An excise was a species of duty. (153) Excises sometimes were referred to as "inland impositions" (154) because they were the domestic equivalent of duties on imports and exports. (155) They were imposed in Britain (156) and in various American states. (157)
In both British and American usage, an excise was a domestic tax on the consumption of commodities, (158) especially manufactured goods. (159) An excise might be imposed on all goods of a particular character or only on foreign goods of that character--such as foreign watches or clocks. (160) What rendered the latter an excise rather than an impost is that it was not levied at the time of import but upon consumption within the jurisdiction. If the product was re-exported rather than consumed within the jurisdiction, no excise was imposed. (161)
Although an excise might be levied either to regulate commerce or raise revenue, usually the primary motivation was to raise revenue. Often, however, there was a subsidiary interest in discouraging consumption of the items excised. (162)
One commentator has argued that excises were direct taxes or at least were widely seen as direct, (163) but support for that conclusion is very slender. (164) The overwhelming weight of the evidence is that excises were seen as a category distinct from direct taxes. (165) This is also implied by the Constitution's text. (166) A similar argument--that the Constitution's framers were excluding excises from direct taxes for the first time (167)--is disproved by the preamble to a Massachusetts excise statute, adopted a year before the Constitution was written, reciting that the excise was adopted in part "to ease the people as much as possible of direct taxation." (168)
The most commonly excised goods were alcoholic beverages, (169) but there were many others. (170) A 1783 Connecticut law imposed excises on sale or consumption of alcoholic beverages, snuff, coffee, tea, sugar, chocolate, and certain luxury clothes and utensils. (171) Rates were higher for some imported goods than for those of domestic manufacture (172) and subsequent amendment strengthened the preference for domestic articles. (173) The 1786 Massachusetts statute excised rum, tea, coffee, cocoa, sugar, raisins, tobacco, imported clocks, imported watches, coaches and chariots (174) (on an annual basis), and other transportation devices (also annual). (175) During the ratification debates, "Brutus" (probably Robert Yates of New York), assailed the Constitution in colorful language depicting federal excises imposed initially on alcoholic beverages but thence proliferating to a long list of other goods. (176)
Most excises were laid at the point of sale, (177) but some were not. (178) A New York excise was levied on tavern owners in advance of expected sales. (179) Use of large and expensive luxury goods--such as horses (180) and carriages--was excised on a periodic, usually annual, basis. The 1786 Massachusetts excise statute charged owners of coaches and chariots 8 [pounds sterling] yearly and taxed other transportation devices annually as well. (181)
A few "excises" looked much like direct taxes. For example, Massachusetts imposed excises on tavern owners' inventory of alcoholic beverages, although as part of a formula to calculate sales. (182) Even closer to the line was the Massachusetts excise on the total annual production of cider mills. (183) Although the legislature probably expected all of that production to be consumed, the absence of any offset for surplus created a levy closely resembling a direct tax on production. Similarly, the Commonwealth's annual "excise" on vehicles resembled a direct levy on personal property. (184) This kinship between some excises and direct taxes helps explain the difficulty presented in Hylton v. United States, (185) in which the Supreme Court addressed the issue of whether an exaction on carriages for (allegedly) domestic use was direct or indirect. The difficulty of the case was all the greater because everyone knew, despite stipulations to the contrary, that some of the taxed carriages were actually capital assets of a rental business. (186)
One other point of vocabulary: Eighteenth century commentators sometimes applied variations on the word "excise" to concepts technically unrelated. Thus, the word "exciseman" could refer to any assessor, even of a direct tax. Oliver Ellsworth said that the Dutch "excised" even their "houses of infamy," although the Dutch tax was imposed on services rather than commodities, and technically was a non-excise duty.
C. The Political and Moral Bases of the Direct Tax/ Indirect Tax Distinction
Direct taxes encompassed a wide range of levies, but their common characteristic was that they were exactions on existing and producing. Indirect taxes were levies on consuming, on boundary crossings, and on certain special transactions. (187)
Some other criteria that might seem relevant to the distinction between direct and indirect taxes actually were not. Before the Revolution there had been much discussion of the difference between "internal" taxes (levies imposed within jurisdictional boundaries) and "external" taxes (levies on foreign trade). (188) That was not the same as the difference among direct and indirect taxes, however. Although all direct taxes were internal, some indirect taxes--excises and other domestic duties--also were internal. (189)
Nor did incidence of the levy define the distinction between direct and indirect taxes. Contemporaneous writers recognized that the incidence of direct taxes might fall on either the taxpayer or be passed on to others.* 190 To be sure, many asserted that the burden of indirect taxes usually fell on consumers, (191) but commentators also acknowledged that in some market conditions the burden of an indirect tax could settle on the merchant or producer instead. (192)
Nor was the line governed (as I once believed) by whether the exaction was imposed at the time of an item was bought or sold. Import and export duties were levied when an item entered or left the country irrespective of whether there was a change of ownership. Excises on high-cost luxuries (such as carriages) typically were levied annually rather than on sale; the annual fee might bear no relation to the sale price. (193) New York imposed a "Duty of Excise" on tavern owners apparently calculated on prospective sales volume, but paid in advance. (194)
The fundamental distinction between direct and indirect taxes seems not to have been economic, but political and moral. The political aspect derived from popular distaste for the levies on persons and production traditionally embodied in omnibus tax statutes and the greater popular acceptance of excises and other duties. The moral aspect was threefold: First, most people deemed it better for society and for the development of individual character to impose burdens on consumption, particularly non-essential consumption, than on living or producing. (195) Second, they deemed it morally preferable to lay burdens on well-to-do people who dealt in luxuries rather than on the thrifty and productive or on the poor and "middling folk." (196) Third, they thought it preferable to tax (and thereby discourage) the use of products, such as alcoholic beverages, that weakened individual character or offered marginal or negative social value. (197)
The moral aspects the direct/indirect distinction are illustrated by legislative labeling as "excises" (and therefore indirect) annual impositions on expensive luxury items such as carriages. They are illustrated further by the common political technique of opposing a regulation or an indirect tax by assailing it as a form of immoral direct tax. (198)
What has been said thus far about how the founding generation classified impositions and taxes can be summarized in the following chart.
THE APPORTIONMENT RULE
A. Reasons for Apportionment of Direct Taxes
The framers' representation, uniformity, and apportionment clauses were the product of compromise. (199) But they were not merely the product of compromise. (200) Unifying principles can guide group decision-making, and that was the case here. In wading through the back-and-forth discussion on these topics at the Constitutional Convention, one should not let details distract from the unifying principles at work. Or, to resort to a stock market analogy, one should not permit seemingly-random fluctuations to distract from underlying trends.
In this context, the most basic unifying principle was that, at least in the lower legislative chamber, taxation should be coupled with representation. (201) This principle had been a justification for the Revolution and no one at the Philadelphia convention seems to have overtly disagreed with it. The framers saw the practical application of this principle as 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. One was that apportionment was the prevailing custom: England apportioned direct taxes by counties and other local entities, (202) and most, if not all, states similarly allocated them by towns (203) or by counties. (204) The Articles of Confederation allocated requisitions by state land values. (205)
Another consideration lay in values of public trust. As I have explained elsewhere, the Founders were heavily imbued with the idea that government was a public trust and should be conducted on fiduciary principles. (206) They particularly emphasized the duty of impartiality--that is, equal treatment in equal circumstances of those served. (207) Indeed, the apportionment rule is only one of several constitutional provisions designed to assure impartial treatment of both individuals and states. (208) Without the apportionment rule, a congressional majority from one group of...