Pollock v. Farmers' Loan and Trust Company/Dissent Brown

Mr. Justice BROWN, dissenting.

If the question what is and what is not a direct tax were now for the first time presented, I should entertain a grave doubt whether, in view of the definitions of a direct tax given by the courts and writers upon political economy during the present century, it ought not to be held to apply not only to an income tax, but to every tax, the burden of which is borne, both immediately and ultimately, by the person paying it. It does not, however, follow that this is the definition had in mind by the framers of the constitution. The clause that direct taxes shall be apportioned according to the population was adopted, as was said by Mr. Justice Paterson in Hylton v. U.S., 3 Dall. 171, to meet a demand on the part of the Southern states that representatives and direct taxes should be apportioned among the states according to their respective numbers. In this connection he observes: The provision was made in favor of the Southern states. They possessed a large number of slaves. They had extensive tracts of territory, thinly settled, and not very productive. A majority of the states had but few slaves, and several of them a limited territory, well settled, and in a high state of cultivation. The Southern states, if no provision had been introduced in the constitution, would have been wholly at the mercy of the other states. Congress, in such case, might tax slaves, at discretion or arbitrarily, and land in every part of the Union, at the same rate or measure,-so much a head in the first instance, and so much an acre in the second. To guard them against imposition in these particulars was the reason for introducing the clause in the constitution, which directs that representatives and direct taxes shall be apportioned among the states according to their respective numbers.'

In view of the fact that the great burden of taxation among the several states is assessed upon real estate at a valuation, and that a similar tax was apparently an important part of the revenue of such states at the time the constitution was adopted, it is not unreasonable to suppose that this is the only undefined direct tax the framers of the constitution had in view when they incorporated this clause into that instrument. The significance of the words 'direct taxes' was not so well understood then as it is now, and it is entirely probable that these words were used with reference to a generally accepted method of raising a revenue by tax upon real estate.

That the rule of apportionment was adopted for a special and temporary purpose, that passed away with the existence of slavery, and that it should be narrowly construed, is also evident from the opinion of Mr. Justice Paterson, wherein he says that 'the constitution has been considered as an accommodating system; it was the effect of mutual compromises and concessions; it was the work of compromise. The rule of apportionment is of this nature; it is radically wrong; it cannot be supported by any solid reasoning. Why should slaves, who are a species of property, be represented more than any other property? The rule ought not therefore to be extended by construction. Again, numbers do not afford a just estimate or rule of wealth. It is, indeed, a very uncertain and incompetent sign of opulence. There is another reason against the extension of the principle laid down in the constitution.'

But, however this may be, I regard it as very clear that the clause requiring direct taxes to be apportioned to the population has no application to taxes which are not capable of apportiom ent according to population. It cannot be supposed that the convention could have contemplated a practical inhibition upon the power of congress to tax in some way all taxable property within the jurisdiction of the federal government, for the purposes of a national revenue. And, if the proposed tax were such that in its nature it could not be apportioned according to population, it naturally follows that it could not have been considered a direct tax, within the meaning of the clause in question. This was the opinion of Mr. Justice Iredell in the Hylton Case, wherein he shows at considerable length the fact that the tax upon carriages, in question in that case, was not such as could be apportioned, and therefore was not a direct tax in the sense of the constitution. 'Suppose,' he said, 'ten dollars contemplated as a tax on each chariot or post chaise in the United States, and the number of both in all the states be computed at one hundred and five,-the number of representatives in congress; this would produce in the whole one thousand and fifty dollars. The share of Virginia, being 19/105 parts, would be $190. The share of Connecticut, being 7/105 parts, would be $70. Then suppose Virginia had fifty carriages, Connecticut two, the share of Virginia being $190, this must, of course, be collected from the owners of carriages, and there would therefore be collected from each carriage $3.80. The share of Connecticut being $70, each carriage would pay $35. In fact, it needs no demonstration to show that taxes upon carriages or any particular article of personal property, apportioned to the population of the several states, would lead to the grossest inequalities, since the number of like articles in such states respectively might bear a greatly unequal proportion to the population. This was also the construction put upon the clause by Mr. Justice Story in his work upon the Constitution (sections 955, 956).

