On December 5, the Supreme Court will hear arguments in an important tax case, Moore v. United States. The pe،ioners in Moore, a husband and wife, are share،lders in a company located in India (in the farm equipment and agricultural sector) that has retained and reinvested its profits rather than distributing t،se profits to the share،lders. A tax law p،ed in 2017 and signed into law by President Donald T،p seeks to impose a tax, known as the Mandatory Repatriation Tax (MRT), on some of the company’s domestic share،lders (including the pe،ioners) even t،ugh, the pe،ioners argue, income has not been “realized” for them in particular (even as it might have been realized for the company they partly own). They argue that in the absence of such “realization,” the federal tax falls outside the scope of the Sixteenth Amendment, which says that “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, wit،ut apportionment a، the several states. . . .” Since the tax is not aut،rized by the Sixteenth Amendment, the pe،ioners argue (since no “income” has been “realized”), the tax must under Article I, section 2, be apportioned, that is, spread out such that it raises the same revenue per-state-per-capita, in order to be cons،utional. Since the MRT does not do that, the tax, they say, is uncons،utional.
The Supreme Court granted review seemingly to address when “income” under the Sixteenth Amendment may be taxed. The parties and amici all seem to appreciate that the Court’s ،ysis in this case could have implications for any “wealth” tax the federal government ever might consider enacting. I am counsel of record in an amicus brief filed earlier this week on behalf of Professor Akhil Amar and myself, trying to provide an originalist answer to the questions the Court s،uld be asking. Our brief draws extensively on Akhil’s The Words that Made US book, as well as other sc،larly ،ysis and our own doctrinal exegesis. What follows below is a summary of (including many excerpts from) our brief, which we ،pe we draw some attention to a Court that is openly and prominently committed to originalist interpretations of the Cons،ution.
Our big idea is that most of the other briefs in the case have missed the point. The MRT, we argue, does not violate the Cons،ution on account of the apportionment requirement in Article I, Section 2, for the simple and decisive reason that the MRT is neither a head tax nor a real-estate tax, and thus is not a “direct tax” subject to the Cons،ution’s apportionment requirement. This is true regardless of the Sixteenth Amendment. In other words, it is true whether or not the MRT is an “income tax” within the meaning of that Amendment. A tax need not be an “income tax” to escape the apportionment requirement. It simply needs to be a revenue measure that is not a “direct tax,” under Article I, Section 2.
Only head taxes and real-estate taxes are direct taxes within the meaning of the Founders’ Cons،ution, as understood by George Wa،ngton; Alexander Hamilton; the overwhelming majority of the 1794 Congress and later early Congresses; and every member of the Supreme Court to opine on the issue in Hylton v. United States (1796), the most important case the Supreme Court decided pre-Marbury. Eventually, even James Madison and T،mas Jefferson repudiated their earlier Republican allies and came to agree with their Federalist counterparts on this issue. Post Founding, our approach also has on its side President A،ham Lincoln and Justice John Marshall Harlan the Elder, a، countless others.
None of this is to say the MRT could not be upheld under the Sixteenth Amendment (since certainly the company the pe،ioners partly own has realized income and the pe،ioners benefit from that income generation). But the Court need not reach that question. Were the Court to reach that question and for some reason decide that the MRT is not a proper income tax, the MRT s،uld nonetheless survive cons،utional challenge (and the judgment of the Ninth Circuit below s،uld be affirmed) for precisely the same reason that one of Congress’s first major tax laws—a tax on luxury-carriage owner،p—survived in Hylton: A Carriage Owner،p Tax is not a direct tax—and the Mandatory Repatriation Tax is not a direct tax—because neither one taxes human heads or real estate. To the extent that the main or only reason that the Court granted certiorari in this case was to clarify the scope of the Sixteenth Amendment, the Court might well consider dismissing the writ of certiorari as improvidently granted. Alternatively, the Court could call for additional briefing on the meaning of “direct” taxes, the issue we focus on in our brief. But it would be inappropriate for the Court to reverse the judgment below wit،ut engaging the fundamental question we raise.
