This Article recreates the original definitions of the U.S. Constitution's terms "tax," "direct tax," "duty," "impost," "excise," and "tonnage." It draws on a greater range of Founding-Era sources than accessed heretofore, including eighteenth-century treatises, tax statutes, and literary sources, and it corrects several errors made by courts and previous commentators. It concludes that the distinction between direct and indirect taxes was widely understood during the Founding Era and that the term "direct tax" was more expansive than commonly realized.
The Article identifies the reasons the Constitution required that direct taxes be apportioned among the states by population. It concludes that the Constitution's "three-fifths" formula was a response to certain economic facts about slavery but that the underlying decision to apportion had little or nothing to do with slavery.
Finally, the Article reviews the Supreme Court's holding that the Affordable Care Act's penalty for not acquiring insurance is a tax but not a direct tax and concludes that if the penalty was a tax, it was direct.
CONTENTS INTRODUCTION I. INFERENCES FROM THE CONSTITUTIONAL TEXT II. IMPOSITIONS AND TAXES III. DIRECT TAXES IV. INDIRECT TAXES A. Indirect Taxes in General B. The Terminology of Indirect Taxation 1. Duties 2. Imposts 3. Tonnage 4. Excises C. The Political and Moral Bases of the Direct Tax/Indirect Tax Distinction V. THE APPORTIONMENT RULE A. Reasons for Apportionment of Direct Taxes B. Adoption of an Apportionment Formula VI. THE COURTS AND COMMENTATORS (INCLUDING NATIONAL FEDERATION OF INDEPENDENT BUSINESS V. SEBELIUS) CONCLUSION (1) "Mr King asked what was the precise meaning of direct taxation? No one answd."
--Madison's Constitutional Convention notes
"The objects of direct taxes are well understood ..."
--Future Chief Justice John Marshall at the Virginia Ratifying Convention
The Constitution's Taxation Clause empowers Congress to "lay and collect Taxes, Duties, Imposts and Excises." (2) It also imposes limitations on the tax power, including the requirement that "direct Taxes" be apportioned among the states. (3) To understand the intended scope of these powers and limitations--and, therefore, their original legal force (4)--one must understand what the words meant to the people who ratified them.
Although the Constitution's framers usually employed language in its ordinary sense, this was not invariably true. The Constitution contains some terms that, when used in legal documents, were widely understood to have specialized meanings. (5) This Article focuses on six technical terms the Constitution uses in defining Congress's financial powers: (1) duties, (2) excises, (3) imposts, (4) tonnage, (5) taxes, and (6) direct taxes. In its discussion of direct taxes, this Article also explains why the Constitution required them to be apportioned among the states.
I wrote this Article for two reasons. First, the subject has obvious modern significance--as the Supreme Court reminded us in its ruling on the Affordable Care Act in National Federation of Independent Business v. Sebelius. (6) Second, previous scholarship addressing it seemed inadequate; it is sparse for such an important topic and often is marred by methodological defects. The methodological shortcomings are explained in Part VII.
Part I of this Article is this Introduction. Part II introduces the constitutional text and identifies hints the text offers on the meaning of the terms discussed in this Article. Part III explains how the Founders distinguished a tax from the broader word imposition. Part IV defines the meaning of the controversial phrase direct Tax. Part V discusses indirect taxes and defines the four kinds of indirect taxes mentioned in the Constitution: duties, excises, imposts, and tonnage. Part V further identifies the dividing line between direct and indirect taxes and concludes that the line was not fundamentally economic but based on eighteenth century Anglo-American political and moral considerations.
Part VI explains the reasons behind the apportionment rule. Part VII discusses errors occurring in previous writings on the subject, including the Supreme Court's opinion in Sebelius. Part VIII, the Conclusion, presents a brief summary of what has gone before.
This study relies on a very wide range of primary sources. These include, besides the records of the Constitution's drafting and ratification, eighteenth century treatises, contemporaneous British and American tax statutes and other legislative documents, British and American newspaper articles, and various other materials. However, for reasons that should be obvious, but to many authors apparently are not, I rely only on sources arising before the end of 1790, the year Rhode Island became the thirteenth state to ratify the Constitution. Later material is too weakly probative, or not probative of all, of the ratification-era understanding. (7)
INFERENCES FROM THE CONSTITUTIONAL TEXT
The constitutional text offers hints as to the meaning of the terms examined in this study. The following discussion addresses that text as it stood at the time of the Constitution's ratification, without the changes wrought subsequently by the Sixteenth Amendment (8) and by court decisions.
The Constitution imposed two limits on state financial exactions: (1) a requirement of congressional consent before a state could "lay any Duty of Tonnage" (9) and (2) with one exception, a like requirement before a state could "lay any Imposts or Duties on Imports or Exports." (10) The Constitution also authorized Congress to impose financial exactions. The Taxation Clause empowered Congress to "lay and collect Taxes, Duties, Imposts and Excises."11 The Commerce Clause empowered Congress to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." (12) During the founding era, commercial regulation was understood to entail financial impositions. (13)
The Constitution qualified these grants to Congress. Among the qualifications were the following three:
* "All Bills for raising Revenue" had to originate in the House of Representatives; (14)
* Congress could impose no "Tax or Duty" on exports; (15) and