Pollock v. Farmers Loan Trust Co Hyde v. Continental Trust Co of City of New York, s. 893 and 894

Decision Date20 May 1895
Docket NumberNos. 893 and 894,s. 893 and 894
Citation15 S.Ct. 912,39 L.Ed. 1108,158 U.S. 601
CourtU.S. Supreme Court

[Syllabus from pages 601-607 intentionally omitted] Jos. H. Choate and W. D. Guthrie, for appellants.

[Argument of Counsel from pages 607-613 intentionally omitted]

Page 613

Atty. Gen. Olney and Asst. Atty. Gen. Whitney, for appellees.

[Argument of Counsel from pages 613-617 intentionally omitted]

Page 617

Mr. Chief Justice FULLER delivered the opinion of the court:

Whenever this court is required to pass upon the validity of an act of congress, as tested by the fundamental law enacted by the people, the duty imposed demands, in its discharge, the utmost deliberation and care, and invokes the deepest sense of responsibility. And this is especially so when the question involves the exercise of a great governmental power, and brings into consideration, as vitally affected by the decision, that complex system of government, so sagaciously framed to secure and perpetuate 'an indestructible Union, composed of indestructible states.'

We have, therefore, with an anxious desire to omit nothing which might in any degree tend to elucidate the questions submitted, and aided by further able arguments embodying the fruits of elaborate research, carefully re-examined these cases, with the result that, while our former conclusions remain unchanged, their scope must be enlarged by the acceptance of their logical consequences.

The very nature of the constitution, as observed by Chief Justice Marshall in one of his greatest judgments, 'requires that only its great outlines should be marked, its important objects designated, and the minor ingredients which compose those objects be deduced from the nature of the objects themselves.' 'In considering this question, then, we must never forget that it is a constitution that we are expounding.' McCulloch v. Maryland, 4 Wheat. 316, 407.

As heretofore stated, the constitution divided federal taxa-

Page 618

tion into two great classes,—the class of direct taxes, and the class of duties, imposts, and excises,—and prescribed two rules which qualified the grant of power as to each class.

The power to lay direct taxes, apportioned among the several states in proportion to their representation in the popular branch of congress,—representation based on population as ascertained by the census,—was plenary and absolute, but to lay direct taxes without apportionment was forbidden. The power to lay duties, imposts, and excises was subject to the qualification that the imposition must be uniform throughout the United States.

Our previous decision was confined to the consideration of the validity of the tax on the income from real estate, and on the income from municipal bonds. The question thus limited was whether such taxation was direct, or not, in the meaning of the constitution; and the court went no further, as to the tax on the income from real estate, than to hold that it fell within the same class as the source whence the income was derived,—that is, that a tax upon the realty and a tax upon the receipts therefrom were alike direct; while, as to the income from municipal bonds, that could not be taxed, because of want of power to tax the source, and no reference was made to the nature of the tax, as being direct or indirect.

We are now permitted to broaden the field of inquiry, and to determine to which of the two great classes a tax upon a person's entire income—whether derived from rents or products, or otherwise, of real estate, or from bonds, stocks, or other forms of personal property—belongs; and we are unable to conclude that the enforced subtraction from the yield of all the owner's real or personal property, in the manner prescribed, is so different from a tax upon the property itself that it is not a direct, but an indirect, tax, in the meaning of the constitution.

The words of the constitution are to be taken in their obvious sense, and to have a reasonable construction. In Gibbons v. Ogden, Mr. Chief Justice Marshall, wt h his usual felicity, said: 'As men whose intentions require no concealment generally employ the words which most directly and aptly

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EXPRESS THE IDEAS THEY INTEND TO CONVEY, the enlightened patriots who framed our constitution, and the people who adopted it, must be understood to have employed words in their natural sense, and to have intended what they have said.' 9 Wheat. 188. And in Rhode Island v. Massachusetts, where the question was whether a controversy between two states over the boundary between them was within the grant of judicial power, Mr. Justice Baldwin, speaking for the court, observed: 'The solution of this question must necessarily depend on the words of the constitution, the meaning and intention of the convention which framed and proposed it for adoption and ratification to the conventions of the people of and in the several states, together with a reference to such sources of judicial information as are resorted to by all courts in construing statutes, and to which this court has always resorted in construing the constitution.' 12 Pet. 721.

We know of no reason for holding otherwise than that the words 'direct taxes,' on the one hand, and 'duties, imposts and excises,' on the other, were used in the constitution in their natural and obvious sense. Nor, in arriving at what those terms embrace, do we perceive any ground for enlarging them beyond, or narrowing them within, their natural and obvious import at the time the constitution was framed and ratified.

And, passing from the text, we regard the conclusion reached as inevitable, when the circumstances which surrounded the convention and controlled its action, and the views of those who framed and those who adopted the constitution, are considered.

We do not care to retravel ground already traversed, but some observations may be added.

In the light of the struggle in the convention as to whether or not the new nation should be empowered to levy taxes directly on the individual until after the states had failed to respond to requisitions,—a struggle which did not terminate until the amendment to that effect, proposed by Massachusetts and concurred in by South Carolina, New Hampshire, New York, and Rhode Island, had been rejected,—it would seem beyond

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reasonable question that direct taxation, taking the place, as it did, of requisitions, was purposely restrained to apportionment according to representation in order that the former system as to ratio might be retained, while the mode of collection was changed.

This is forcibly illustrated by a letter of Mr. Madison of January 29, 1789, recently published,1 written after the ratification of the constitution, but before the organization of the government and the submission of the proposed amendment to congress, which, while opposing the amendment as calculated to impair the power, only to be exercised in 'extraordinary emergencies,' assigns adequate ground for its rejection as substantially unnecessary, since, he says, 'every state which chooses to collect its own quota may always prevent a federal collection by keeping a little beforehand in its finances, and mkaing its payment at once into the federal treasury.'

The reasons for the clauses of the constitution in respect of direct taxation are not far to seek. The states, respectively, possessed plenary powers of taxation. They could tax the property of their citizens in such manner and to such extent as they saw fit. They had unrestricted powers to impose duties or imposts on imports from abroad, and excises on manufactures, consumable commodities, or otherwise. They gave up the great sources of revenue derived from commerce. They retained the concurrent power of levying excises, and duties if covering anything other than excises; but in respect of them the range of taxation was narrowed by the power granted over interstate commerce, and by the danger of being put t disadvantage in dealing with excises on manufactures. They retained the power of direct taxation, and to that they looked as their chief resource; but even in respect of that they granted the concurrent power, and, if the tax were placed by both governments on the same subject, the claim of the United States had preference. Therefore they did not grant the power of direct taxation without regard to their own condition

Page 621

and resources as states, but they granted the power of apportioned direct taxation,—a power just as efficacious to serve the needs of the general government, but securing to the states the opportunity to pay the amount apportioned, and to recoup from their own citizens in the most feasible way, and in harmony with their systems of local self-government. If, in the changes of wealth and population in particular states, apportionment produced inequality, it was an inequality stipulated for, just as the equal representation of the states, however small, in the senate, was stipulated for. The constitution ordains affirmatively that each state shall have two members of that body, and negatively that no state shall by amendment be deprived of its equal suffrage in the senate without its consent. The constitution ordains affirmatively that representatives and direct taxes shall be apportioned among the several states according to numbers, and negatively that no direct tax shall be laid unless in proportion to the enumeration.

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 met by indirect taxes. And in order that the power of direct taxation by 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...

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