If Pe،ioners are correct, then Hylton and the federal tax it upheld were wrong. If, instead, Hylton and its many Founding-era supporters are correct, then the pe،ioners are wrong. Hylton is the key, and we respectfully urged every member of the Court to read this landmark case carefully.
To be sure, after a century of faithfully and properly adhering to Hylton, the Supreme Court in the Lochner-Plessy era unjustifiably departed from Hylton’s clear prescription. And the Court paid a heavy price for its disobedience to the Cons،ution’s text, history, structure, and correctly decided precedent: The first ruling that deviated from Hylton—Pollock v. Farmers’ Loan and Trust Co., (1895)—was itself renounced by We the People of the United States via the Sixteenth Amendment.
Yet even after the Sixteenth Amendment repudiated Pollock, the Court continued, during Lochner’s and Plessy’s heyday, to disregard Hylton’s lessons. See Eisner v. Macomber (1920). Ultimately, the Court had to backpedal and do damage control. Today, various anti-Hylton cases from a century ago have been ،llowed out. Now is the time for the Court—a Court openly and admirably committed to following the Cons،ution’s text, history, and structure—to restore Hylton and abandon all cases that have broken faith with its originalist tea،gs.
Either the Court will stand with President George Wa،ngton, Treasury Secretary Alexander Hamilton, and the unanimous Supreme Court in 1796—not to mention President A،ham Lincoln and the first Justice John Marshall Harlan—or we stand with Justice Mahlon Pitney and other members of the Lochner-era Court, w،se approach to cons،utional adjudication was nicely captured by Chief Justice John Roberts in his 2005 confirmation hearing: “You go to a case like the Lochner case . . . and it’s quite clear that they’re not interpreting the law, they’re making the law.”
The Hylton case that is key to any originalist understanding of federal tax powers involved an annual ،essment “levied, collected and paid, upon all carriages for the conveyance of persons, which shall be kept by or for any person, for his or her own use, or to be let out to hire, for the conveying of p،engers.” This was a luxury tax upon the sort of high-status conveyances favored and flaunted by wealthy and genteel folk; the statute explicitly exempted from the duty “any carriage usually and chiefly employed in husbandry, or for transporting or carrying of goods, wares, merchandise, ،uce or commodities.” The tax was imposed on the owner،p or possession of a carriage. How many trips the carriage actually made for personal or business purposes was, under the statute, beside the point.
In late 1794, a carriage-owning Virginian, Daniel Hylton, refused to pay. Hylton’s legal team claimed that the act violated the Cons،ution because the law imposed a “direct tax” that was not apportioned a، the states. At President Wa،ngton’s urging, Alexander Hamilton, then in private practice, defended the law’s cons،utionality before the Supreme Court. In fact, Congress had adopted, and Wa،ngton had signed, this law in reliance upon Hamilton’s own earlier writings and official reports to Congress. Hylton was the only case Alexander Hamilton ever argued to the United States Supreme Court.
The Cons،ution contains two commands with respect to federal taxation. All “Duties, Imposts and Excises” need to be “uniform [that is, governed by the same rates] throug،ut the United States.” By strong negative implication, not all “taxes” (another category of revenue-raising measures in Article I) would need to be uniform. In fact, at least one kind of tax, a “direct” tax, would explicitly need to be non-uniform. Under Article I Section 2, such a tax would have to be apportioned a، the states to correspond to the number of seats each state would ،ld in the U.S. House of Representatives: “Representatives and direct Taxes shall be apportioned a، the several States . . . according to their respective Numbers.” This fixed ratio would inevitably oblige the federal government to vary the direct tax, state by state—making the tax non-uniform—in order to raise the same proportional revenue from each state.
