Chief Justice Fuller, Opinion of the Court
(excerpts)
Since the opinion in Marbury v. Madison was delivered, it has not been doubted that it is
within judicial competency, by express provisions of the constitution or by
necessary inference and implication, to determine whether a given law of the
United States is or is not made in pursuance of the constitution, and to hold it
valid or void accordingly…. Necessarily the power to declare a law
unconstitutional is always exercised with reluctance; but the duty to do so, in
a proper case, cannot be declined, and must be discharged in accordance with the
deliberate judgment of the tribunal in which the validity of the enactment is
directly drawn in question.
[Question: The] law in question, in imposing
a tax on the income or rents of real estate, imposes a tax upon the real estate
itself; and in imposing a tax on the interest or other income of bonds or other
personal property, held for the purposes of income or ordinarily yielding
income, imposes a tax upon the personal estate itself; that such tax is a direct
tax, and void because imposed without regard to the rule of apportionment; and
that by reason thereof the whole law is invalidated.
The constitution
provides that representatives and direct taxes shall be apportioned among the
several states according to numbers, and that no direct tax shall be laid except
according to the enumeration provided for; and also that all duties, imposts,
and excises shall be uniform throughout the United States.
The men who framed and adopted that
instrument had just emerged from the struggle for independence whose rallying
cry had been that 'taxation and representation go together.'
The mother country had taught the colonists,
in the contests waged to establish that taxes could not be imposed by the
sovereign except as they were granted by the representatives of the realm, that
self-taxation constituted the main security against oppression. As Burke
declared, in his speech on conciliation with America, the defenders of the
excellence of the English constitution 'took infinite pains to inculcate, as a
fundamental principle, that, in all monarchies, the people must, in effect,
themselves, immediately, possess the power of granting their own money, or no
shadow of liberty could subsist.' The principle was that the consent of those
who were expected to pay it was essential to the validity of any tax.
The states were about, for all national
purposes embraced in the constitution, to become one, united under the same
sovereign authority, and governed by the same laws. But as they still retained
their jurisdiction over all persons and things within their territorial limits,
except where surrendered to the general government or restrained by the
constitution, they were careful to see to it that taxation and representation
should go together, so that the sovereignty reserved should not be impaired, and
that when congress, and especially the house of representatives, where it was
specifically provided that all revenue bills must originate, voted a tax upon
property, it should be with the consciousness, and under the responsibility,
that in so doing the tax so voted would proportionately fall upon the immediate
constituents of those who imposed it.
More than this, by the constitution the
states not only gave to the nation the concurrent power to tax persons and
property directly, but they surrendered their own power to levy taxes on imports
and to regulate commerce. All the 13 were seaboard states, but they varied in
maritime importance, and differences existed between them in population, in
wealth, in the character of property and of business interests. Moreover, they
looked forward to the coming of new states from the great West into the vast
empire of their anticipations. So when the wealthier states as between
themselves and their less favored associates, and all as between themselves and
those who were to come, gave up for the common good the great sources of revenue
derived through commerce, they did so in reliance on the protection afforded by
restrictions on the grant of power.
Thus, in the matter of taxation, the
constitution recognizes the two great classes of direct and indirect taxes, and
lays down two rules by which their imposition must be governed, namely, the rule
of apportionment as to direct taxes, and the rule of uniformity as to duties,
imposts, and excises.
And although there have been, from time to
time, intimations that there might be some tax which was not a direct tax, nor
included under the words 'duties, imports, and excises,' such a tax, for more
than 100 years of national existence, has as yet remained undiscovered,
notwithstanding the stress of particular circumstances has invited thorough
investigation into sources of revenue.
We inquire, therefore, what, at the
time the constitution was framed and adopted, were recognized as direct taxes?
What did those who framed and adopted it understand the terms to designate and
include?
[Among the compromises in the Philadelphia
Convention, the] compromise, in embracing the power of direct taxation,
consisted not simply in including part of the slaves in the enumeration of
population, but in providing that, as between state and state, such taxation
should be proportioned to representation. The establishment of the same rule for
the apportionment of taxes as for regulating the proportion of representatives,
observed Mr. Madison in No. 54 of the Federalist, was by no means founded on the
same principle, for, as to the former, it had reference to the proportion of
wealth, and, although in respect of that it was in ordinary cases a very unfit
measure, it 'had too recently obtained the general sanction of America not to
have found a ready preference with the convention,' while the opposite interests
of the states, balancing each other, would produce impartiality in enumeration.
By prescribing this rule, Hamilton wrote (Federalist, No. 36) that the door was
shut 'to partiality or oppression,' and 'the abuse of this power of taxation to
have been provided against with guarded circumspection'; and obviously the
operation of direct taxation on every state tended to prevent resort to that
mode of supply except under pressure of necessity, and to promote prudence and
economy in expenditure.
From the [history of
taxation in America and taxation cases] it is apparent (1) that the
distinction between direct and indirect taxation was well understood by the
framers of the constitution and those who adopted it; (2) that, under the state
system of taxation, all taxes on real estate or personal property or the rents
or income thereof were regarded as direct taxes; (3) that the rules of
apportionment and of uniformity were adopted in view of that distinction and
those systems; (4) that whether the tax on carriages was direct or indirect was
disputed, but the tax was sustained as a tax on the use and an excise; (5) that
the original expectation was that the power of direct taxation would be
exercised only in extraordinary exigencies; and down to August 15, 1894, this
expectation has been realized. The act of that date was passed in a time of
profound peace, and if we assume that no special exigency called for unusual
legislation, and that resort to this mode of taxation is to become an ordinary
and usual means of supply, that fact furnishes an additional reason for
circumspection and care in disposing of the case.
Manifestly, as this court is clothed with the
power and entrusted with the duty to maintain the fundamental law of the
constitution, the discharge of that duty requires it not to extend any decision
upon a constitutional question if it is convinced that error in principle might
supervene.
Nothing can be clearer than that what
the constitution intended to guard against was the exercise by the
general government of the power of directly taxing persons and property within
any state through a majority made up from the other states. It is true that the
effect of requiring direct taxes to be apportioned among the states in
proportion to their population is necessarily that the amount of taxes on the
individual taxpayer in a state having the taxable subject-matter to a larger
extent in proportion to its population than another state has, would be less
than in such other state; but this inequality must be held to have been
contemplated, and was manifestly designed to operate to restrain the exercise of
the power of direct taxation to extraordinary emergencies, and to prevent an
attack upon accumulated property by mere force of numbers.
It is not doubted that property owners ought
to contribute in just measure to the expenses of the government. As to the
states and their municipalities, this is reached largely through the imposition
of direct taxes. As to the federal government, it is attained in part through
excises and indirect taxes upon luxuries and consumption generally, to which
direct taxation may be added to the extent the rule of apportionment allows. And
through one mode or the other the entire wealth of the country, real and
personal, may be made, as it should be, to contribute to the common defense and
general welfare.
But the acceptance of the rule of
apportionment was one of the compromises which made the adoption of the
constitution possible, and secured the creation of that dual form of government,
so elastic and so strong, which has thus far survived in unabated vigor. If, by
calling a tax indirect when it is essentially direct, the rule of protection
could be frittered away, one of the great landmarks defining the boundary
between the nation and the states of which it is composed, would have
disappeared, and with it one of the bulwarks of private rights and private
property.
We are of opinion that the law in question,
so far as it levies a tax on the rents or income of real estate, is in violation
of the constitution, and is invalid.