The Constitution And Taxes: What's The Connection?

The Constitution of the United States grants Congress the power to lay and collect taxes, duties, imposts and excises under the Taxing Clause of Article I, Section 8. This clause gives Congress broad authority to levy taxes for federal debts, common defence, and the general welfare of the nation. The scope of Congress's taxing power has been constrained by judicial decisions, including those related to the Fourth Amendment's protection against unreasonable searches and seizures, and the First Amendment's freedom of religion. The interpretation of the Taxing Clause has evolved over time, with the Supreme Court providing guidance on the distinction between taxes and regulatory penalties, and the direct and indirect nature of taxes.

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The Taxing and Spending Clause

The Constitution provides in the Origination Clause that all bills for raising revenue must originate in the House of Representatives. The idea underlying this clause is that Representatives, being the most numerous branch of Congress, and most closely associated with the people, know best the economic conditions of the people they represent, and how to generate revenues for the support of the government in the least burdensome manner. Additionally, Representatives are regarded as the most accountable to the people and are thus least likely to exercise the taxing power abusively or injudiciously.

In 1936, the Supreme Court endorsed Hamilton's view in United States v. Butler, determining that when Congress uses its spending power, it faces fewer constitutional limitations than when it relies on its direct authority to create regulations. However, the Court has also articulated and developed restrictions or limitations on the spending power, including factors that ensure the knowing and voluntary acceptance of funding conditions.

The Taxing Clause of Article I, Section 8

Article I, Section 8, Clause 1 of the US Constitution, also known as the Taxing and Spending Clause, grants Congress the power to tax. This clause, which contains the General Welfare Clause and the Uniformity Clause, allows Congress to levy taxes for two purposes: to pay off US debts and to provide for the country's defence and general welfare.

The Taxing Clause gives Congress broad authority to "lay and collect Taxes, Duties, Imposts and Excises". However, the clause also stipulates that "all Duties, Imposts and Excises shall be uniform throughout the United States". This means that direct taxes must be levied by the rule of apportionment, with taxes imposed among the states in proportion to each state's population. On the other hand, indirect taxes are governed by the rule of uniformity.

The Taxing Clause has been interpreted and applied by the Supreme Court in various cases. For instance, in Brushaber v. Union Pacific Railroad (1916), the Court ruled that the Sixteenth Amendment permitted income taxes without apportionment. In Collector v. Day (1871), the Court initially held that the salary of a state officer was exempt from federal income tax, but this decision was later overruled. In United States v. Constantine (1935), the Court struck down a federal excise tax on liquor dealers operating in violation of state law, finding that Congress exceeded its authority by penalising liquor dealers for violating state law.

The Taxing Clause also intersects with other parts of the Constitution, such as the Necessary and Proper Clause, which allows Congress to regulate business within a state to tax it more effectively. The Taxing Clause has been invoked to uphold regulations on the packaging of taxed items like tobacco and oleomargarine to prevent tax fraud. It has also been used to justify taxes on drugs and firearms, with strict restrictions on their sale and transfer.

The ACA's required payment for remaining uninsured

Article I, Section 8, Clause 1 of the US Constitution provides Congress with the 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". This broad power, known as the Taxing Clause, allows Congress to levy taxes for federal debts, defence, and the welfare of the nation.

In 2012, the Supreme Court upheld the constitutionality of the Affordable Care Act's (ACA) individual mandate, which required individuals to purchase minimum health insurance or pay a penalty. This was a significant development in the ongoing debate about the role of taxes in regulating conduct. The Court ruled that the ACA's individual mandate was a valid exercise of Congress's taxing power, even if it might be impermissible under other constitutional powers.

The ACA's individual mandate was designed to encourage people to obtain health insurance, particularly those who were previously uninsured. In California, for example, many residents gained coverage after the ACA was implemented, but 27% remained uninsured. Affordability was the main reason cited for lacking insurance, with 47% of the uninsured saying that health insurance was too expensive or unaffordable.

To encourage these individuals to obtain coverage, the ACA included a penalty for those who remained uninsured and did not meet any exemptions. For 2016, the penalty was calculated as either a flat dollar amount ($695 per adult and $347.50 per child, up to $2,085 for a family) or 2.5% of family income above certain thresholds, whichever was greater. This penalty was waived for those with a gap in insurance coverage of less than three months. However, as of 2018, the fee for not having health insurance, known as the "Shared Responsibility Payment" or "mandate", was ended, meaning individuals no longer paid a tax penalty for not having health coverage.

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The First Amendment and refusal to pay taxes

The First Amendment to the United States Constitution provides that:

> "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances."

The First Amendment, however, does not provide a right to refuse to pay income taxes on religious or moral grounds or because taxes are used to fund government programs opposed by the taxpayer. The Supreme Court has held that the broad public interest in maintaining a sound tax system is of such importance that religious beliefs in conflict with the payment of taxes provide no basis for refusing to pay.

In United States v. Lee, the Supreme Court held that:

> "The tax system could not function if denominations were allowed to challenge the tax system because tax payments were spent in a manner that violates their religious belief."

In addition, the First Amendment does not protect commercial speech or speech that aids or incites taxpayers to unlawfully refuse to pay federal income taxes, including speech that promotes abusive tax avoidance schemes.

Some individuals or groups claim that taxpayers may refuse to pay federal income taxes based on their religious or moral beliefs, or on an objection to using taxes to fund certain government programs. In support of this position, these persons invoke the First Amendment and, often, the Religious Freedom Restoration Act ("RFRA"). However, it is well settled that RFRA does not afford a right to avoid payment of taxes for religious reasons.

The Constitution's Taxing Clause in Article I grants Congress the general authority to "lay and collect Taxes, Duties, Imports, and Excises". The Sixteenth Amendment, ratified in 1913, grants Congress the specific authority to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

The Fourth Amendment and IRS summonses

Article I, Section 8, Clause 1 of the US Constitution provides Congress with the authority to impose and collect taxes for federal debts, the common defence, and the general welfare. This is known as the Taxing Clause.

The Fourth Amendment to the US Constitution provides "the right of the people to be secure in their persons, houses, papers, and effects" and prohibits "unreasonable searches and seizures". Some individuals and groups have argued that IRS summonses to taxpayers and third parties violate the Fourth Amendment's ban on warrantless search and seizure. However, the United States Supreme Court has repeatedly ruled that the Fourth Amendment does not prohibit obtaining information from a third party.

In United States v. Miller (1976), the Supreme Court held that the Fourth Amendment does not prohibit the obtaining of information revealed to a third party. The Court also ruled that the IRS need not meet any standard of probable cause to obtain enforcement of an IRS summons. In United States v. Powell (1964), the Supreme Court held that the government need not show probable cause to suspect fraud unless the taxpayer raises a substantial question that judicial enforcement of the administrative summons would be an abusive use of the court's process.

The First Amendment has also been raised as a defence against summonses. In United States v. Fox (1983), the court held that the use of a summons for the effective enforcement of tax laws should not take precedence over constitutional protections. The First Amendment can be a valid defence to summons enforcement if the summons requests information related to protected speech. However, this will rarely be a concern in investigations such as an income tax examination. The Service must anticipate and prepare for a First Amendment defence prior to issuing a summons. The summons should be narrowly tailored to exclude information regarding protected speech, or the government must develop evidence that the speech to which the summoned information relates is unprotected.

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