Popular Science Monthly/Volume 51/August 1897/Principles of Taxation: Nomenclature and Forms of Taxation XVIII

Popular Science Monthly Volume 51 August 1897  (1897) 
Principles of Taxation: Nomenclature and Forms of Taxation XVIII by David Ames Wells

By DAVID A. WELLS, LL. D., D. C. L.,


(Continued from page 185.)

THE nature and scope of the "legal" and wholly anomalous definition (to which reference has been made, see page 173) that has been given in the United States by its Supreme Court to a direct tax,[1] and the interesting judicial and historical circumstances in connection therewith are substantially as follows:

The Constitution of the United States provides that "representatives and direct taxes shall be apportioned among the several States according to their respective numbers"—that is, population—"and excluding Indians not taxed." The origin of the idea thus incorporated in the Constitution of proportioning direct taxes according to representation, or population, rather than upon property, is not certainly known, and has been made the subject of speculation. Hamilton, subsequent to the adoption of the Constitution, suggested that the writings of the French economists of the eighteenth century, with which a number of the prominent members of the Constitutional Convention were familiar, was its source. These held that "agriculture was the only productive employment, and that the net product from land, to be found in the hands of the landowner, is the only fund from which taxation can draw without impoverishing society." They were accordingly led to class taxes habitually as direct when laid immediately upon the landowner, and as indirect when laid upon somebody else, but in their opinion destined to be borne by the landowner ultimately. Precedents for levying taxes by apportionment were also to be found in the French taille réelle, which was a tax on the income of real property and laid by apportioning a fixed sum among the provinces and requiring from each its quota. The English land tax, established under William III, embodied a like provision.[2] Be this as it may, the distribution of property (wealth) among the people of the American States at the time of the adoption of the Federal Constitution, as shown by the debates in the Constitutional Convention, was, very curiously, such that an apportionment of taxes according to population and representation was not inequitable. When the subject was under discussion, Roger Sherman, of Connecticut, said he "thought the number of people alone the best rule for measuring wealth as well as representation" (Elliot's Debates, v, 297). Mr. Gorham, of Massachusetts, "supported the propriety of establishing numbers as the rule. He said that in Massachusetts estimates had been taken in the different towns, and that persons had been curious enough to compare these estimates with the respective numbers of people, and it had been found, even including Boston, that the most exact proportions prevailed between numbers and property" (ibid., 300). Mr. Wilson, a leading member from Pennsylvania, said that, "taking the same number of people in the aggregate in the western settlements of Pennsylvania and in the city of Philadelphia, he believed there would be little difference in their wealth and ability to contribute to the public wants" (ibid., 301). Dr. Johnson, of Connecticut, "thought that wealth and population were the true, equitable rules of representation; but he conceived that these two principles resolved themselves into one, population being the best measure of wealth" (ibid., 303). And when the vote came to be taken in the Federal Convention on the proposition that direct taxation ought to be proportioned to representation, it passed without opposition (ibid., 302).

In the five occasions—1798, 1813, 1815, 1816, and 1861—in which the Federal Government has established a general system of direct taxation, there has been no essential and radical difference of opinion in respect to the methods and instrumentalities by which the provisions of the enactments could be made effective for the purpose of raising revenue. The amount of money desirable to raise was first determined. Then the population of each State was taken, according to the latest preceding census, and the proportion of tax proceeds respectively due was calculated.[3] A statute was then passed declaring that each State should pay to the Federal Treasury so much money, according to their ascertained proportionate liability of the aggregate amount which the entire Union of the States was required to raise. In each of the first four cases of such a system of taxation the several States were empowered to assume or assess in their own way the sums for which they were severally assessed and liable to pay into the national Treasury. In the case, however, of the levy in 1861, eleven States openly in insurrection against the Federal Government, one loyal State, and one Territory (Utah) refused or neglected to pay their assessment; whereupon a law was passed by Congress authorizing the appointment of special officials, whose duty it was to go into such States as soon as it was practicable and levy the proper assessments, seizing and selling real property whenever it became necessary to enforce payments of the amount required. And these provisions of law were enforced by threat or action to such an extent that about $2,800,100 were collected up to 1870, out of an aggregate quota of $5,153,891 due from all the States that adopted ordinances of secession; the total amount assessed on all the States having been $20,000,000.

