Who Paid Property Taxes When The Constitution Was Written?

The United States Constitution, the oldest and longest-standing written and codified national constitution, was signed on September 17, 1787, and ratified on March 4, 1789. It superseded the Articles of Confederation, the nation's first constitution. The US Constitution's first three articles embody the doctrine of the separation of powers, dividing the federal government into the legislative, executive, and judicial branches. While the Constitution does not explicitly mention property taxes, the Taxing Clause in Article I grants Congress the authority to lay and collect Taxes, Duties, Imports, and Excises. At the time of the Constitution's ratification, various states had different approaches to property taxation, with some taxing livestock and land, while others imposed uniform capitation taxes.

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The US Constitution's 16th Amendment

The 16th Amendment to the US Constitution, ratified on February 3, 1913, established Congress's right to impose a federal income tax without having to determine it based on population. The official text of the amendment is as follows:

> The Congress shall have the power 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 16th Amendment was passed by Congress in 1909 in response to the 1895 Supreme Court case of Pollock v. Farmers' Loan & Trust Co., which ruled that income tax was a "direct" tax derived from an individual's property. This decision asserted that "direct" taxes included any income tax on rents, dividends, and interest, and therefore had to be apportioned among the states. The 16th Amendment effectively overruled this decision, granting Congress the authority to impose income tax without the requirement of apportionment.

The ratification of the 16th Amendment had a significant impact on the way the federal government received funding. Before the amendment, most funds were derived from tariffs on domestic and international goods. The amendment shifted the tax burden from tariffs, which were seen as unfairly taxing the poor, towards a more progressive income tax system.

While the 16th Amendment has been challenged on various grounds, including arguments that it violates the Fifth Amendment's protection against the "taking" of property without due process, courts have consistently upheld its constitutionality. The amendment has been recognized as authorizing a non-apportioned direct income tax on US citizens, validating the federal tax laws.

Income tax and property tax

The original US Constitution, written in 1787, granted Congress the authority to "lay and collect Taxes, Duties, Imports, and Excises". For "direct" taxes, the Constitution initially stipulated that they must be collected based on the population of each state.

In 1861, the Civil War prompted the first American income tax, with Congress placing a flat 3% tax on all incomes over $800. This was modified to include a graduated tax, but was repealed in 1872. In 1894, Congress enacted a 2% tax on income over $4000, but this was almost immediately struck down by the Supreme Court.

In 1909, progressives in Congress attached a provision for an income tax to a tariff bill. The 16th Amendment, passed by Congress in 1909 and ratified in 1913, established Congress's right to impose a federal income tax without having to determine it based on population. This amendment was supported by several key Republicans, including former President Theodore Roosevelt, who believed it would help finance the country's increasing political and military power.

The 16th Amendment has been challenged on various grounds, including that it is unconstitutional because it was not properly ratified, that it violates the Fifth Amendment by constituting a "taking" of property without due process, and that it violates the First, Fourth, and Thirteenth Amendments. However, courts have consistently upheld the constitutionality of the amendment, rejecting these arguments as frivolous.

Regarding property taxes, the US Constitution Annotated includes several cases related to property taxes and their implementation. For example, a 1911 case, Kentucky Union Co. v. Kentucky, states that a provision for the forfeiture of land for non-payment of taxes is not invalid. Another case, from 1923, Sioux City Bridge v. Dakota County, affirms that an owner aggrieved by discrimination is entitled to have their assessment reduced to the common level. In 1946, a case between Hillsborough and Cromwell ruled that equal protection is denied if a state does not remove discrimination, and cannot impose upon the person against whom the discrimination is directed the burden of seeking an upward revision of the assessment. In 1992, a California ballot initiative was upheld by the Court, which imposed a 2% annual cap on property assessment increases for properties that have remained in the same hands since 1976.

Direct and indirect taxes

The concept of direct and indirect taxes is important in understanding the costs and liabilities companies and individuals face.

Direct taxes are paid directly by the taxpayer to the government and cannot be passed on or shifted to another entity or individual. These include federal income tax, corporate tax, and property tax. Direct taxes are considered progressive taxes and are non-transferable.

Indirect taxes, on the other hand, can be passed on or shifted to another person or group by the person or business that owes them. Examples of indirect taxes include business property taxes, sales tax, customs duties, excise taxes, and tariffs. The cost of these taxes is often embedded in the price of a product or service, and the supplier or manufacturer collects and remits the tax to the government. Indirect taxes are regressive, meaning they are applied uniformly regardless of the income level of individuals. As a result, low-income consumers may shoulder a disproportionate share of the tax burden.

The United States Constitution, in its original writing, granted Congress the authority to "lay and collect Taxes, Duties, Imports, and Excises" under the Taxing Clause in Article I. The Constitution, however, did not explicitly adopt the distinction between direct and indirect taxes. While the Sixteenth Amendment, ratified in 1913, established Congress's right to impose a federal income tax, it did not specify whether this tax was direct or indirect.

The Supreme Court has historically grappled with the direct and indirect dichotomy in cases such as Hylton v. United States (1796), the License Tax Cases (1867), and Pollock v. Farmers' Loan & Trust Co. (1895). In the latter case, the Court ruled that income tax was a "direct" tax derived from an individual's property, including income from rents, dividends, and interest. This decision was later reversed by the Sixteenth Amendment, which authorized an unapportioned tax on income "derived from a source."

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Federal income tax laws

The Internal Revenue Code (IRC), embodied as Title 26 of the United States Code, serves as the primary legislative authority for federal income tax laws. It defines taxable income as gross income less allowable deductions and sets tax rates accordingly. The IRC is complex, and its interpretation is guided by Treasury Regulations, court decisions, and other sources.

Federal income tax rates are progressive, meaning they increase with higher income levels. In 2020, the average federal individual income tax rate on adjusted gross income was 13.6%. However, due to deductions and varying rates, effective tax rates can be lower than marginal rates, and some individuals may even have a negative tax liability.

While the majority of U.S. citizens are subject to federal income tax, not everyone is required to file a tax return. Tax returns are typically filed separately for federal, state, and local governments, with some states permitting combined corporate returns. Additionally, Puerto Rico and other unincorporated territories have their own taxation laws, which may differ from those of the states.

Compliance with federal income tax laws is generally mandatory, but it's important to note that some individuals and groups have encouraged non-compliance, citing various constitutional arguments. However, these arguments have been consistently rejected by the courts, and taxpayers who pursue such claims may face consequences, including sanctions and penalties.

State and local property taxes

The concept of a general property tax was based on the idea of uniform and universal taxation, where everyone pays their share according to their wealth. This tax was administered by elected local officials who were responsible for determining the market value of the property, calculating tax rates, collecting taxes, and remitting proceeds to the government. The tax system was well-suited to the local governments that were prevalent in the United States at the time.

In addition to state and local property taxes, the federal government also played a role in taxation. The Civil War prompted the first American income tax in 1861, with Congress enacting a flat 3% tax on incomes over $800. This was later modified to include a graduated tax. However, the income tax was repealed in 1872.

It wasn't until the 20th century that the Sixteenth Amendment, ratified in 1913, established Congress's right to impose a federal income tax. Despite this, in 1913, only a small percentage of the population paid income taxes due to generous exemptions and deductions.

While the Sixteenth Amendment addressed income tax, Americans do not pay property tax to the federal government. Instead, state and local governments continue to play a significant role in property taxation, with the ability to impose taxes for specific purposes such as education, road building, or water systems. These taxes are typically specified as a rate per assessed value of the property.

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