Applying the same course of reasoning to the income tax, let us see what the result would be. By the census of 1890 the population of the United States was 62,622,250. Suppose congress desired to raise by an income tax the same number of dollars, or the equivalent of one dollar from each inhabitant. Under this system of apportionment, Massachusetts would pay $2,238,943. South Carolina would pay $1,151,149. Massachusetts has, however, $2,803,645,447 of property, with which to pay it, or $1,252 per capita, while South Carolina has but $400,911,303 of property, or $348 to each inhabitant. Assuming that the same amount of property in each state represents a corresponding amount of income, each inhabitant of South Carolina would pay in proportion to his means three and one-half times as much as each inhabitant of Massachusetts. By the same course of reasoning, Mississippi, with a valuation of $352 per capita, would pay four times as much as Rhode Island, with a valuation of $1,459 per capita. North Carolina, with a valuation of $361 per capita, would pay about four times as much, in proportion to her means, as New York, with a valuation of $1,430 per capita; while Maine, with a per capita valuation of $740, would pay about twice as much. Alabama, with a valuation of $412, would pay nearly three times as much as Pennsylvania, with a valuation of $1,177 per capita. In fact, there are scarcely two states that would pay the same amount in proportion to their ability to pay.

If the states should adopt a similar system of taxation, and allot the amount to be raised among the different cities and towns, or among the different wards of the same city, in proportion to their population, the result would be so monstrous that the entire public would cry out against it. Indeed, reduced to its last analysis, it imposes the same tax upon the laborer that it does upon the millionaire.

So, also, whenever this court has been called upon to give a construction to this clause of the constitution, it has universally held the words 'direct taxes' applied only to capitato n taxes and taxes upon land. In the five cases most directly in point it was held that the following taxes were not direct, but rather in the nature of duty or excise, viz.: A tax upon carriages (Hylton v. U.S., 3 Dall. 171); a tax upon the business of insurance companies (Insurance Co. v. Soule, 7 Wall. 433); a tax of 10 per cent. upon the notes of state banks held by national banks (Bank v. Fenno, 8 Wall. 533); a tax upon the devolution of real estate (Scholey v. Rew, 23 Wall. 331); and, finally, a general income tax was broadly upheld in Springer v. U.S., 102 U.S. 586. These cases, consistent and undeviating as they are, and extending over nearly a century of our national life, seem to me to establish a canon of interpretation which it is now too late to overthrow, or even to question. If there be any weight at all to be given to the doctrine of stare decisis, it surely ought to apply to a theory of constitutional construction, which has received the deliberate sanction of this court in five cases, and upon the faith of which congress has enacted two income taxes at times when, in its judgment, extraordinary sources of revenue were necessary to be made available.

I have always entertained the view that, in cases turning upon questions of jurisdiction, or involving only the rights of private parties, courts should feel at liberty to settle principles of law according to the opinions of their existing members, neither regardless of nor implicitly bound by prior decisions, subject only to the condition that they do not require the disturbance of settled rules of property. There are a vast number of questions, however, which it is more important should be settled in some way than that they should be settled right, and, once settled by the solemn adjudication of the court of last resort, the legislature and the people have a right to rely upon such settlement as forever fixing their rights in that connection. Even 'a century of error' may be less pregnant with evil to the state than a long-deferred discovery of the truth. I cannot reconcile myself to the idea that adjudications thus solemnly made, usually by a unanimous court, should now be set aside by reason of a doubt as to the correctness of those adjudications, or because we may suspect that possibly the cases would have been otherwise decided if the court had had before it the wealth of learning which has been brought to bear upon the consideration of this case. Congress ought never to legislate, in raising the revenues of the government, in fear that important laws like this shall encounter the veto of this court through a change in its opinion, or be crippled in great political crises by its inability to raise a revenue for immediate use. Twice in the history of this country such exigencies have arisen, and twice has congress called upon the patriotism of its citizens to respond to the imposition of an income tax,-once in the throes of civil war, and once in the exigency of a financial panic, scarcely less disastrous. The language of Mr. Justice Baldwin, in Grignon's Lessee v. Astor, 2 How. 319, 343, though referring to a different class of cases, seems to me perfectly apposite to the one under consideration: 'We do not deem it necessary, now or hereafter, to retrace the reasons or the authorities on which the decisions of this court in that or the cases which preceded it rested. They are founded on the oldest and most sacred principles of the common law. Time has consecrated them; the courts of the states have followed, and this court has never departed from, them. They are rules of property upon which the repose of the country depends. Titles acquired under the proceedings of courts of competent jurisdiction must be deemed inviolable in collateral action, or none can know what is his own.'

