notorial dissent wrote:I have a question for the tax professionals. If I understand the holding in Pollock, their objection to the income tax was that, in their 5-4 view, income from rents had to be treated differently than income from working or selling or whatever. At which point if left standing, rental/land income could not have been taxed uniformly where as regular income could. Which means that most if not all of those arguing about this would still be liable for income tax since their income did not come from rents or property. Is this correct?
Yep.
The Pollock decision was based on the "logic" that:
1. A "direct tax" is a tax on the ownership of property;
2. One of the rights of owners of property is the right to receive income from the property;
3. Therefore, a tax on income from property is the same as tax on the ownership of property; and
4. Therefore, a tax on incomes from property is a "direct tax" that must be apportioned.
Now, step # 3 was later repudiated by the Supreme Court in New York v. Graves, 300 U.S. 308 (1937).
But regardless of later decisions, earlier decisions of the Supreme Court also confirmed that taxes on incomes from labor could be taxed as "indirect taxes," without apportionment. As the Supreme Court stated in 1869:
“This review [of the history of Congressional impositions of “direct taxes”] shows that personal property, contracts, occupations, and the like, have never been regarded by Congress as proper subjects of direct tax.” Veazie Bank v. Fenno, 75 U.S. 533, 543 (1869).
The income tax that was contested in the Springer decision in 1880 was a tax on “the annual gains, profits, or income of every person residing in the United States, or any citizen of the United States residing abroad, whether derived from any kind of property, rents, interests, dividends, salaries, or from any profession, trade, employment, or vocation, carried on in the United States or elsewhere, or from any other source whatever....” Act of June 30, 1864, ch. 173, Sec. 116, 18 Stat. 223, 281. The statute therefore taxed all forms of earned income, specifically including references to both “salaries” and incomes from “employment.” The constitutionality of the statute was challenged by a lawyer with income from his legal practice (i.e., his labor), and the Supreme Court unanimously upheld the constitutionality of the tax, holding that it was a “duty or excise” that did not need to be apportioned. Springer v. United States, 102 U.S. 586 (1880).
The income tax that was challenged in the Pollock decision was similar, and the majority opinion first struck down the tax on incomes from property (i.e., rents, interests, and dividends), but then went on to state that, if only the tax on interest, rents, dividends, and other income from property were ruled unconstitutional, “this would leave the burden of the tax to be borne by professions, trades, employments, or vocations; and in that way a tax on capital would remain in substance a tax on occupations and labor.” Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 637 (1895). The majority opinion therefore held that the entire tax act was unconstitutional, believing that Congress would invalidate the entire tax act rather than tax only “occupations and labor.” (The minority opinion in Pollock believed that the entire tax was constitutional, and so did not need to distinguish between income from property and income from employment.)
That a tax on wages and other compensation for labor would have been constitutional even before the adoption of the 16th Amendment was confirmed by the unanimous decision of the Supreme Court in Brushaber, in which the court stated:
“Nothing could serve to make this clearer than to recall that in the Pollock Case, in so far as the law taxed incomes from other classes of property than real estate and invested personal property, that is, income from ‘professions, trades, employments, or vocations,’ (158 U.S. 637), its validity was recognized; indeed it was expressly declared that no dispute was made upon that subject, and attention was called to the fact that taxes on such income had been sustained as excise taxes in the past. Id. p. 635.” Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).
In upholding the constitutionality of the Social Security tax paid by employers on wages, the Supreme Court stated that:
“But natural rights, so called, are as much subject to taxation as rights of lesser importance. An excise is not limited to vocations or activities that may be prohibited altogether. It is not limited to those that are the outcome of a franchise. It extends to vocations or activities pursued as of common right.” Charles C. Steward Machine Co. v. Davis, 301 U.S. 548 (1937).
In other words, taxes on employment have always been considered "excises," and so constitutional with or without the 16th Amendment.
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