Congressional Taxation: What The Constitution Prohibits

The U.S. Constitution gives Congress the power to tax, but also places limits on this power. The Taxing Clause of Article I, Section 8, Clause 1 of the Constitution provides Congress with broad authority to lay and collect taxes for federal debts, common defense, and general welfare. However, the Constitution has placed limitations on Congress's power to tax. For example, direct taxes, such as income taxes, must be apportioned based on population, and articles exported from a state may not be taxed at all. The Supreme Court has also weighed in on how far taxes can go, and Congress's taxing power has been curtailed by judicial decisions regarding the manner in which taxes are imposed, the objects for which they are levied, and the subject matter of taxation.

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Direct taxes must be apportioned based on population

The U.S. Constitution grants Congress the authority to tax but also imposes some restrictions on that authority. Direct taxes, or taxes paid directly to the government by a person or business (e.g. income taxes), must be apportioned based on population. This is known as the rule of apportionment.

The distinction between direct and indirect taxation was understood by the framers of the Constitution and those who adopted it. Direct taxes, according to the Court, are capitation taxes and taxes on land. The Court has also sustained taxes on insurance companies' premium receipts, state bank circulating notes, and inheritance taxes on real estate as "excises" or "duties".

The Taxing Clause of Article I, Section 8, Clause 1 of the Constitution gives Congress broad authority 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. However, the power of Congress to levy taxes is subject to limitations. Direct taxes must be levied by the rule of apportionment, and indirect taxes by the rule of uniformity.

The Supreme Court has played a significant role in interpreting the extent of Congress's taxing authority. In United States v. Butler (1936), the Court ruled that Congress could use the Taxing Clause without tying it to another of its constitutional powers, siding with Hamilton's argument. The Court has also clarified that Congress's taxing authority is limited by constitutional provisions protecting individual rights. For example, taxing individuals for criticising the federal government would violate the Free Speech Clause.

The Court has also addressed the issue of direct versus indirect taxation. In McCulloch v. Maryland (1819), the Court suggested that redress for misuse of the taxing power lies with the political process, where citizens can vote politicians out of office. In the Pollock v. Farmers' Loan & Trust Co. case, the Court held that a tax on income from property was a direct tax within the meaning of the Constitution and therefore void because it was not apportioned according to the census.

No tax on exports from states

The U.S. Constitution gives Congress the power to tax but also places some limits on that power. The Constitution has placed limits on Congress's power to tax, including the prohibition of taxing articles exported from any state. This is outlined in Article I, Section 8, Clause 1 of the Constitution, which states that "all Duties, Imposts and Excises shall be uniform throughout the United States", and that "no Tax or Duty shall be laid on Articles exported from any State".

The Framers of the Constitution decided that Congress must have the power to "'lay and collect Taxes... to pay the Debts and provide for the common Defence and general Welfare of the United States". This power was intended to address the collective action failures of the Articles of Confederation, under which the national government lacked the authority to tax individuals directly and was limited to requesting funds from the states.

Despite the broad authority granted to Congress, the Constitution and judicial decisions have placed certain restrictions on its taxing power. For example, the Supreme Court has held that Congress may not lay a tax that would impair the sovereignty of the states. Additionally, the Court has suggested that the taxing power is limited by constitutional provisions protecting individual rights, such as the Free Speech Clause.

In terms of the types of taxes, a distinction is made between direct and indirect taxes. Direct taxes, such as income taxes, must be apportioned based on population, while indirect taxes must follow the rule of uniformity. The Court has also provided interpretations of "excises" or "duties", sustaining taxes on insurance company receipts, state bank circulating notes, inheritance of real estate, and incomes.

No capitation or other direct tax without census

The U.S. Constitution gives Congress the power to tax but also places some limits on that power. Direct taxes, such as income taxes, must be apportioned based on population. Direct taxes are those that must be paid directly to the government by an individual or business.

The Constitution states that "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken". In other words, Congress cannot impose a capitation or other direct tax unless it is in proportion to the population as determined by the census. This is known as the "No Direct Tax Without Census" clause.

