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

Mr. Justice JACKSON, dissenting.

I am unable to yield my assent to the judgment of the court in these cases. My strength has not been equal to the task of preparing a formal dissenting opinion since the decision was agreed upon. I concur fully in the dissent expressed by Mr. Justice WHITE on the former hearing and by the justices who will dissent now, and will only add a brief outline of my views upon the main questions presented and decided.

It is not and cannot be denied that, under the broad and comprehensive taxing power conferred by the constitution on the national government, congress has the authority to tax incomes from whatsoever source arising, whether from real estate or personal property or otherwise. It is equally clear that congress, in the exercise of this authority, has the discretion to impose the tax upon incomes above a designated amount. The underlying and controlling question now presented is whether a tax on incomes received from land and personalty is a 'direct tax,' and subject to the rule of apportionment.

The decision of the court, holding the income tax law of August, 1894, void, is based upon the following propositions:

First. That a tax upon real and personal property is a direct tax within the meaning of the constitution, and, as such, in order to be valid, must be apportioned among the several states according to their respective populatin s. Second. That the incomes derived or realized from such property are an inseparable incident thereof, and so far partake of the nature of the property out of which they arise as to stand upon the same footing as the property itself. From these premises the conclusion is reached that a tax on incomes arising from both real and personal property is a 'direct tax,' and subject to the same rule of apportionment as a tax laid directly on the property itself, and not being so imposed by the act of 1894, according to the rule of numbers, is unconstitutional and void. Third. That the invalidity of the tax on incomes from real and personal property being established, the remaining portions of the income tax law are also void, notwithstanding the fact that such remaining portions clearly come within the class of taxes designated as duties or excises, in respect to which the rule of apportionment has no application, but which are controlled and regulated by the rule of uniformity.

It is not found, and could not be properly found, by the court, that there is in the other provisions of the law any such lack of uniformity as would be sufficient to render these remaining provisions void for that reason. There is therefore no essential connection between the class of incomes which the court holds to be within the rule of apportionment and the other class falling within the rule of uniformity, and I cannot understand the principle upon which the court reaches the conclusion that, because one branch of the law is invalid for the reason that the tax is not laid by the rule of apportionment, it thereby defeats and invalidates another branch resting upon the rule of uniformity, and in respect to which there is no valid objection. If the conclusion of the court on this third proposition is sound, the principle upon which it rests could with equal propriety be extended to the entire revenue act of August, 1894.

I shall not dwell upon these considerations. They have been fully elaborated by Mr. Justice HARLAN. There is just as much room for the assumption that congress would not have passed the customs branches of the law without the provision taxing incomes from real and personal estate, as that they would not have passed the provision relating to incomes resting upon the rule of uniformity. Unconstitutional provisions of an act will, no doubt, sometimes defeat constitutional provisions, where they are so essentially and inseparably connected in substance as to prevent the enforcement of the valid part without giving effect to the invalid portion. But when the valid and the invalid portions of the act are not mutually dependent upon each other as considerations, conditions, or compensation for each other, and the valid portions are capable of separate enforcement, the latter are never, especially in revenue laws, declared void because of invalid portions of the law.

The rule is illustrated in numerous decisions of this court, and of the highest courts of the states. Take the Freight-Tax Cases, 15 Wall. 232. There was a single act imposing a tonnage tax upon all railroads, on all freight transported by them. The constitutionality of the law was attacked on the ground that it applied, not merely to freight carried wholly within the state, but extended to freight received without and brought into the state, and to that received within and carried beyond the limits of the state, which came within the interstate commerce provision of the constitution of the United States. This court held the tax invalid, as to this latter class of freight, but, being valid as to the internal freight, that much of the law could not be defeated by the invalid part, although the act imposing the tax was single and entire. To the same effect are the cases of Huntington v. Worthen, 120 U.S. 97, 7 Sup. Ct. 469; Allen v. Louisiana, 103 U.S. 80; Ratterman v. Telegraph Co., 127 U.S. 411, 8 Sup. Ct. 1127 (where the point was directly made that the invalid part should defeat the valid part);a nd Field v. Clark, 143 U.S. 696, 697, 12 Sup. Ct. 495. In this last case this court said: 'Unless it be impossible to avoid it, a general revenue statute should never be declared inoperative in all its parts, because a particular part, relating to a distinct subject-matter, may be invalid. A different rule might be disastrous to the financial operations of the government, and produce the utmost confusion in the business of the entire country.'