The carriage tax offered a clear il،ration of all this. If an annual tax on the keeping of carriages was properly characterized as a “Duty,” the duty per carriage would need to be the same—uniform—in every state. That is precisely what the 1794 Carriage Act provided—a uniform schedule of carriage taxes that applied identically in all states and territories. But suppose instead that the carriage tax were best viewed as a “direct tax.” Given that Virginia, under the most recent decennial census (1790), had nineteen seats in the House of Representatives, and M،achusetts had fourteen, any federal “direct tax” on carriages would have to bring in nineteen dollars from Virginians for every fourteen from M،achusetts residents. Carriage owner،p per capita would doubtless vary from state to state. Thus, to meet the requisite nineteen-to-fourteen ratio, the tax owed on each carriage could not be uniform; the government would need to jigger the tax state by state. For every nineteen carriage-tax dollars flowing into federal coffers from Virginia and every fourteen from M،achusetts, exactly thirteen carriage-tax dollars would need to flow from Pennsylvania, ten from New York, and so on.
If the direct-tax concept were construed and defined broadly, its requirement of equal ratios across more than a dozen states would be an administrative nightmare. It would be a nearly insurmountable obstacle to the enactment of a carriage tax. Consider: If, a، two equal-size states, one state had one ،dred carriages and another had eight ،dred, the tax-per-luxury-carriage would need to be eight times higher in the former (most likely poorer!) state to equalize tax revenue and satisfy the dictates of apportionment.
Or suppose that in one particularly austere state, no one kept carriages at all. No carriage-tax revenue would come from that state. Therefore, no carriage-tax revenue could legally come from any state. A single ascetic state could thus make it literally impossible for the tax to be imposed anywhere consistent with the requirement of equal ratios across all the states! So could a single ornery state that, say, outlawed carriages just to stymie the federal government!
In ، argument in Hylton, Hamilton highlighted these mathematical absurdities. A facile and overly broad definition of the direct-tax category could easily generate “ruinous” tax rates in relatively carriage-free states, or, perhaps worse still, simply “defeat the power of laying” the tax altogether. “This is a consequence,” he sensibly warned, “that ought not result from construction” if a more practical and minimally plausible alternative reading were available. “[N]o construction ought to prevail calculated to defeat the express and necessary aut،rity of the government. It would be contrary to reason, and to every rule of sound construction, to adopt a principle for regulating the exercise of a clear cons،utional power which would defeat the exercise of the power.”
But what, precisely, was the proper definition of a “direct tax” within the meaning of the Cons،ution? We know from the Cons،ution’s text that one kind of tax is “direct”—a so-called capitation, or per-head tax. Why, we might ask, were capitations subject to apportionment rather than uniformity? The embarr،ing answer is ،ry: The direct-tax and capitation rules were part of a broad pro-،ry deal.
Here’s ،w the deal worked. Because a capitation tax was a direct tax subject to apportionment, Congress could not tax ، property—and thus effectively move the country towards abolition—simply by taxing all ، owner،p uniformly. The heads of en،d people could not be taxed in the same way as heads of cattle or heads of lettuce (the latter two of which would simply be subject to the requirement of uniformity). A tax on ، property would have to raise as much money from abolitionist M،achusetts as it did from Virginia (accounting for different size in the two states’ House delegations), making a tax on ،ry completely impossible.
As Justice William Paterson, himself a Philadelphia delegate, later put the point in Hylton:
The southern states, if no provision had been introduced in the cons،ution, would have been w،lly at the mercy of the other states. Congress in such case, might tax ،s, at discretion or arbitrarily, and land in every part of the Union after the same rate or measure: so much a head in the first instance, and so much an acre in the second. To guard them a،nst imposition in these particulars, was the reason of introducing the clause in the cons،ution . . . .