It must be admitted, however, that in none of these cases has the question been directly presented as to what are taxes upon land, within the meaning of the constitutional provision. Notwithstanding the authorities citedu pon this point by the attorney general, notably, Jeffrey's Case, 5 Coke, 67; Theed v. Starkey, 8 Mod. 314; Case v. Stephens, Fitzg. 297; Palmer v. Power. 4 Ir. C. L. 191; and Van Rensselaer v. Dennison, 8 Barb. 23,-to the effect that a tax upon a person with respect to his land, or the profits of his land, is not a tax upon the land itself, I regard the doctrine as entirely well settled in this court that a tax upon an incident to a prohibited thing is a tax upon the thing itself, and, if there be a total want of power to tax the thing, there is an equal want of power to tax the incident. A summary of the cases upon this point may not be inappropriate in this connection. Thus, in Brown v. Maryland, 12 Wheat. 419, a license tax upon an importer was held to be invalid, as a tax upon imports; in Weston v. City of Charleston, 2 Pet. 449, a tax upon stock for loans to the United States was held invalid, as a tax upon the functions of the government; in Dobbins v. Commissioners of Erie Co., 16 Pet. 435, a state tax on the salary of an office invalid, as a tax upon the office itself; in the Passenger Cases, 7 How. 283, a tax upon alien passengers arriving in ports of the state was held void, as a tax upon commerce; in Almy v. California, 24 How. 169, a stamp tax upon bills of lading was held to be a tax upon exports; in Crandall v. Nevada, 6 Wall. 35, a tax upon railroads and stage companies, for every passenger carried out of the state, was held to be a tax on the passenger, for the privilege of passing through the state; in Pickard v. Car Co., 117 U.S. 34, 6 Sup. Ct. 635, a tax upon Pullman cars running between different states was held to be bad, as a tax upon interstate commerce; and in Leloup v. Port of Mobile, 8 Sup. Ct. 1380, a similar ruling was made with regard to a license tax for telegraph companies; and finally, in Cook v. Pennsylvania, 97 U.S. 566, a tax upon the sales of goods was held to be a tax upon the goods themselves. Indeed, cases to the same effect are almost innumerable. In the light of these cases, I find it impossible to escape the conclusion that a tax upon the rents or income of real estate is a tax upon the land itself.

But this does not cover the whole question. To bring the tax within the rule of apportionment, it must not only be a tax upon land, but it must be a direct tax upon land. The constitution only requires that direct taxes be laid by the rule of apportionment. We have held that direct taxes include, among others, taxes upon land, but it does not follow from these premises that every tax upon land is a direct tax. A tax upon the product of land, whether vegetable, animal, or mineral, is in a certain sense, and perhaps within the decisions above mentioned, a tax upon the land. 'For,' as Lord Coke said, 'what is the land but the profits thereof?' But it seems to me that it could hardly be seriously claimed that a tax upon the crops and cattle of the farmer, or the coal and iron of the miner, though levied upon the property while it remained upon the land, was a direct tax upon the land. A tax upon the rent of land, in my opinion, falls within the same category. It is rather a difference in the name of the thing taxed, than in the principle of the taxation. The rent is no more directly the outgrowth or profit of the land than the crops or the coal, and a direct tax upon either is only an indirect tax upon the land. While, within the cases above cited, it is a tax upon land, it is a direct tax only upon one of the many profits of land, and is not only not a direct tax upon the land itself, but is also subject to the other objection, that it is, in its nature, incapable of apportionment according to population.

It is true that we have often held that what cannot be done directly cannot be done indirectly, but this applies only when it cannot be done at all, directly or indirectly; but if it can be done directly in one manner, i. e. by the rule of apportionment, it does not follow that it may not be done indirectly n another manner. There is no want of power on the part of congress to tax land, but in exercising that power it must impose direct taxes by the rule of apportionment. The power still remains, however, to impose indirect taxes by the rule of uniformity. Being of opinion that a tax upon rents is an indirect tax upon lands, I am driven to the conclusion that the tax in question is valid.