Here the distinction between the two branches of the income tax law are entirely separable. They rest upon different rules; one part can be enforced without the other; and to hold that the alleged invalid portion, if invalid, should break down the valid portion, is a proposition which I think entirely erroneous, and wholly unsupported either upon principle or authority.

In considering the question whether a tax on incomes from real or personal estate is a direct tax, within the meaning of those words as employed in the constitution, I shall not enter upon any discussion of the decisions of this court, commencing with the Hylton Case, in 1796 (3 Dall. 171), and ending with the Springer Case, in 1880 (102 U.S. 587); nor shall I dwell upon the approval of those decisions by the great law writers of the country, and by all the commentators on the constitution; nor will I dwell upon the long-continued practice of the government in compliance with the principle laid down in those decisions. They, in my judgment, settle and conclude the question now before the court, contrary to the present decision. But, if they do not settle, they certainly raise such a doubt on the subject as should restrain the court from declaring the act unconstitutional. No rule of construction is better settled than that this court will not declare invalid a statute passed by a co-ordinate branch of the government, in whose favor every presumption should be made, unless its repugnancy to the constitution is clear beyond a reasonable doubt. In Ogden v. Saunders, 12 Wheat. 213, this court said that the mere fact of a doubt was sufficient to prevent the court from declaring the act unconstitutional; and that language, in substance, is repeated in the Sinking-Fund Cases, 99 U.S. 700, where the opinion of the court was given by Chief Justice Waite, who said the act must be, beyond all reasonable doubt, unconstitutional, before this court would so declare it.

It seems to me the court in this case adopts a wrong method of arriving at the true meaning of the words 'direct tax,' as employed in the constitution. It attaches too much weight and importance to detached expressions of individuals and writers on political economy, made subsequent to the adoption of the constitution, and who do not, in fact, agree upon any definition of a 'direct tax.' From such sources we derive no real light upon the subject. To ascertain the true meaning of the words 'direct tax' or 'direct taxes,' we should have regard, not merely to the words themselves, but to the connection in which they are used in the constitution, and to the conditions and circumstances existing when the constitution was formed and adopted. What were the surrounding circumstances? I shall refer to them very briefly. The only subject of direct taxation prevailing at the time was land. The states did tax some articles of personal property, but such property was not the subject of general taxation by valuation or assessment. Land and its appurtenances was the principal object of taxation in all the states. By the eighth article of the confederation, the expenses of the government were to be borne out of a common treasury, to be supplied by the states according to the value of the granted and surveyed lands in each state; such valuation to be estimated or the assessment to be made by the congress, in such mode as they should, from time to time, determine. This was a direct tax directly laid upon the value of all the real estate in the country. The trouble with it was that the confederation hd no power of enforcing its assessment. All it could do, after arriving at the assessment or estimate, was to make its requisitions upon the several states for their respective quotas. They were not met. This radical in the confederation had to be remedied in the new constitution, which accordingly gave to the national government the power of imposing taxation directly upon all citizens or inhabitants of the country, and to enforce such taxation without the agency or instrumentality of the states. The framers of the constitution knew that land was the general object of taxation in all the states. They found no fault with the eighth article of the confederation, so far as it imposed taxation on the value of land and the appurtenances thereof in each state.

Now, it may reasonably and properly be assumed that the framers of the constitution in adopting the rule of apportionment, according to the population of the several states, had reference to subjects or objects of taxation of universal or general distribution throughout all the states. A capitation or poll tax had its subject in every state, and was, so to speak, self-apportioning according to numbers. 'Other direct tax' used in connection with such capitation tax must have been intended to refer to subjects having like, or approximate, relation to numbers, and found in all the states. It never was contemplated to reach by direct taxation subjects of partial distribution. What would be thought of a direct tax and the apportionment thereof laid upon cotton at so much a bale, upon tobacco at so much a hogshead, upon rice at so much a ton or a tierce? Would not the idea of apportioning that tax on property, nonexisting in a majority of the states, be utterly frivolous and absurd?