The confusion attendant on the settlement after the war of the unpaid liabilities of the impoverished insurrectionary States to the Federal Government, on account of the direct tax of 1861, finds further illustration in the circumstance, that the Comptroller of the United States Treasury decided in 1883 that the sum of $35,555, appropriated by an act of Congress to refund to the State of Georgia money expended by it in 1777, or one hundred and six years previously, for the common defense in the War for Independence, should be paid to the Treasurer of the United States, "to the credit of Georgia on account of direct taxes charged against the State." The Supreme Court of the United States also decided in 1887 (United States vs. Louisiana, 37, 123) that the direct-tax law in 1861 did not create any liability on the part of a State to pay the tax; and that the apportionment merely designated the amount to be levied upon the property of individuals in the several States, without any liability attaching to the State in its political and corporate character. "This decision finally left the unpaid quota of the direct tax of 1861 in precisely the same position as any other tax assessed upon individuals, which the United States has been unable or has neglected to collect in full." (Dunbar, Direct Tax of 1861, Quarterly Journal of Economics, July, 1889.)

At the time when it was proposed to enforce the tax on defaulting States by the seizure and sale of land, a doubt was expressed whether the tax in question was, in its essence, "a tax on the land and all the various estates into which the fee may have been divided, or was a tax on the owner of the land and levied on the interest of the owner in it, and on no other subordinate or incorporeal interest. But no tax was ever collected or any land sold under the act of seizure and sale." (Hillard, Law of Taxation.)

But, apart from a unison of opinion as to the methods by which a direct tax should be levied and collected under the Federal Government, the determination of what is a direct tax has not been an easy matter; and the question came up for solution before the United States Supreme Court shortly after the adoption of the Constitution, or in 1794, in a case that has become historic in the annals of American jurisprudence.

Congress having imposed a tax on pleasure carriages—or chariots, as they were then termed—its collection was resisted by one Hylton, of Virginia, on the ground that such a tax was a direct tax, and had not been apportioned among the States, as required by the Constitution. The court held that the tax in question was to be considered as a tax on the expenses of living and not a direct tax within the meaning of the Constitution, as the evils which would attend its apportionment according to population would be so great "that the Constitution could not have intended that an apportionment should be made." "The Constitution," said the Court, "evidently contemplated no taxes as direct taxes, but such as Congress could lay in proportion to the census. A tax on carriages can not be laid by the rule of apportionment without very great inequality and injustice. Suppose two States, equal in census, to pay eighty thousand dollars each, by a tax on carriages of eight dollars on every carriage, and in one State there are one hundred carriages and in the other one thousand. A, in one State, would pay for his carriage eight dollars; but B, in the other State, would pay for his carriage eighty dollars." (Opinion by Justice Chase, 3 Dall., 171.)

These, and other decisions of the United States Supreme Court, have accordingly been regarded as affirming, that within the meaning of the Constitution of the United States there are only two forms of taxation that can be considered as direct—namely, a capitation or poll tax, simply, and without regard to property, profession, or any other circumstance, and a tax on land; and that no other taxes can be regarded as direct by the Federal authorities. It is also worthy of note that since the decision in the carriage case in 1796, Congress, in the few instances in which it has imposed a tax which it recognized as direct, has never made it applicable to any objects other than real estate and slaves.

The following additional memoranda are pertinent to this discussion: "While the carriage case was pending before the United States Supreme Court in 1796, Mr. Madison, who participated in the convention that framed the Constitution, wrote to the effect that the action of Congress in imposing this tax was constitutional, but that he doubted whether the court would so regard it. Hamilton, who appeared as one of the counsel for the United States in this case, also left behind him a legal brief in which he says: "What is the distinction between direct and indirect taxes? It is a matter of regret that terms so uncertain and vague on so important a point are to be found in the Constitution. We shall seek in vain for any antecedent settled legal meaning to the respective terms. There is none. We shall be as much at a loss to find any disposition of either which can satisfactorily determine the point." In his argument on behalf of the Government in the carriage case, Hamilton, however, mentioned such taxes which should be considered as direct; namely, direct capitation taxes, taxes on land and buildings, and general assessment. (See his brief in the case referred to.) And in rendering the decision in the income-tax case of Springer vs. United States, Justice Swayne also added to our historical information on this subject by remarking, that "the question of what is a direct tax is one exclusively of American jurisprudence," which is the same thing as saying that the system of American taxation is so peculiar, that the question involved has never been made a subject of legal controversy and discussion under any other, or foreign system of taxation.

