DIRECT TAXES AND THE FEDERAL CONSTITUTION.1 IV. We are now ready to study the formal definitions and explanations of the terms used by the constitution. It is a noticeable fact that, in almost every case where such a thing was either asked or attempted, grave doubts were expressed as to the exact definition of these words. The first case of this sort is found in the constitutional convention itself. There Mr. King, who had himself, as early as 1786, mentioned taxes "of the direct kind,"2 demanded definite information upon this question. Mr. Madison relates the incident in the following words: "Mr. King asked the precise meaning of direct taxation. No one answered." Had an attempt been made to respond to King's natural query, the answers would surely have disclosed wide differences of opinion. In no subsequent discussion was agreement reached—a result that need occasion no surprise in view of the fact that the classifications formulated later by economic writers present no less than eight or nine different groups of definitions. In 1793, an attempt was made to give precision to the words of the constitution by inserting the following amendment: "Every tax shall be deemed direct, other than taxes on imports, excises, transfers of property, and law proceedings."4 This fact is indicative of the doubts and uncertainties that arose when the men who formed our present government undertook to legislate under the provisions of the direct tax clause. At some period prior to 1796, St. George Tucker attempted to formulate a definition. He could find no better source of information than the work of Sir James Steuart, who did not attempt to classify taxes as direct and indirect. Tucker explains Steuart's classification 1 See YALE REVIEW, ix, 439, x, 6, Feb., May, 1901. Life and Correspondence of King, i, 190. 4 Annals of Congress, Second Congress, 663. 3 Elliot, Debates, v, 451. $ Edition of Blackstone's Commentaries, i, Part i, Appendix, 231-246. of taxes as cumulative and proportional. Then he assumes that the taxes mentioned in the constitution "appear naturally to fall under a similar division, and the words direct and indirect may consequently be substituted for the terms cumulative and proportional, used by that author." He came to the conclusion that the tax levied on carriages was direct, a result that was later contradicted by the decision of the Supreme Court in the Hylton Accordingly Tucker inserted a footnote, prior to the publication of his work, explaining that his reasoning was "merely hypothetical, and speculative." case. In 1796, Alexander Hamilton appeared in the Supreme Court to defend the constitutionality of the duties which Congress had recently imposed, as indirect taxes, upon pleasure carriages. In the income tax cases the counsel attempted to minimize the importance of the views here advanced by Hamilton, on the ground that he was "arguing under his retainer, and advancing such positions as he thought might secure the favorable judgment of the Court." It may be conceded that Hamilton did. present an advocate's opinion, for which he was probably paid; and that such an argument as this can come with the best of grace from the counsel in the income tax cases, who doubtless could have said, with Otis arguing against the writs of assistance, "in such a cause as this I despise a fee." But the significant facts remain, nevertheless, that Hamilton was "advancing such positions as he thought might secure the favorable judgment of the Court"; and that three of the justices before whom he was arguing had been members of the federal convention. Such a tribunal had almost as good facilities for forming an opinion concerning questions of historical fact as the court which Mr. Seward addressed. In Hamilton's argument important statements are found, all of which relate to matters of simple fact of which the judges of the Supreme Court could not fail to have been informed. Hamilton said:2 "What is the distinction between direct and indirect taxes? It is a matter of regret that terms so uncertain and vague in so important a point are to be 1 Seward's Historical Argument, 7–8. found in the Constitution. cedent settled legal meaning to the respective terms—there is none." This is a simple statement of fact which a study of all legal and economic literature confrms. And it is evident that the court entertained views similar to those expressed by Hamilton. While all the judges agreed that the carriage duty was an indirect tax, they knew cf no accepted theory that could be taken as an authoritative settlement of the classification contemplated by the constitution.1 We shall seek in vain for any ante If the Supreme Court was uncertain as to the exact meaning of these terms, it need not surprise us to find doubt expressed in Congress. In 1794, after the subject had been discussed by a number of representatives, Mr. Murray "confessed that the terms in the Constitution, direct and indirect taxes, had never conveyed very distinct or definite ideas to his mind . . .” He declared that after "all he had heard he still saw much confusion in the definitions." In 1796, Gallatin wrote: A "less vague expression than that of 'direct' might have been used in the Constitution; as it now stands, it is difficult to affix to it any precise and determinate meaning." This statement is the more significant since it occurs in the midst of an attempt to present Gallatin's own