February 24, 1795.
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 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.
Shall we call an indirect tax, a tax which is ultimately paid by a person, different from the one who pays it in the first instance?
Truly speaking, there is no such tax—those on imported articles best claim the character. But in many instances the merchant cannot transfer the tax to the buyer; in numerous cases it falls on himself, partly or wholly. Besides, if the same article which is imported by a merchant for sale, is imported by a merchant for his own use, or by a lawyer, a physician, or mechanic, for his own use, there can be no question about the transfer of the tax. It remains upon him who pays it.
According to that rule, then, the same tax may be both a direct and indirect tax, which is an absurdity. To urge that a man may either buy an article already imported, or import it himself, amounts to nothing; sometimes he could not have that option.
But the option of an individual cannot alter the nature of a thing. In like manner he might avoid the tax on carriages by hiring occasionally instead of buying.
The subject of taxation, not the contingent optional conduct of individuals, must be the criterion of direct or indirect taxation. Shall it be said that an indirect tax is that of which a man is not conscious when he pays? Neither is there any such tax. The ignorant may not see the tax in the enhanced price of the commodity—but the man of reflection knows it is there. Besides, when any but a merchant pays, as in the case of the lawyer, etc., who imports for himself, he cannot but be conscious that it falls upon himself.
By this rule, also, then a tax would be both direct and indirect—and it will be equally impracticable to find any other precise or satisfactory criterion.
In such a case no construction ought to prevail calculated to defeat the express and necessary authority of the government.
It would be contrary to reason, and to every rule of sound construction, to adopt a principle for regulating the exercise of a clear constitutional power which would defeat the exercise of the power.
It cannot be contested that a duty on carriages specifically is as much within the authority of the government as a duty on lands or buildings.
Now, if a duty on carriages is to be considered as a direct tax, to be apportioned according to the rates of representation, very absurd consequences must ensue.
‘T is possible that a particular State may have no carriages of the description intended to be taxed, or a very small number.
But each State would have to pay a proportion of the sum to be laid, according to its relative numbers; yet, while the State would have to pay a quota, it might have no carriages upon which its quota could be assessed, or so few, as to render it ruinous to the owners to pay the tax. To consider then a duty on carriages as a direct tax, may be to defeat the power of laying such a duty. This is a consequence which ought not to ensue from construction.
Further: If the tax on carriages be a direct tax, that on ships according to their tonnage must be so likewise. Here is not a consumable article. Here the tax is paid by the owner of the thing taxed, from time to time, as would be the tax on carriages.
If it be said that the tax is indirect because it is alternately paid by the freighter of the vessel, the answer is, that sometimes the owner is himself the freighter, and at other times the tonnage accrues when there is no freight, and is a dead charge on the owner of the vessel.
Moreover, a tax on a hackney or stage-coach or other carriage, or on a dray or cart employed in transporting commodities for hire, would be as much a charge on the freight as a tax upon vessels; so that, if the latter be an indirect tax, the former cannot be a direct tax.
And it would be too great a refinement for a rule of practice in government to say, that a tax on a hackney or stage-coach, and upon a dray or cart, is an indirect one, and yet a tax upon a coach or wagon ordinarily used for the purposes of its owner, is a direct one.
The only known source of the distinction between direct and indirect taxes is in the doctrine of the French Economists—Locke and other speculative writers—who affirm that all taxes fall ultimately upon land, and are paid out of its produce, whether laid immediately upon itself, or upon any other thing. Hence, taxes upon lands are in that system called direct taxes; those on all other articles indirect taxes.
According to this, land taxes only would be direct taxes, but it is apparent that something more was intended by the Constitution. In one case, a capitation is spoken of as a direct tax.
But how is the meaning of the Constitution to be determined? It has been affirmed, and so it will be found, that there is no general principle which can indicate the boundary between the two. That boundary, then, must be fixed by a species of arbitration, and ought to be such as will involve neither absurdity nor inconvenience.
The following are presumed to be the only direct taxes.
Capitation or poll taxes.
Taxes on lands and buildings.
General assessments, whether on the whole property of individuals, or on their whole real or personal estate; all else must of necessity be considered as indirect taxes.
To apply a rule of apportionment according to numbers to taxes of the above description, has some rationale in it; but to extend an apportionment of that kind to other cases, would, in many instances, produce, as has been seen, preposterous consequences, and would greatly embarrass the operations of the government. Nothing could be more capricious or outré, than the application of quotas in such cases.
The Constitution gives power to Congress to lay and collect the taxes, duties, imposts, and excises, requiring that all duties, imposts, and excises shall be uniform throughout the United States.
Here duties, imposts, and excises appear to be contradistinguished from taxes, and while the latter is left to apportionment, the former are enjoined to be uniform.
But, unfortunately, there is equally here a want of criterion to distinguish duties, imposts, and excises from taxes.
If the meaning of the word excise is to be sought in the British statutes, it will be found to include the duty on carriages, which is there considered as an excise, and then must necessarily be uniform and not liable to apportionment; consequently not a direct tax.
An argument results from this, though not perhaps a conclusive one: yet where so important a distinction in the Constitution is to be realized, it is fair to seek the meaning of terms in the statutory language of that country from which our jurisprudence is derived.
[1]Hamilton, when Secretary of the Treasury, recommended a tax on pleasure carriages and Madison opposed it in the House on the ground that it was a direct tax, and therefore unconstitutional. The bill laying the tax became a law, and certain persons in Virginia refused to pay the tax, taking Madison’s position as to its unconstitutionality. The case came before the Supreme Court, and Hamilton appeared for the government with the Attorney-General of the United States. One of the newspapers said next day (Feb. 25th): “Yesterday, in the Supreme Court of the United States, Mr. Hamilton, late Secretary of the Treasury, made a most eloquent speech in support of the constitutionality of the carriage tax. He spoke for three hours. and the whole of his argument was clear, impressive, and classical. The audience, which was very numerous, and among whom were many foreigners of distinction and many of the Members of Congress, testified the effect produced by the talents of this great orator and statesman.”
All that now remains of the argument is the fragment of a brief given above. The case was Hylton vs. the United States, and is reported 1 Dallas, 171. The court sustained Hamilton’s view, and held unanimously that the tax was not direct and therefore constitutional.