This statement of Judge Swayne is one of a number of illustrations that will confront the student of the existing American system of taxation—if, indeed, it is worthy of being called a system—showing how the makers and administrators of tax laws in the United States have drifted, as it were, into uses and practices which long usage has made to appear almost as of self-evident validity, but which find no precedent in the experience or systems of other countries, and no solid foundation in any correct economic philosophy.[4]

There were also two reasons and two points of view in the Hylton case on which the judgment of the court might have been predicated. One was that Hylton possessed one hundred and twenty-five carriages, which warranted the inference that they were hackney carriages, kept and used for hire, and that the tax levied on each carriage ultimately fell on the consumer and not on the owner (Hylton) himself; or, in other words, the tax in question was a tax on transportation, and, as such, capable of transference to the person carried, and therefore, when imposed on the carrier, was an indirect and not a direct tax. Another point is, that a tax on carriages has not the compulsory element which pertains to all direct taxes, as their ownership and use are optional, which is the special characteristic of all indirect taxes.

Substantially the same question involved in the carriage case came up again (in 1874) before the same court (Springer vs. United States, 12 Otto, 102 U. S. Reports, p. 856), when a citizen of Illinois resisted the payment of a national income tax on the ground that such a tax was a direct tax; and not being levied in the manner prescribed by the Constitution, was not legal and valid. From an economic point of view such a tax, as has been before shown, is and always has been regarded as a direct tax; and on the hearing the plaintiff adduced in support of his position the testimony, as found in their writings, of almost every acknowledged authority on political economy or finance in the English language—Adam Smith, Ricardo, Mill, Wayland, Brande, Say, Perry, as well as the Encyclopædia Britannica and almost every other cyclopædia or dictionary of English or American origin.[5] The court, however, held as before, that under the definition of a direct tax, as expressed in the Constitution, the income tax was not direct but indirect, and accordingly that its imposition was not unconstitutional. The following was the exact language of the Court:

"Our conclusions are that direct taxes within the meaning of the Constitution are only capitation taxes, as expressed in that instrument, and taxes on real estate; and that the tax of which the plaintiff complains" (i.e., a direct tax) "is within the category of an excise or duty."

Whether warranted or not, the drift of public opinion in the United States has been, that the decision of its Supreme Court in the Springer case in 1874, and, to a certain extent, in all previous cases touching the constitutionality of an income tax, was made under the pressure of an apparent political necessity. Had the decision been to the effect that the income tax was a direct tax, and any method of levying it other than that prescribed by the Constitution—i. e., according to population—was unconstitutional, the Government would have been forever practically deprived of an effective instrumentality for raising revenue which might be most desirable in cases of emergency. Immense sums which had been paid under protest as income taxes would also have been pressed for repayment in case the decision had been otherwise, to the serious embarrassment of the national Treasury.

In harmony with the above decisions, the United States Supreme Court has decided that neither taxes on distilled spirits (United States vs. Singer, 15 Wall, 111), nor succession duties on the devolution of title to real estate (Scholey vs. Rew, 23 Wall., 331), nor taxes on the notes of State banks (Veazie Bank vs. Fenno, 8 Wall., 533), nor taxes on the receipts of insurance companies from premiums and assessments (Insurance Company vs. Soule, 7 Wall., 433) are direct taxes; but that all such taxes are imposts and excises, and subject, therefore, to the requirement as to uniformity, but not subject to the requirement of apportionment.

Important, interesting, and instructive from a constitutional, legal, and economic point of view, as was the experience of the United States in respect to direct taxation, prior to 1894, the sequel of events and experience in respect to this question and its involved problems has been no less important and worthy of narration.