view of the subject. Bearing in mind the fact that the very people who attempted to define the meaning of the words of the constitution continually gave expression to their doubt and uncertainty, we may now consider the various formal explanations advanced. Here nothing more need be said concerning the influence of the physiocratic theories, since that subject has been discussed in a previous section. (1) The first attempt at formal definition seems to have been made by Hugh Williamson in 1787. His words were as follows: "The capitation tax and land tax, such as are usual among us, are inevitable and positive taxes: they are not to be averted. But the excise is a negative or indirect tax." Two years later this idea was repeated by the Rev. Dr. Collin.5 In 13 Dallas, 153, 155, 161. ? Annals of Congress, Third Congress, 652. 4 American Museum, ii, 122. 1796 Mr. Williams said, in Congress, that direct taxation was "a positive kind of taxation, and such as could not be avoided"; while indirect taxes would be optional with the farmers. In times of scarcity the latter are "paid at the option of the consumer." A few similar expressions may be found in other discussions in the early Congresses.2 The idea which is here selected as the basis for the classification of taxes was not new in America. It may have been suggested by the words of Hume and Montesquieu, to which reference was made early in this article. When Rhode Island refused consent to the federal impost scheme in 1782, Congress adopted a persuasive address in which it was represented that a duty on imports "is paid insensibly, and seems to be voluntary." In various other writings a similar idea is advanced.* But there is reason for doubting whether many persons would have contended seriously that indirect taxes were voluntary in any strict sense of the word. Whenever writers or speakers desired to advocate import or excise duties it was, doubtless, easy to argue that such imposts are voluntary. But this point was never conceded by the opponents of any tax. This can be tested in a most practical way. In 1774, Myles Cooper tried to persuade the Americans to pay the tax on tea because it was a voluntary tax. He wrote: "But you will say, it is wrong to tax us at all, without our consent. But the duty on tea, which has occasioned all our confusion, is not such a tax; for unless you consent to the tax you are not to pay the duty. You may refuse it, if you please, without incurring any penalty or considerable inconvenience." Many other Tories advanced similar arguments, but it is not recorded that the colonists assented to the proposition that the duty on tea was a voluntary tax. One of the replies to such claims as 1 Annals of Congress, Fourth Congress, 843. * Annals of Congress, Third Congress, 1204, Fourth Congress, 1866, 1867. 3 Elliot, Debates, i. 105. * McMaster and Stone, Pennsylvania and the Federal Constitution, 328; Lodge, Works of Hamilton, ii, 40. 5 Friendly Address to all Reasonable Americans, 10. 6 Tyler, Literary History of the American Revolution, i, 396 (New York, 1897). See also Works of John Adams, iv, 89; The Other Side to the Question, 10 (New York, 1774). were made by Cooper is worth quoting: "The same logic would demonstrate that a duty on beer, candles, or soap, would be no tax: as we are not absolutely obliged to drink beer-we may drink water; we may go to bed before it is dark; and we are not forced to wash our shirts." It is interesting to notice the difficulties in which Franklin involved himself, while discussing this subject before the House of Commons. Franklin tried to justify the distinction that he had made between external and internal taxes. He said that external taxes were voluntary, but internal were not. The stamp act, which was of course an internal tax, Franklin considered a compulsory affair, for it “says, we shall have no commerce, make no exchange of property with each other, neither purchase, nor grant, nor receive debts; we shall neither marry nor make our wills, unless we pay such and such sums." He was then asked whether "the external tax or duty to be laid on the necessaries of life imported into your colony" would not “be the same thing in its effects as an internal tax." Franklin adroitly dodged the question by replying: “I do not know a single article imported into the northern colonies, but what they can either do without or make themselves." Alexander Hamilton, in 1787,2 told the farmers that customs duties were paid by the "voluntary consumption" of the articles taxed. But when this very issue was presented in a most practical way, he expressed a different opinion concerning the effects of a proposed indirect tax. In 1795, it was proposed in Congress to levy a tax upon transfers of United States stocks. The advocates of this plan urged that such a tax would be no violation of the contract made with creditors, as a tax upon the stocks themselves was admitted to be. They claimed that the tax was voluntary since it was "in the option of the creditor to avoid the tax, by avoiding the alienation." Hamilton replied that a duty on transfers differed from a tax on the stocks themselves merely "in the degree of violation" of the public faith. The interests or even the necessities of the public creditors might demand a transfer of the stock. 1 Bigelow, Works of Franklin, iii, 422–423. Lodge, Works of Hamilton, ii, 40. 3 State Papers, Finance, i, 335. |