Not only was land the subject of general distribution, but evidently in the minds of the framers of the constitution, from the fact that it was the subject of taxation under the confederation. But at the time of the adoption of the constitution there was, with the single exception of a partial income tax in the state of Delaware, no general tax on incomes in this country nor in any state thereof. Did the framers of the constitution look forward into the future so as to contemplate and intend to cover such a tax as was then unknown to them? I think not.

It was 10 or 11 years after the adoption of the constitution before the English government passed her first income tax law under the leadership of Mr. Pitt. The question then arose, to which the Chief Justice has referred, whether, in estimating income, you could look or have any regard to the source from which it sprung. That question was material, because, by the English loan acts it was provided that the public dividends should be paid 'free of any tax or charge whatever,' and Mr. Pitt was confronted with the question on his income tax law whether he proposed to reach or could reach income from those stocks. He said the words must receive a reasonable interpretation, and that the true construction was that you should not look at all to the nature of the source, but that you should consider dividends, for the purpose of the income tax, simply in the relation to the receiver as so much income. This construction was adopted and put in practice for over 50 years without question. In 1853, Mr. Gladstone, as chancellor of the exchequer, resisting with all his genius the effort to make important changes of the income tax, said, in a speech before the house of commons, that the construction of Mr. Pitt was undoubtedly correct. These opinions of distinguished statesmen may not have the force of judicial authority, but they show what men of eminence and men of ability and distinction thought of the income tax at its original inception.

If the assumption I have made that the framers of the constitution in providing for the apportionment of a direct tax had in mine a subject-matter or subjects-matter which had some general distribution among the states is correct, it is clear that a tax on incomes-as ubject not of general distribution at that time or since-is not a 'direct tax,' in the sense of the constitution.

The framers of the constitution proceeded upon the theory entertained by all political writers of that day, that there was some relation, more or less direct, between population and land. But there is no connection, direct or proximate, between rents of land and incomes of personalty and population,-none whatever. They did not have any relation to each other at the time the constitution was adopted, nor have they ever had since, and perhaps never will have.

Again, it is settled by well-considered authorities that a tax on rents and a tax on land itself is not duplicate or double taxation. The authorities in England and in this country hold that a tax on rents and a tax on land are different things. Besides the English cases, to which I have not the time or strength to refer, there is the well-considered case of Robinson v. Allegheny Co., 7 Pa. St. 161, when Gibson was the chief justice of the supreme court of Pennsylvania, holding that a tax on rent is not a tax on the land out of which it arises. In that case there was a lease in fee of certain premises, the lessee covenanting to pay all taxes on the demised premises. A tax was laid by the state upon both land and rent, and the question arose whether the tenant, even under that express covenant, was bound to pay the tax on the land itself. The supreme court of the state held that he was not; that there were two separate, distinct, and independent subjects-matter; and that his covenant to pay on the demised premises did not extend to the payment of the tax charged upon the rent against the landowner. All the circumstances surrounding the formation and adoption of the constitution lead to the conclusion that only such tax as is laid directly upon property as such, according to valuation or assessment, is a 'direct tax,' within the true meaning of the constitution.

Again, we cannot attribute to the framers of the constitution an intention to make any tax a direct tax which it was impossible to apportion. If it cannot be apportioned without gross injustice, we may feel assured that it is a tax never contemplated by the constitution as a direct tax. No tax, therefore, can be regarded as a direct tax, in the sense of that instrument, which is incapable of apportionment by the rule of numbers. The constitutional provision clearly implies in the requirement of apportionment that a direct tax is such, and such only, as can be apportioned without glaring inequality, manifest injustice, and unfairness as between those subject to its burden. The most natural and practical test by which to determine what is a direct tax in the sense of the constitution is to ascertain whether the tax can be apportioned among the several states according to their respective number, with reasonable approximation to justice, fairness, and equality to all the citizens and inhabitants of the country who may be subject to the operation of the law. The fact that a tax cannot be so apportioned without producing gross injustice and inequality among those required to pay it should settle the question that it was not a direct tax within the true sense and meaning of those words as they are used in the constitution.