By an enactment of Congress, August 18, 1894, establishing an income tax for the United States, a tax of two per cent was imposed on the gains, profits, and income of persons derived from any kind of property, including rent and the growth and produce of lands, and profits made upon the sale of land if purchased within two years. Every element that could make real or personal property a source of value to an owner was taxed. An excise duty was also imposed upon income derived from any profession, trade, employment, or avocation. The tax upon persons generally was not upon their entire income, but on the excess over and above the sum of $4,000. All persons having incomes of $4,000 or under were exempt. The whole burden of the tax, it was estimated, would fall on less than two per cent of the population of the country. That the Government practically conceded that such a feature of the act was pre-eminently class legislation is evident from the following extract from a statement made in a brief by the Attorney General of the United States: "Congress," he says, "has adopted as the minimum income for the purpose of taxation the limit of $4,000. This limit may be said to divide the upper from the lower middle class, financially speaking, in the larger cities, or to divide the middle class from the wealthy in the country districts." (Opening argument by William D. Guthrie, in support of the contention that the income-tax law of 1894 was unconstitutional.)

As might have been expected, the provisions of this enactment, which could not be fairly considered pertinent and relevant to a just and equitable system of income taxation, occasioned much of dissatisfaction among business men and the financial authorities of the country generally; and measures were at once initiated to test before the proper legal tribunals—i. e., the courts of the United States—the constitutionality of the statute. The most important and immediate representatives of this action were the Farmers' Loan and Trust Company and the Continental Trust Company, of New York—two of the largest trust companies in the United States. It is also worthy of note in this connection that the above-named companies, before taking any steps to test the validity of the act in question, complied with all its provisions; no collector of internal revenue or any public officer of the United States having been made a party, or any injunction sought from the courts, to restrain the collection of the tax.

The basis of action of the above-named parties, as represented by some of the most eminent members of the legal profession in the country,[6] was substantially as follows: Each of them, and a large number of other like organizations—insurance companies, savings banks, and trusts—hold as investments of capital stock, earnings, and profits, and as trustees for minors, widows, individuals, copartnerships, and corporations too numerous to mention, resident in the United States and elsewhere, large amounts of real estate, situated in the various States of the Federal Union, and amounting in aggregate value to hundreds of millions of dollars. The rents and income of this real estate, also annually amounting in the aggregate to large sums, are collected and received by the above-mentioned organizations, and held by them in their various fiduciary capacities.

The first point of importance under such a state of affairs to which attention is asked is, that taxes levied or laid by the Federal Government are recognized and admitted (in virtue of repeated decisions and assumptions of the United States Supreme Court) to be typical forms of direct taxation, and as such under a clear and carefully worded provision of the Federal Constitution must be apportioned among the several States according to their respective population.[7] On this point, therefore, there could obviously be no legal contention.

It is now well recognized that this provision of the Constitution, after full discussion and careful wording on the part of its framers, was adopted in order to protect to the States, which in entering into union were surrendering to the prospective Federal Government so many sources of income, the power of direct taxation, and so preclude a combination of States from exacting tribute from other States.[8]

The next point of contention in order of importance in the case as presented to the United States Supreme Court was; did the provisions of the income-tax act of 1894, imposing a tax of two per cent upon the gains, profits, and income derived from all kinds of property—including rent and the gains and profits accruing from the growth, profits, or sale of land—involve and create a tax which must necessarily be deemed a direct tax on real estate (land), and which not being apportioned (levied) according to the provision of the Constitution render the entire act imposing an income tax unconstitutional and void?

The precise or original question involved, it was admitted, was one on which the Federal Government had really never been heard,[9] and was first brought before the United States Supreme Court for a hearing and adjudication in April, 1895. On that occasion the court held that the provisions of the act of August 15, 1895, were unconstitutional, so far "as they purport to impose a tax on the rent or income of real estate." It was, however, equally divided on the following questions, and expressed no opinion in regard to them:

(1) Whether the void provisions invalidated the whole act; (2) whether, as to the income from personal property as such, the act is unconstitutional as levying direct taxes; (3) whether any part of the tax, if not considered as a direct tax, is invalid for want of uniformity.