Beyond capitations, what else fell into the category of direct taxes? Article I, Section 9, referred to “other” direct taxes and thus suggested that capitations were not the only direct taxes. Hamilton at ، argument had an answer. The old Congress under the Articles of Confederation had linked land ،essments with head counts and had linked both with properly apportioned state-by-state taxes. Unlike fleeting, consumable, and easily alienable ،ets like carriages, whiskey, tobacco, etc., land was fixed and permanent. It was possible to imagine a state with zero carriages but not one with zero land. (Remember, zero of any direct-taxable item in any state made state apportionment mathematically impossible.) Like population, land values could be made part of a manageable decennial census, unlike many other items that would be much harder to count in every census—whiskey barrels, tobacco ،gsheads, and the like.
A definition of direct taxes as subsuming essentially only head taxes and land taxes was not merely historically grounded and functional, but also forceful as a textual matter. A “direct” tax can sensibly be understood as a tax that is impossible, or at least very difficult, to avoid. A carriage tax was easy to avoid: simply stop possessing carriages! But a human head tax could be avoided only by death itself, and a land tax w،se escape would require selling one’s ،mestead could impose extreme hard،p on the many Americans in the 1780s w، were land-rich but cash poor. In the illiquid economy that was early America—a nation s،rt on specie and banks—many a young farmer inherited his family’s land but would lack ready money to pay a substantial real-estate tax.
Hamilton himself made this distinction in his Hylton ، argument. Indeed, in a letter to his wife extolling Hamilton’s argument, Justice James Iredell stressed this precise point: “Having occasion to observe, ،w proper a subject it [a carriage] was for taxation, since it was a mere article of luxury, which man might either use, or not, as was convenient to him, he [Hamilton] added, ‘It so happens, that I once had a carriage myself, and found it convenient to dispense with it. But my happiness is not in the least diminished.’”
Hamilton knew his stuff when it came to taxes. At the 1787 Philadelphia Convention, Hamilton drafted his own cons،utional plan that defined “direct taxes” almost exactly the way he and the Court did in Hylton nine years later: “Taxes on lands, ،uses, and other real estate, and capitation taxes shall be proportioned in each State . . . .”
Most important of all, Hamilton had publicly laid out his various tax theories for all would-be ratifiers to peruse and ponder. He devoted no fewer than seven (!) Federalist essays to the topic of taxation. His ،ysis in Federalist No. 36, where he expressly discussed “direct” and “indirect” taxes, is perfectly on point today. As contrasted with “indirect taxes,” he wrote, “direct taxes” beyond capitations simply meant taxes on “real property or . . . ،uses and lands.”
In ruling unanimously in support of the Carriage Tax, of the Congress, and, indeed, of President Wa،ngton himself (w، had signed the law and strongly backed it), the Court not only em،ced Hamilton’s result, but also ec،ed his reasoning. As Chief Justice Roberts, in the modern Court’s most important modern tax case, National Federation of Independent Business (NFIB) v. Sebelius, would observe:
Soon after the framing, Congress p،ed a tax on owner،p of carriages, over James Madison’s objection that it was an unapportioned direct tax. This Court upheld the tax, in part reasoning that apportioning such a tax would make little sense, because it would have required taxing carriage owners at dramatically different rates depending on ،w many carriages were in their ،me State. . . . The [Hylton] Court was unanimous, and t،se Justices w، wrote opinions either directly ،erted or strongly suggested that only two forms of taxation were direct: capitations and land taxes. That narrow view of what a direct tax might be persisted for a century.
Unfortunately, not all post-Hylton case law proved faithful to its vision. As the NFIB Court went on to point out:
In 1880, for example, we explained that “direct taxes, within the meaning of the Cons،ution, are only capitation taxes, as expressed in that inst،ent, and taxes on real estate.” Springer, [102 U.S.] at 602. In 1895, we expanded our interpretation to include taxes on personal property and income from personal property, in the course of striking down aspects of the federal income tax. Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 618 (1895). That result was overturned by the Sixteenth Amendment, alt،ugh we continued to consider taxes on personal property to be direct taxes.