Let us apply this test. Take the illustration suggested in the opinion of the court. Congress lays a tax of thirty millions upon the incomes of the country above a certain designated amount, and directs that tax to be apportioned among the several states according to their numbers, and, when so apportioned, to be prorated amongst the citizens of the respective states coming within the operation of the law. To two states of equal population, the same amount will be allotted. In one of these states there are 1,000 individuals and in the other 2,000 subject to the tax. The former, under the operation of the apportionment, will be required to pay twice the rate of the latter on the same amount of income. This disparity and inequaliy will increase just in proportion as the numbers subject to the tax in the different states differ or vary. By way of further illustration, take the new state of Washington and the old state of Rhode Island, having about the same population. To each would be assigned the same amount of the general assessment. In the former, we will say, there are 5,000 citizens subject to the operation of the law, in the latter 50,000. The citizen of Washington will be required to pay ten times as much as the citizen of Rhode Island on the same amount of taxable income. Extend the rule to all the states, and the result is that the larger the number of those subject to the operation of the law in any given state, the smaller their proportion of the tax and the smaller their rate of taxation, while, in respect to the smaller number in other states, the greater will be their rate of taxation on the same income.

But it is said that this inequality was intentional upon the part of the framers of the constitution; that it was adopted with a view to protect property owners as a class. Where does such an idea find support or countenance under a constitution framed and adopted 'to promote justice'? The government is not dealing with the states in this matter; it is dealing with its own citizens throughout the country, irrespective of state lines; and to say that the constitution, which was intended to promote peace and justice, either in its whole or in any part thereof, ever intended to work out such a result, and produce such gross discrimination and injustice between the citizens of a common country, is beyond all reason. What is to be the end of the application of this new rule adopted by the court? A tax is laid by the general government on all the money on hand or on deposit of every citizen of the government at a given date. Such taxation prevails in many of the states. The government has, under its taxing power, the right to lay such a tax. When laid, a few parties come before the court, and say: 'My deposits were derived from the proceeds of farm products, or from the interest on bonds and securities, and they are not, therefore, taxable by this law.' To make your tax valid, you must apportion the tax among all the citizens of the government, according to the population of the respective states, taking the whole subject-matter out of the control of congress, both the rate of taxation and the assessment, and imposing it upon the people of the country by an arbitrary rule, which produces such inequality as I have briefly pointed out.

In my judgment, the principle announced in the decision practically destroys the power of the government to reach incomes from real and personal estate. There is to my mind little or no real difference between denying the existence of the power to tax incomes from real and personal estate, and attaching such conditions and requirements to its exercise as will render it impossible or incapable of any practical operation. You might just as well in this case strike at the power to reach incomes from the sources indicated as to attach these conditions of apportionment which no legislature can ever undertake to adopt, and which, if adopted, cannot be enforced with any degree of equality or fairness between the common citizens of a common country.

The decision disregards the well-established canon of construction to which I have referred, that an act passed by a co-ordinate branch of the government has every presumption in its favor, and should never be declared invalid by the courts unless its repugnancy to the constitution is clear beyond all reasonable doubt. It is not a matter of conjecture; it is the established principle that it must be clear beyond a reasonable doubt. 1 cannot see, in view of the past, how this case can be said to be free of doubt.

Again, the decision not only takes from congress its rightful power of fixing the rate of taxation, but substitutes a rule incapable of application without producing the most monstru § inequality and injustice between citizens residing in different sections of their common country, such as the framers of the constitution never could have contemplated, such as no free and enlightened people can ever possibly sanction or approve.

The practical operation of the decision is not only to disregard the great principles of equality in taxation, but the further principle that in the imposition of taxes for the benefit of the government the burdens thereof should be imposed upon those having most ability to bear them. This decision, in effect, works out a directly opposite result, in relieving the citizens having the greater ability, while the burdens of taxation are made to fall most heavily and oppressively upon those having the least ability. It lightens the burden upon the larger number, in some states subject to the tax, and places it most unequally and disproportionately on the smaller number in other states. Considered in all its bearings, this decision is, in my judgment, the most disastrous blow ever struck at the constitutional power of congress. It strikes down an important portion of the most vital and essential power of the government in practically excluding any recourse to incomes from real and personal estate for the purpose of raising needed revenue to meet the government's wants and necessities under any circumstances.

I am therefore compelled to enter my dissent to the judgment of the court.