The tax upon the income of municipal bonds falls obviously within the other category,-of an indirect tax upon something which congress has no right to tax at all,-and hence is invalid. Here is a question, not of the method of taxation, but of the power to subject the property to taxation in any form. It seems to me that the cases of Collector v. Day, 11 Wall. 113, holding that it is not competent for congress to impose a tax upon the salary of a judicial officer of a state; McCulloch v. Maryland, 4 Wheat. 316, holding that a state could not impose a tax upon the operation of the Bank of the United States; and U.S. v. Baltimore & O. R. Co., 17 Wall. 322, holding that a municipal corporation is a portion of the sovereign power of the state, and is not subject to taxation by congress upon its municipal revenues; Railroad Co. v. Price Co., 133 U.S. 469, 10 Sup. Ct. 341, holding that no state has the power to tax the property of the United States within its limits; and Van Brocklin v. Tennessee, 117 U.S. 121, 6 Sup. Ct. 670, to the same effect,-apply, mutatis mutandis, to the bonds in question, and the tax upon them must therefore be invalid.

There is, in certain particulars, a want of uniformity in this law, which may have created in the minds of some the impression that it was studiously designed, not only to shift the burden of taxation upon the wealthy class, but to exempt certain favored corporations from its operation. There is certainly no want of uniformity, within the meaning of the constitution, since we have repeatedly held that the uniformity there referred to is territorial only. Loughborough v. Blake, 5 Wheat. 317; Head-Money Cases, 112 U.S. 580, 5 Sup. Ct. 247. In the words of the constitution, the tax must be uniform 'throughout the United States.'

Irrespective, however, of the constitution, a tax which is wanting in uniformity among members of the same class is, or may be, invalid. But this does not deprive the legislature of the power to make exemptions, provided such exemptions rest upon some principle, and are not purely arbitrary, or created solely for the purpose of favoring some person or body of persons. Thus in every civilized country there is an exemption of small incomes, which it would be manifest cruelty to tax, and, the power to make such exemptions once granted, the amount is within the discretion of the legislature, and, so long as that power is not wantonly abused, the courts are bound to respect it. In this law there is an exemption of $4,000, which indicates a purpose on the part of congress that the burden of this tax should fall on the wealthy, or at least upon the well-to-do. If men who have an income or property beyond their pressing needs are not the ones to pay taxes, it is difficult to say who are; in other words, enlightened taxation is imposed upon property, and not upon persons. Poll taxes, formerly a considerable source of revenue, are now practically obsolete. The exemption of $4,000 is designed, undoubtedly, to cover the actual living expenses of the large majority of families, and the fact that it is not applied to corporations is explained by the fact that corporations have no corresponding expenses. The expenses of earning their profits are, of course, deducted in the same manner as the corresponding expenses of a private individual are deductible from the earnings of his business. The moment the profits of a corporation are paid over to the stockholders, the exemption of $4,000 attaches to them in the hands of each stockholder.

The fact that savings banks and mutual insurance companies, whose profits are paid to policy holders, ar exempted, is explicable on the theory (whether a sound one or not, I need not stop to inquire) that these institutions are not, in their original conception, intended as schemes for the accumulation of money; and if this exemption operates as an abuse in certain cases, and with respect to certain very wealthy corporations, it is probable that the recognition of such abuses was necessary to the exemption of the whole class.

It is difficult to overestimate the importance of these cases. I certainly cannot overstate the regret I feel at the disposition made of them by the court. It is never a light thing to set aside the deliberate will of the legislature, and in my opinion it should never be done, except upon the clearest proof of its conflict with the fundamental law. Respect for the constitution will not be inspired by a narrow and technical construction which shall limit or impair the necessary powers of congress. Did the reversal of these cases involve merely the striking down of the inequitable features of this law, or even the whole law, for its want of uniformity, the consequences would be less serious; but, as it implies a declaration that every income tax must be laid according to the rule of apportionment, the decision involves nothing less than a surrender of the taxing power to the moneyed class. By resuscitating an argument that was exploded in the Hylton Case, and has lain practically dormant for a hundred years, it is made to do duty in nullifying, not this law alone, but every similar law that is not based upon an impossible theory of apportionment. Even the specter of socialism is conjured up to frighten congress from laying taxes upon the people in proportion to their ability to pay them. It is certainly a strange commentary upon the constitution of the United States and upon a democratic government that congress has no power to lay a tax which is one of the main sources of revenue of nearly every civilized state. It is a confession of feebleness in which I find myself wholly unable to join.

While I have no doubt that congress will find some means of surmounting the present crisis, my fear is that in some moment of national peril this decision will rise up to frustrate its will and paralyze its arm. I hope it may not prove the first step toward the submergence of the liberties of the people in a sordid despotism of wealth.

As I cannot escape the conviction that the decision of the court in this great case is fraugnt with immeasurable danger to the future of the country, and that it approaches the proportions of a national calamity, I feel it a duty to enter my protest against it.