The court, early in its history, adopted the practice of requiring, if practicable, constitutional questions to be heard by a full court, in order that the judgment in such cases might, if possible, be the decision of the majority of the whole court. And as the court was not full, at the first hearing in April, and as four judges did not concur in the opinion then rendered, a rehearing was granted by the court in the month following (May 6th, 7th, 8th); in the announcement of which the Chief Justice remarked that "the importance to the Government of the new views of its taxing power can hardly be exaggerated."

In advocating the constitutionality and rightfulness of the provisions of the income tax of 1894, the then United States Attorney General, Hon. Richard Olney, on behalf of the Government, made in part the following argument:

"What is this" (contested) "tax in its true value and essence? It is an assessment upon the taxpayer on account of his money-spending power as shown by his revenue for the year preceding the assessment. It is not a property tax in any sense or of any sort. Yet this is the sort of tax which is called a tax on real estate for no other reason than that last year's rents form a part of the yardstick by which this year's money-spending capacity is measured! A greater error, I submit, could not easily be justified. My Lord Coke is quoted to the effect that a grant in fee of the profits of land passes the land itself. Other citations are always interesting, and state a rule of law which is indisputable and of universal acceptance. But what is their relevancy to the case in hand? They relate to grants taking effect in future—to grants taking effect from the date or delivery of the deed, or from the probate of the devise, and carrying all after-accruing rents as a matter of course. But what this case is concerned with is rents that have not only become due, but have actually been received by the landlord. Does any one pretend that rents thus received would pass by a grant of the estate that has yielded them? Of course not, and why? Because, by falling due and being collected, they have become severed from the realty, and have become personal property—money in the landlord's pocket, like any other money. Nothing is gained, however, by belittling or evading an argument, and I have no intention of doing either. The strength of the plaintiff's claim is in the proposition that the value of land is in its use; that rents are the pecuniary equivalent of the use, and that, therefore, to tax rents is in substance and effect to tax the land itself. This is what may be called a fetching proposition. How much truth is there in it, and how much of applicability to the present case? There is this much of truth in it: that a tax upon rents to become due—to accrue in the future—may well be deemed a tax on the estate itself. Such accruing rents are like growing crops, an inseparable part of the land, and whatever is a charge upon them is necessarily a charge upon the land. But the proposition stated has no application whatever to the present case, because the tax it has to do with is a tax in respect to rents already due and collected, and in all probability either spent or transformed into other tangible property. How can a tax in respect to such rents be said to be a tax upon the real estate producing them? When they become due and are paid, just as when crops are harvested; when either process is complete, a new and distinct item of property comes into existence, and the landlord's property realizes a corresponding accretion."

In rejoinder the counsel for the appellants maintained that under the income-tax enactment in question (i.e., of August 28, 1894) a tax was imposed upon income "derived not merely from business, but also expressly upon that derived from property, and therefore directly upon the property producing the income, whether real or personal." Notably is this the case with a tax upon "rents" and the "growth and produce of land." It taxes every element of value of the land which the owner can realize from third parties. It must be clear that a tax upon what gives the land value is a tax upon the land itself. In the words of Hamilton, "What in fact is property but a fiction without the beneficial use of it?" In many cases, indeed, the income or annuity is the property itself. As one of the justices said in the Hylton case, "Land, independently of its produce, is of no value." It scarcely needs argument to establish that anything which affects every element that gives an article its value, in the eye of the law, affects directly the article itself. In illustration of this many decisions, mainly of the United States Supreme Court, were cited, of which the following are examples:

In Brown vs. Maryland, 12 Wheaton, it was held by the United States Court that a tax on the occupation of an importer is the same as a tax on imports, and was therefore void.

In Weston vs. Charleston, 2 Peters, it was held that a tax upon the income of United States securities was a tax upon the securities themselves, and equally inadmissible.

In Almy vs. California, 24 Howard, it was held that a duty on a bill of lading was the same thing as a duty on the article which it represents.

In Cook vs. Pennsylvania, 97 United States, it was held that a tax upon the amount of sales of goods made by an auctioneer was a tax upon the goods sold.

In Railroad Company vs. Jackson, 7 Wallace, it was held that a tax upon the interest payable upon bonds was a tax not upon the debtor, but upon the security, the bonds.

In Philadelphia Steamship Company vs. Pennsylvania, 122 United States, it was held that a tax upon the income received from interstate commerce was a tax upon the commerce itself, and equally unauthorized.