The Framers of the Constitution included this clause to limit the power of Congress and protect individuals and businesses from excessive taxation. By requiring that direct taxes be apportioned based on population, the Framers ensured that taxes would be fairly distributed across the country.

Over time, the Supreme Court has weighed in on how far taxes can go and has restored to Congress the power to tax most of the subject matter that had previously been withdrawn from its reach by judicial decision. For example, in O'Malley v. Woodrough, the Supreme Court repudiated the holding of Evans v. Gore and Miles v. Graham that including the salaries of federal judges in measuring liability for a nondiscriminatory income tax violated the constitutional mandate that their compensation should not be diminished. The Court has also clarified that the term ""direct taxes" refers specifically to capitation taxes and taxes on land.

In summary, the "No Direct Tax Without Census" clause of the U.S. Constitution ensures that Congress cannot impose a capitation or other direct tax unless it is in proportion to the population as determined by the census. This clause protects individuals and businesses from excessive taxation and ensures that taxes are fairly distributed across the country.

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No tax on interest from government bonds

The U.S. Constitution gives Congress the power to tax but also places some limits on that power. The Constitution has placed limits on Congress's power to tax by protecting individual rights. For example, Congress cannot tax people for criticising the federal government as it would violate the Free Speech Clause.

Congress has broad authority to lay and collect taxes for federal debts, common defence, and general welfare. However, there are some exceptions and qualifications to this power. Direct taxes, such as income taxes, must be apportioned based on population. Articles exported from a state may not be taxed at all.

The Supreme Court has also weighed in on how far taxes can go. In the case of McCulloch v. Maryland (1819), the Court suggested that redress for misuse of the taxing power lies with the political process, where citizens can vote politicians out of office. In addition, the Court has suggested that courts may enforce the limits on the Taxing Clause and that Congress exceeds its power when it imposes monetary payments to regulate people's behaviour rather than to raise revenue.

One example of the limits on Congress's taxing power is the case of Collector v. Day, where the Court held that the salary of a state officer is immune to federal income taxation. This decision was based on the principle that Congress may not lay a tax that would impair the sovereignty of the states.

Another example is the Child Labor Tax Case from 1922, where the Court rejected a tax on companies using child labour. The Court noted that the law in question set forth a detailed regulatory scheme, including ages, industries, and number of hours allowed, and that the taxation functioned as a penalty.

In the case of United States v. Butler (1936), the Supreme Court sided with Hamilton's argument that Congress possessed a robust power to tax and spend, regardless of whether it could be viewed as carrying out another enumerated power of Congress. This established the law that Congress can use the Taxing Clause without tying it to another of its constitutional powers.

In terms of the specific issue of taxing interest from government bonds, the Court has held that there is "no constitutional reason for treating persons who receive interest on government bonds differently than persons who receive income from other types of contracts with the government". This suggests that Congress does not have the power to tax interest from government bonds specifically, but rather that such interest should be treated similarly to income from other types of contracts with the government for taxation purposes.

No tax on salaries of federal judges

The U.S. Constitution grants Congress the power to tax, but also places some limits on this power. The Constitution has been interpreted to mean that Congress has broad authority to lay and collect taxes for federal debts, the common defence, and the general welfare. However, the Supreme Court has emphasised that this power is limited by constitutional provisions protecting individual rights.

One such limitation is that Congress may not tax the salaries of federal judges. This interpretation was solidified in the case of O'Malley v. Woodrough, which repudiated the previous holdings of Evans v. Gore and Miles v. Graham. In these earlier cases, the Court had ruled that including federal judges' salaries in measuring liability for a nondiscriminatory income tax violated the constitutional mandate that judges' compensation should not be diminished during their time in office.

The O'Malley v. Woodrough decision overturned this interpretation, restoring Congress's power to tax most of the subject matter that had previously been withdrawn from its reach by judicial decision. However, the principle that Congress may not lay a tax that would impair the sovereignty of the states remains recognised.

The distinction between direct and indirect taxation is important in understanding the limits of Congress's taxing power. Direct taxes, such as income taxes, must be apportioned based on population, while indirect taxes must follow the rule of uniformity. The Supreme Court has also clarified that taxes on exported goods from any state are prohibited.

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