United Ates v. Skelly Oil Company/Dissent Douglas

Mr. Justice DOUGLAS, dissenting.

I share Mr. Justice STEWART's views as to this case and add nly a word.

If we sat in chancery reviewing tax cases, much of what the Court says would have appeal. But we do not sit to do equity in tax cases; that is one of Congress' main concerns.

The search for equity in the tax laws is wondrous and elusive. As Edmond Cahn said: '(T)hose only are equal whom the law has elected to equalize.' E. Cahn, The Sense of Injustice 14 (1949).

Percentage depletion had its roots in granting a reward to men who go into undeveloped territory in search of oil and gas. But today it is granted anyone who has an interest in oil or gas; the beneficiary need not live the life of the oil wildcatter or bear his risks to obtain the benefits of percentage depletion.

When it comes to capital gains what 'equities' are to be applied? Is it fair that earned income pay a heavier tax?

A son who spends $1,000 on his destitute father does not get the same tax benefit as he who pays a like sum to his alma mater. Louis Eisenstein pursues example after example of so-called inequities in tax laws in his book The Ideologies of Taxation (1961). For example, the profits on the sale of unbred pigs are taxable as ordinary income, while the profits on the sale of pigs once bred are taxable as capital gains. Id., 174. The same is true of turkeys but not of chickens, even though 'a bred chicken and a bred turkey are similarly situated. Each has feathers and two legs.' Ibid.

Treasury recently noted numerous basic inequities resulting in preferred tax treatment for some people's dollars. Tax Reform Studies and Proposals, U.S. Treasury Dept., Joint Publication of House Committee on Ways and Means and Senate Committee on Finance, 91st Cong., 1st Sess., pt. 1, pp. 13, 17 (Comm. Print 1969).

Apart from certain aspects of percentage depletion were the reduced taxation on long-term capital gains and the exclusion of interest on state and local government bonds. The examples are legion. The Tax Reform study gives an unusual example:

'An individual had a total income of $1,284,718 of which     $1,210,426 was in capital gains, the remaining $74,292 from      wages, dividends, and interest. He excluded one-half of his     capital gains, which he is allowed to do under present law,      thereby reducing his present law (adjusted gross) income to      $679,405 (after allowing for the $100 dividend exclusion). From this income he subtracted all his personal deductions,     which amounted to $676,419 and which included $587,693 for      interest on funds borrowed presumably for the purpose of      purchasing the securities on which the capital gains were      earned. As a result, after allowing $1,200 of personal     exemptions his taxable income was reduced to $1,786 and he      paid a tax of $274. His overall tax rate, therefore, was     about two-hundredths of one percent.' Id., at 15.

This was made possible by using a taxpayer's deductions only against that part of his income which is subject to the tax, ignoring the excluded part.

Tax laws are indeed arbitrary; the lines they draw are the products of pressures inside the Congress with compromises carrying the day.

The Court of Appeals held that the 'item' here in question was properly included in 'gross income' prior to 1958 and was an allowable 'deduction' in 1958 because the taxpayer did not have 'an unrestricted right' to a 'portion of such item,' and that the amount of such deduction exceeds $3,000-all as provided in § 1341. Skelly Oil Co. v. United States, 10 Cir., 392 F.2d 128, 131.

There is no irregularity on the face of the return. There is no conflict with any decision of any other Court of Appeals. We are asked, however, to put a gloss on the statute that Treasury desires. I would adhere to the construction given by the Court of Appeals leaving to Congress the correction of any inequities in the tax scheme.

The Congress many years ago created the Joint Committee on Internal Revenue Taxation, which is a standing committee. 26 U.S.C. §§ 8001-8005, 8021-8023. One of its statutory mandates is '(t)o investigate the operation and effects of the Federal system of internal revenue taxes.' Id., § 8022.

'(T)he Joint Committee staff has in recent years been used as     a committee liaison with the Treasury Department in working      on tax proposals for the committee. The staff aids the two     tax committees in explaining provisions, in writing committee      reports, and in aiding in the drafting of bills.'

The Joint Committee makes regular reports to Congress for revision of the tax laws. Inequities that arise as a result of interpretations that are given existing laws either at the administrative or judicial level can be quickly corrected by this agency of oversight.

Treasury unhappily has developed the habit of jockeying in the courts, testing one theory against another. In California, it may take one position and in Massachusetts the opposite position, the issue in each being the same. The hope is that conflicts over litigious and important issues will develop and the case will be brought here.

If we were trained in the art and science of taxation, we might serve a useful function. But taxation is a specialty in which we have only sporadic and no continuous experience. It has been said that one of our decisions is like a 'lightning bolt' that 'illuminates only a very small portion of the landscape,' leaving a darkness that later decisions do not remove. R. Paul, Studies in Federal Taxation 249-250 (3d series 1940). Our contributions, if such they can be called, are dubious indeed, for the Joint Committee can and does rewrite the Code frequently.

It is therefore the rare tax case we should consider, except the even rarer constitutional case. The present case has no constitutional overtones; the taxpayer followed the words of the tax law literally, using no new or strained construction of words to find a tax advantage; there is no conflict between this case and any other decision. The Solicitor General only claims that the result reached by the Court of Appeals does not fit the neat logic which he finds in a group of related tax cases.

An account of the cost, confusion, and inequity in tax administration that ensues while everyone waits for a conflict among the Circuits (which takes at least 10 years) is related in Griswold, The Need for a Court of Tax Appeals, 57 Harv.L.Rev. 1153 (1944). The role we presently play was stated as follows:

'Our present system of tax adjudication inevitably leaves     nearly every question uncertain during the entire period      while it must be dealt with, usually in thousands of      instances, by the administrative officers. And yet that is     just the period when there should be an authoritative rule if      the system is to work smoothly, effectively, speedily,      fairly, and without discrimination. Under our present system delay and     discrimination are typical and inevitable.' Id., at 1161.

In absence of an unmistakably clear conflict among the Circuits, I would abide by the opinions of the Courts of Appeals in tax cases and leave to the Joint Committee whether the gloss which Treasury now tries to put on the statute is or is not desirable.