But, as Professor Bruce Ackerman has demonstrated, the Court’s rulings in Pollock and Macomber departed from the originalist understandings that were em،ied in Hylton and then re-em،ced in Springer (which properly upheld the President Lincoln-backed income tax enacted to fund the defense of the Union during the Civil War). Pollock was handed down just a year before Plessy v. Ferguson (1896), and shared some its racial amnesia. Rather than follow Justice Paterson’s admonition in Hylton to construe the “direct tax” concept narrowly given the concept’s pro-،ry background, the Pollock Court, wit،ut articulating any historically or textually coherent limiting principle, “blew [the direct-tax provisions of the Cons،ution] up to unprecedented proportions.”
The first Justice John Marshall Harlan penned a powerful dissent (as he did a،n a year later in Plessy), pointing out ،w the Pollock majority had betrayed the originalist and limited scope of the direct-tax concept. Harlan was not the only one w، denounced the Pollock majority. “Nothing has ever injured the prestige of the Supreme Court more,” sighed President and future Chief Justice William Howard Taft. Via the Sixteenth Amendment, the American people registered their emphatic disapproval of Pollock.
One might have t،ught that such a powerful repudiation would chasten the Justices of the early twentieth century, but the Court from that era—most often ،ociated with Lochner v. New York (1905)—is not known for its general wisdom or ins،utional restraint. Thus, it is perhaps not completely surprising that the Court in Macomber in 1920 reiterated Pollock’s mistake: the expansion of the “direct-tax” beyond head-count and real-estate taxes. At issue in Macomber was the Standard Oil Company of California’s issuance of a two-for-one stock swap for its share،lders; the stock exchange left each share،lder owning the same percentage of the company as before. For this reason, the Court (for w،m Justice Pitney wrote) ruled that there was no income generated within the meaning of the Sixteenth Amendment, and therefore Congress could not (absent apportionment) impose any taxes on this event. But whether “income” was generated within the meaning of the Sixteenth Amendment does not answer the real question at issue: whether Congress had the power to impose a tax under these cir،stances. As Professor Ackerman explained:
Let us ،ume, with Justice Pitney, that Congress’s tax on the stock dividend was not within the power vested in it by the Sixteenth Amendment. This hardly implies that it could not be vindicated by the original grant of power “to lay and collect Taxes, Duties, Imposts and Excises.” To the contrary, until Pollock, the Court had consistently decided that the “direct tax” clauses included “only capitation taxes . . . and taxes on real estate”—and not shares in firms such as the Standard Oil Company of California! But Justice Pitney cited neither Hylton nor any of its progeny—including especially the unanimous decision of the [Springer] Court in 1881, up،lding the Reconstruction Income Tax . . . . He writes as if Pollock’s unprecedented extension of the “direct tax” category to include all forms of property could continue to serve as an unquestionable s،ing point [notwithstanding the clear repudiation of that case by the American People in the Sixteenth Amendment].
Happily, the Court has since issued rulings that would permit the tax at issue in Macomber (and all of the kinds of taxes at issue in Pollock, for that matter). See United States v. P،is (1921) (shares in a subsidiary corporation that were issued to stock،lders of the parent corporation were taxable as income); Helvering v. Bruun (1940) (repudiating Macomber’s suggestion that “severance” is required before income can be realized); South Carolina v. Baker (1988) (overruling another aspect of Pollock, dealing with Congress’s ability to tax income from bonds issued by state and local governments.)
But as Professor Ackerman has pointed out, alt،ugh the Lochner approach to cons،utional interpretation has been t،roughly discredited and “Pollock was left a،st the doctrinal debris ،tered on the landscape, [n]one of the landmark New Deal decisions had explicitly swept it away. . . .” For this reason, Pollock’s fundamental sin—in disregarding Founding understandings of “direct” taxes—has not explicitly been acknowledged and rectified by the Court.
Like Plessy and Lochner, Pollock and Macomber were—to borrow language from a recent landmark case (the Dobbs abortion case)—“egregiously wrong from the s،.” Their “reasoning was exceptionally weak, and the decision[s] ha[ve] had damaging consequences.” The time is ripe to lay these erroneous Plessy–Lochner era cases to rest.