Income Tax – Constitution Article 1 §9.4

On Wednesdays we study the Constitution. I thought I’d never finish Article 1, Section 8, which lists the powers of Congress. I finally got to Section 9, which denies Congress specific powers. It started off weak with a 20-year timeline for denying the importation of slaves, but it’s getting better. Last week I learned about ex post facto laws. This week I’m on to Article 1 §9.4, which never uses the word “income tax” but used mean America didn’t have one.

Constitution Article 1 §9.4

No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.

This clause comes with the footnote that it has been affected by the Sixteenth Amendment, which gives Congress the power to go hog wild with an income tax.

Probably the most fundamental principle of the Jesuit education is that you cannot accomplish or discuss anything effectively until you agree on the definitions of your terms. Most people are very sloppy about this, and it is the source, I believe, of most of the world’s disagreements. Article 1 §9.4 supports my theory. Its legal history is one of disagreement over the definition of the terms used.

Definitions

I will look at the terms in the order they appear in the clause.

Capitation tax: The legal dictionary says a capitation tax is an assessment levied by the government upon a person at a fixed rate regardless of income or worth. Since it is a tax upon the individual, and not upon merchandise, a capitation tax is frequently labeled a head tax. A poll tax is a capitation tax.

Seattle’s much-debated head tax seems to be a modern (local rather than federal) example of the sort of thing forbidden here.

The biggest issue with §9.4 was over the difference between direct and indirect taxes and seems to have been an issue from the very beginning. In his Notes on the Convention, Madison wrote:

Mr. King asked what was the precise meaning of direct taxation? No one answered.

Much trouble could have been avoided if someone had. Maybe we would even have a more rational tax code today. But the debate they avoided in 1787 instead played out over the next 120-some years in the federal courts. The web page on the 16^th Amendment linked above and the Annotated Constitution (p393) both summarize the most important cases defining direct and indirect taxes.

Direct Tax: a tax, such as income tax, that is levied on the income or profits of the person who pays it, rather than on goods or services.

Indirect Tax: An indirect tax is a tax on goods and services that is added to their price before they reach the consumer.

Online dictionaries seem to be pretty clear on the difference between the two types of tax. But the federal court seemed to change its mind every time the question came up.

What Difference Does it Make?

Even though the feds couldn’t tell the two types of taxes apart, they knew it made a big difference. That’s because Article 1 says in both Article 1 §9.4 and in Article 1§2.3 that direct taxes must be apportioned according to population. That means that a state with one-tenth of the national population must pay one-tenth of the total tax, even if it’s the only state producing the taxed item. Imagine Washington state producing almost all the apples but only paying 10% of the taxes. That rule doesn’t apply to indirect taxes. Article 1 §8.1 requires “all Duties, Imposts and Excises shall be uniform throughout the United States.” So apples are taxed in all states at a rate of X%.

Sixteenth Amendment

Until the early 20^th century, most federal income came from the indirect taxes, which tended to be consumption taxes. As Washington state residents well know, this is a really regressive system that overburdens the poor. There were a lot of ways that a Constitutional Amendment enabling a fair income tax could have been enabled. But the one that succeeded in 1913 was the Sixteenth Amendment. It, um, gave Congress a broad power to tax incomes and without defining direct and indirect taxes.

Maybe someday I’ll work through the amendments and get into it in more detail. But for now, I’ll stop by saying the mishmash of sloppy case law still holds weight as precedent; taxes are still poorly defined; and Congress can pretty much do what it wants with income taxes.