January 09, 2006

After I heard former Attorney General Edwin Meese discuss the Heritage Foundation's new book on the Constitution, I thought it sounded very interesting and asked Santa for a copy. Since I had not been too naughty during the year, he left me a copy under the Christmas tree. In eager anticipation, based on the glowing reviews I heard on several talk shows, I decided to begin by opening the book to a section that is of particular interest to me. I felt their analysis of this provision would give me a feel for the quality and accuracy of the research used to compile the book. After reading their analysis of the Sixteenth Amendment, my anticipation turned to total disappointment because "The Heritage Guide to the Constitution" misrepresents the effect of the Amendment.

In order to understand the Sixteenth Amendment, it is first necessary to review the taxing clauses in the body of the Constitution. Congress' general power to impose taxes is found at Article I, Section 8, Clause 1.

"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States."

The above section is limited by Article I, Section 2, Clause 3:

"Representatives and direct Taxes shall be apportioned among the several States.."

And Article I, Section 9, Clause 4:

"No Capitation, or other direct Tax, shall be laid, unless in Proportion to the Census or Enumeration.."

Thus, the Constitution only recognizes two classes of taxes: direct and indirect. The distinction between indirect and direct taxes is this: an indirect tax is a tax on doing something to property, or on the privilege of holding some property, or doing some act, not a tax on the property itself. A direct tax is a tax on the property itself.

As contemplated by the Founders, indirect taxes were required to be levied according to the rule of uniformity while direct taxes were required to be levied according to the rule of apportionment. When Congress imposes an indirect tax, the rate must be uniform throughout the United States. For example, the federal gasoline tax, which is an indirect tax on the seller, is the same in Florida as it is in Maine. When Congress imposes a direct tax, it is required to apportion the tax among the several States according to the rule of apportionment. For example. Let's say in 1805 Congress imposed a direct tax on the States in the amount of 20 million dollars and a big state like Virginia had 30 percent of the total population of the United States based on the last census. Since all direct taxes must be apportioned based on population, Virginia would have been responsible for 30 percent of the tax. The tax is imposed on the States, not the people. The States are then free to collect the tax through their general revenue system and required to pay the tax to the federal government.

Direct taxes are inherently unfair because one State, with ten percent of the population, might be one of the richest States while another State, with the same percentage of the population, might be one of the poorest. Yet, under the direct tax formula imposed by the Constitution, both States would be required to pay the same amount. The Founders feared the use of direct taxes so they created a system to discourage their use.

In 1895, a legal controversy arose concerning a federal income tax statute. In that year, the United States Supreme Court struck down, as unconstitutional, a portion of the federal Income Tax Act of 1894. In Pollock v. Farmers Loan and Trust Company, the Court held:

"Our conclusions may.be summed up as follows:

First. 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.

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

Third. The tax imposed by.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, and therefore, unconstitutional and void because not apportioned according to representation..."

Following this ruling, even though the Court did not hold that all income taxes were direct taxes, there was uncertainty as to whether the income tax was a direct or indirect tax. As a result, Congress sought to remove any confusion by passing an amendment to the Constitution. The Sixteenth Amendment, which the federal government claims was properly ratified in 1913, states:

"The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

This raises a question. Did the Sixteenth Amendment modify the taxing provisions of the Constitution and grant Congress a new power to impose a direct non-apportioned income tax, or did the Amendment maintain the apportionment requirement applicable to all direct taxes?

Immediately after the Sixteenth Amendment was ratified, Congress enacted another income tax act similar to the 1894 Act. The new law was immediately challenged as unconstitutional and reached the Supreme Court in 1916. In Brushaber v. Union Pacific Railroad Company, the nature of the income tax and the effect of the Sixteenth Amendment were addressed by the Court. Since the case is extremely lengthy and very difficult to read, I had my sometime co-author Claude Ellsworth go through the case and weed out all the dialogue and get to the meat of the case.

In delivering the holding of the Brushaber case, Justice White stated:

"We are of opinion.that the confusion.arises from the conclusion that the 16th Amendment provides for a hitherto unknown power of taxation."

"[T]he far-reaching effect of this erroneous assumption. if acceded to, would cause one provision of the Constitution to destroy another.bringing.the Amendment.into irreconcilable conflict with the general requirement that all direct taxes be apportioned."

"[T]he result.would be to authorize a particular direct tax not subject either to apportionment or to the rule of geographical uniformity, thus giving [a new] power to impose a different tax in one State.than was levied in another State. This result instead of simplifying the situation and making clear the limitation on the taxing power.would create radical and destructive changes in our constitutional system and multiply confusion."

"[T]he contention that the Amendment treats a tax on income as a direct tax.is also wholly without foundation..."