"If a man seized of lands in fee by his deed granteth to another the profit of those lands to have and to hold to him and his heires, the whole land itself e doth passe; for what is the land but the profits thereon?" (Coke upon Littleton, the accepted rule of law in every court in English Christendom.)

A devise of the interest or of the rents and profits is a devise of the thing itself out of which that interest on those rents and profits may issue (Patterson vs. Ellis, 11 Wendal).

It seems clear, therefore, that the weight of judicial opinion as expressed in the judgments of the highest courts, both in the United States and England, was to the effect that the tax imposed under the United States act of August, 1894, on the income from the use, profits, and sales of land was a direct tax, and, not being apportioned in accordance with a strict provision of the Federal Constitution in respect to the levy and collection of said tax, was necessarily unconstitutional and void.[10] Apart from the leading element in this celebrated case, and on which the final decision of the court was mainly based, was that provisions in the act of 1894 establishing an income tax, being in the nature of direct taxation, and the same being not assessed in accordance with the requirements of the Federal Constitution, were void in effect. The constitutionality of the entire act was also questioned on the ground that it violated the constitutional requirements that "all duties, imposts, and excises shall be uniform throughout the United States." Thus, for example, it taxed the income of certain companies and associations, "no matter how created or organized," at a higher rate than the income of individuals and partnerships derived from precisely similar property; and denied to individuals deriving their income from shares in certain corporations and associations the benefit of the exemption of $4,000 granted to all other persons interested in similar property and business, and the like. These features of the act of 1894, although constituting most important and instructive contributions to the general subject of "taxation," are not, however, so pertinent to the immediate subject under consideration as to require at present any extended discussion.

Conclusion.—As the result of the hearing and discussions involving the constitutionality of the income-tax statute of August 28, 1894, the United States Supreme Court, a majority of its members concurring, gave judgment as follows:

1. We adhere to the opinion already announced, that taxes on real estate being indisputably direct taxes, taxes on the rents or income of real estate are equally direct taxes.

2. We are of the opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes.

3. The tax imposed by sections twenty-seven to thirty-seven, inclusive, of the act of 1894, so far as it falls on the income of real estate and of personal property, being a direct tax within the meaning of the constitution, is therefore unconstitutional and void, because not apportioned according to representation. all those sections, constitution one entire scheme of taxation, are necessarily invalid.

A brief word more is desirable to complete the record of the curious and instructive experience of the United States in respect to the enactment and administration of direct taxation.

Theoretically an almost ideal system, especially if made universal in its incidence and exclusive of all indirect taxes, its application under a dual form of government, such as exists in the United States, with a practical denial of resort to arbitrary action in collection, such as exists in all despotic governments, and an accepted rule that neither the "nation" nor the forty-five "States" shall tax an instrumentality of the other, will be necessarily most perplexing. These and other like circumstances, more especially the inequalities and inefficiencies contingent on the act of 1861, therefore, render it almost certain that direct taxation will not hereafter be resorted to by the Federal Government until all other means of relief for its treasury have been exhausted. With the decision of the United States Supreme Court in 1896 against the taxation of land incomes remaining unimpaired, as it probably will be unless the Federal Constitution is practically reconstructed, the enactment by Congress of another income tax which will not reach more than half the incomes designed to be reached, will probably not be attempted. When it is also considered that it will be an impossibility to separate the part of incomes of great corporations which they derive from real estate, when they necessarily use real estate in common with other property in order to derive any income, the enormous expense and interminable litigation contingent on any attempt on the part of the Government to enforce such a law will be almost beyond estimate.

Note.—In order to render more complete the discussion of the nature and historical experience of the "poll tax," previously given in Chapter VIII, pages 165-175, Popular Science Monthly, No. 2, vol. Ix, attention is here asked to a statutory and legal action on the part of one of the States of the Federal Union that has hitherto largely escaped public attention, and which probably finds no exact precedent in history.

