Questions: Scrutinizing the IRS’s Informal Guidance (2024)
- Aisha Mahmoud Hamman (Fed. IRS) & Zacch, Adelabu Adedeji (Fed. IRS), Tax Reform Bills Meant to Harmonise Scattered Laws: A Path to a More Competent Tax Regime in Nigeria (2024)
- Tarun Jain (Supreme Court of India), The Taxation of Cryptoassets in India: A Review of Evolving Tax Policy and Law (2024)
- Jeffery H. Kahn (Florida State) & John E. Lopatka (Penn State), Juries and Tax: The Effect of Income Taxation on Tort Damages (2024)
- Leo Kipkogei Kemboi (Inst. Econ. Affairs Kenya), On Efficiency, Equity, and Optimal Taxation: Reforming Kenya’s Tax System (2024)
- Drahomir Klimsa (Viadrina), Mario Rieger (Augsburg), Robert Ullman (Augsburg), How (Not) to Tax Sunshine: Bunching around Tax-Exempt Thresholds for Rooftop Photovoltaic Systems (2024)
- Allison Koester (Georgetown), Terry J. Shevlin (UC Irvine) & Ryan J. Wilson (Iowa), Financial reporting effects of tax planning and execution, Handbook on the Financial Reporting Environment (W. Ge, A Koester & S. McVay, eds., forthcoming 2025)
- Thomas Kourouxous (Graz), Rainer Neimann (Graz) & Peter Krenn (Graz), How do tax courts affect tax compliance and tax audits? A game-theoretic analysis (2024)
- Benjamin M. Leff (American), Challenging the Johnson Amendment: What SAFE SPACE Gets Right – and Wrong (2024)
- Charles Edward Andrew Lincoln IV (Groningen), An Internal Consistency Test for Europe: A Comparative Analysis Showing a Gap in Harmonization of E.U. Law for Double Tax Relief, 69 Wayne L. Rev. 445 (2024)
- Joseph Liberman (AQR Capital Management) & Nathan Sosner (AQR Capital Management), A Brief Guide to Pricing and Taxation of Variable Prepaid Forwards (2024)
- Dan Lynch (Wisconsin) & Stefanie Pendl (Vienna), Tax Uncertainty and Auditor-Provided Tax Services: The Impact of Regulatory Changes in the EU (2024)
- Anton Miglo (Toronto) & Victor Miglo (CEM Benchmarking), Bankruptcy System and Corporate Tax Policy (2024)
- Christine Osterloh-Konrad (Tübingen), What is a GAAR? A Functional Analysis of General Anti-Avoidance Instruments based on Legal Comparison (2024)
- Sofia Ranchordas (Tilburg), Tax and (Digital) Inequalities, in Rita de la Feria (ed.), Taxation and Inequality (forthcoming 2025)
- Sarah Robinson (Claremont), Matias Strehl (Calif.) & Alisa Tazhitdinova (UCSB), Do Taxes Affect Pre-Tax Income Inequality? Evidence from 100 Years of U.S. State Tax Policies (2024)
- Joaquim Freitas Rocha (Minho), Tax Litigation – Fundamental Concepts (2024)
- Olayinka Shado (Obefemi Awolowo), Taxation of Digital Activities and Cross-Border Transactions: An Appraisal of Nigeria’s Strategy Vis-à-vis Global Perspective (2024)
- Darien Shanske (UC Davis), Michael Mazerov, Dan Bucks (Pub. Rev. Cons.), Peter D. Enrich (Northeastern) & Carl Davis (ITEP), Incidence is Not Incidental: A First Response to COST’s Flawed Critique of the Pursuit of Progressive State Tax Policy (2024)
- Martin Shields (Colorado State) & Siman Poltak Hutabarat (Colorado State), Powering prosperity: Unveiling the impacts of renewable energy policies on economy, employment, and income distribution in Indonesia (2024)
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