Justice White went on to state:

"[T]he Amendment contains nothing repudiating or challenging the ruling in the Pollock Case..."

"[The Sixteenth Amendment] was drawn with the object of maintaining the limitations of the Constitution and harmonizing their operation."

In the same year the Brushaber case was decided, Justice White, in Stanton v. Baltic Mining Company, delivered another opinion on the scope of the Sixteenth Amendment. This decision re-affirmed the holding in the Brushaber case and put the issue to rest once and for all:

"[T]he Sixteenth Amendment conferred no new power of taxation but simply prohibited.the power of income taxation.from being taken out of the category of indirect taxation to which it inherently belonged."

If you read between the lines, the Court was basically saying Congress you bunch of buffoons. You thought you were granting yourself a new power of direct taxation that was not subject to the rule of apportionment applicable to all other direct taxes. But what you actually did by using the phrase "without apportionment among the States," was to restrict income taxes to the class of indirect taxes because only that class of tax is not subject to the rule of apportionment.

The Heritage Foundation, in their analysis of the Amendment makes no reference to the Brushaber or Baltic Mining cases. Instead, it claims the Sixteenth Amendment altered the taxing clauses of the Constitution and granted Congress a new power of taxation. Their analysis began as follows:

"The Sixteenth Amendment, approved by Congress in 1909 and ratified in 1913, made it possible for Congress to enact an income tax without having to worry about whether, under the rules applicable to direct taxes, the tax had to be apportioned among the states on the basis of apportionment."

It went on to state:

"By 1909, it had become apparent there would be no income tax until the apportionment issue had been resolved.

The Sixteenth Amendment did that for 'taxes on income.' By its terms, it exempted only such taxes from apportionment, leaving apportionment to apply to other direct taxes."

"The Supreme Court has had no recent occasion to articulate the meaning of the amendment or to consider whether the amendment, which broadened congressional power, also contains restrictions on that power."

In other words, the Amendment, according to the Heritage Foundation, not only expanded Congress' power to tax, but it exempted income taxes from the requirement that all direct taxes be apportioned among the several States. These assertions, as shown in this article, have no basis in fact.

By their own admission, the Heritage Foundation had legal scholars from all over country collaborate on their analysis of the Constitution. In this author's opinion, these misrepresentations concerning the effect and scope of the Sixteenth Amendment cannot be attributed to sloppy research. Leaving the two most important cases on the Sixteenth Amendment out of an analysis of the Amendment cannot be by accident. The reader can draw their own conclusions concerning these omissions.

In the final analysis, the Amendment could be considered a red herring because if you woke up tomorrow morning and the headline in your favorite newspaper read: "States repeal Sixteenth Amendment," Congress would still have the constitutional authority to impose an income tax because the Amendment is not the source of the federal government's power to impose income taxes. The Amendment did not grant Congress any new taxing power or remove the apportionment requirement applicable to all direct taxes. By its wording, it simply restricted income taxes to the class on indirect taxes because only that class of tax is not subject to the rule of apportionment.

Note: For another article on the income tax issue see: "The Sixteenth Amendment is not the Source of the Federal Government's Power to Impose Income Taxes."

Robert Greenslade focuses his writing on issues surrounding the federal government and the Constitution. He believes politicians at the federal level, through ignorance or design, are systematically dismantling the Constitution in an effort to expand their power and consolidate control over the American people. He has dedicated himself to resurrecting the true intent of the Constitution in the hope that the information will contribute, in some small way, to restoring the system of limited government established by the Constitution.

If you are interested in finding out more about the Constitution, take a look at this book. I use it in many of my articles and it is the best book I've found on this subject. Bob

The Federal Government: Its True Nature and Character: Being a Review of Judge Story's Commentaries on the Constitution of the United States.

Reprint of the 1868 edition. ''Perhaps the ablest analysis of the nature and character of the federal government that has ever been published. It has remained unanswered.'' This review of Judge Story's Commentaries on the Constitution of the United States is perhaps the ablest analysis of the nature and character of the Federal Government that has ever been published. It has remained unanswered. Indeed, we are not aware that any attempt has been made to challenge the soundness of its reasoning. The great vise of Judge Story and the Federalists consisted in desiring the clothe the federal government with almost monarchical power, whereas the States had carefully and resolutely reserved the great mass of political power for themselves. The powers which they delegated to the federal government were few, and were general in their character. Those which they reserved embraced their original and inalienable sovereignty, which no state imagined it was surrendering when it adopted the consitution. Mr Madison dwelt with great force upon the fact that ''a delegated is not a surrendered power.'' The states surrendered no powers to the federal government -- they only delegated them. 160 pages.

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