The antagonism between the white and colored races of the Southern States, mainly contingent on the former toleration of slavery, still continues to a large degree, although both races, by amendments to the Federal Constitution, have been placed on terms of full legal right and equality. In no one respect does this antagonism more persistently manifest itself, than in opposition on the part of the white citizen voters to the exercise of free and concurrent suffrage by the negro citizens. Yet, in view of the restraints imposed by the Federal Constitution in respect to political or legal discriminations against the negro race, any change in the way of relief from the situation by State enactment has been regarded as impracticable. A recent constitutional convention of the State of Mississippi seems, however, to have at last most ingeniously solved this difficult political problem, by enacting that every citizen (white or black) of established age shall pay a poll tax, the nonpayment of which shall exclude him from voting; and the collection of the tax out of exempt or non-taxable property—i. e., the possessions mainly of the poorer classes—was also denied. The intent of this provision was therefore manifestly not to raise revenue, but to exclude negroes from voting by reason of nonpayment of the poll tax; and by a like covert purpose the commission of a list of petty crimes which white men do not generally commit, such as thievery, arson, and obtaining money under false pretenses, was also made a disqualification of voting; while robbery, murder, and other robust crimes which are practiced chiefly by white men were not included.

"Within the field of permissible action under the limitations of the Federal Constitution, the Mississippi convention swept the circle of expedients to obstruct the exercise of the franchise for the negro race."—Ratliff vs. Bedle, Mississippi Reports.

In the preface to the works of Jean Rey, the philosopher who nearly three hundred years ago first suggested the cause of the increase in weight of lead and tin when burned, M. Edouard Grimaux notices some of the theories that have been put forth on the subject. Boyle explained the increase by supposing that corpuscles of fire, passing through the walls of the vessel in which the calcination took place, became fixed in the metal. This theory was accepted by Stomberg, Lemery, and Nicolas Lefèvre, and was formulated by Lemery: "The pores of the lead are so disposed that the corpuscles of the fire insinuate themselves among them; they remain fastened and agglutinated in the pliant and intricate parts of the metal without being able to escape from them, and add to its weight." Father Chérubin, of Orleans, refuted this explanation by showing that glass was not thus permeable; while Boerhaave, and afterward Boulduc, held that there was no increase of weight in the calcination of metals. Bierne, in 1753, supposed that some rich and sulphurous acid coming from the flame became fixed in the metal. Lavoisier declared the true cause—the fixation in the metal of a part of the air—in 1774, and a little while afterward, in 1775, Bayen called attention in the Journal de Physique to the existence of Jean Rey's Essays.
  1. Chief-Justice Chase on more than one occasion judicially intimated that the definition of direct taxes by political economists can not be used satisfactorily for the purpose of construing the phrase in the Constitution of the United States. Thus, a tax on the circulation by banks of State bank notes was held not to be direct (Veazie vs. Fenno, 8 Wallace, 533546), and so also of a tax on incomes of insurance companies (Pacific Insurance Company vs. Soule, 7 Wallace, 433).
  2. For further discussion of this subject, see paper by Prof. Charles F. Dunbar, contributed to The Journal of Economics, for July, 1889, and entitled The Direct Tax of 1861.
  3. Up to and including the direct tax of 1861, its imposition was scrupulously made in accordance with the understanding of the framers of the Constitution. Thus, the ratio of the State of New York in 1861 was returned at $2,602,9182/8.
  4. Since the statement of Judge Swayne (above referred to) was made, a decision has been rendered by the Privy Council of Great Britain, in which the recognition of direct taxation and its method of incidence by British jurisprudence is taken for granted; for in concurrence with a decision rendered by the full bench of judges concerning an opinion of one of their members, wherein he says, in speaking of a point that had been raised, that a tax must be general in order to be a direct tax, they reject that view, inasmuch as it "would deny the character of a direct tax to the income tax of this country—Great Britain—which is always spoken of as such, and is generally looked upon as a direct tax of the most obvious kind; and it would run counter to the common understanding of men on this subject, which is one main clew to the meaning of the Legislature."
  5. In all the debates in the British Parliament it is doubtful if any British statesman can be named who has ever spoken of an income tax as other than a direct tax. The same may be also affirmed of French authors and statesmen. The following citations of the opinions of various recognized authorities are illustrative:

    "The taxes which it is intended should fall indifferently upon every species of revenue are capitation taxes."(Adam Smith.)

    James Mill, under the title of "Direct taxes, which are designed to fall upon all sources of income,"says, "Assessed taxes, poll taxes, and income taxes are of this description." (Elements of Political Economy, p. 267.)

    J. R. McCulIoch divides his work on taxation into two parts; Part I, on direct taxes, and Part II, on indirect taxes, and under the head of "Direct Taxes" he treats of "taxes on property and income."

    Dr. Lieber, referring to the different modes of levying taxes, says: "The first way is direct—to determine from the statement of the parties concerned, or from official information, the net income of persons. This kind of taxes are called direct." (Encyclopædia Americana)

    "Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Direct taxes are either on income or expenditure. . . . Most taxes on expenditure are direct, being imposed not on the producer or seller of an article, but immediately on the consumer. . . . The window tax is a direct tax on expenditure, so are taxes on horses and carriages." (John Stuart Mill, Political Economy, vol. ii.)

    When Sir Robert Peel brought forward his plan for an income tax in 1842, he said: "Indirect taxation has reached its limits, and can no longer be relied on. My plan is this, to levy an income tax," etc. (Parliamentary Debates, Ivi, 428; Ann. Reg., 1842, 72, 73.) And Lord John Russell said in reply: "To resort to the desperate measure of an income tax in such circumstances is nothing less than to proclaim to the world that your resources are exhausted, that indirect taxation has reached its limits," etc. (Parliamentary Debates, Ivii, 86, 147; Ann. Reg , 1842, 77, 79.)

  6. Joseph Choate, Clarence A. Seward, William D. Guthrie, Benjamin H. Bristow, David Wilcox, and Charles Steele. For the United States, James C. Carter and Richard Olney, the Attorney General.
  7. "Representatives and direct taxes shall be apportioned among the several States which may be included within this Union according to their respective numbers."—Constitution of the United States, Article 1, section 2.
  8. "The founders anticipated that the expenditures of the States, their counties, cities, and towns, would chiefly be met by direct taxation on accumulated property, while they expected that those of the Federal Government would be for the most part by indirect taxes; and in order that the power of direct taxation of the General Government should not be exercised except on necessity, and when the necessity arose should be so exercised as to leave the States at liberty to discharge their respective obligations and should not be so exercised unfairly and discriminatingly as to particular States or otherwise by a mere majority vote, possibly of those whose constituents were intentionally not subjected to any part of the burden, this qualified grant was made. Those who made it knew that the power to tax involved the power to destroy, and that the only security against the abuse of this power is found in the structure of the Government itself. In imposing a tax the Legislature acts upon its constituents. This is in general a sufficient security against erroneous and oppressive taxation, and they retained this security by providing that direct taxation and representation in the lower House of Congress should be adjusted on the same measure."—Chief-Justice Fuller.
  9. None of the previous decisions of the court "discussed the question whether a tax on the income of personalty is equivalent to a tax on that personalty; but all held real estate liable to direct taxation only so as to sustain a tax on the income of realty on the ground of being an excise or duty."—Chief-Justice Fuller.
  10. The following rejoinder by one of the counsel for the applicants (Mr. Choate) to a portion of the argument made by the Attorney General (Mr. Olney), and before cited, is pertinent and instructive, as respects the much-vexed question as to the situs of property for the purpose of tax administration:

    "The Attorney General says, 'When a man has got the money in his pocket it is no longer rent.’ One thing I would say about that is, that if you are going after rent as money, the tax is on personal property, and should be apportioned. But the answer is that the tax does not go after the rent as money in the taxpayer's pocket. The act of 1894 (section 27) specifies the rents as a cardinal part and element of this income return, and every man who goes up to make return has to state under oath what rent he got last year. This fiction—this difference between the name and the thing, between the substance and the shadow, urged by the Attorney General—is that, though you can not tax rent, you can tax the money in the owner's pocket received from rent. If there is one factitious argument, one pretense of a reason, one attempt to make a distinction without a difference that this court has uniformly stamped upon with all its might, it is just that. The court has repeatedly decided that such an argument is wholly unsound. What did the court mean in Brown vs. Maryland, when it held that a tax on the occupation of an importer is the same as a tax on imports and is therefore void? It is the source, the substance, that the act strikes at, that the court always looks to, and always has looked to, in any form and case that has ever come before it until now."