The federal government is always proposing new things to tax. We know there is an income tax. However, the federal government also taxes things like gasoline, tobacco, alcoholic beverages, airfare, etc. These are not sales taxes. They are excise taxes. It is a tax levied on either the manufacturer to pay when making a product, or you to pay when purchasing a product.
House Democrats recently backed a proposal by Rep. Don Beyer, a member of the Ways & Means Committee to institute a 1000% federal tax on AR-15 style rifles, without even a pretense of levying this tax to raise revenue. In their minds, a tax that turns a $1,200 rifle into a $12,000 rifle is perfectly justified to make the cost of gun ownership prohibitively expensive.
When they could not get a de jure ban on a class of weapons in common use for lawful purposes, because of that inconvenient natural right of armed self-defense, they compromised with a de facto infringement of your inalienable rights.
(Ironically using a constitutionally delegated power as a weapon to deprive us of our constitutionally protected individual right to own weapons.)
At what point did the federal government begin reading the constitutional taxing power so broadly it could become an instrument of social engineering?
For that matter, how many Americans ever truly stopped to consider if there are any restrictions on what or how the federal government can tax? Does the United States Constitution allow the federal government to tax anything it wants, whenever it wants, and in any way it wants?
At what point did a fundamental division take place between those who construe the federal government’s taxing powers as narrow and finite and those who construe a more liberal view on what the federal government could tax and for what ends?
This disagreement eventually led to a tax revolt in Virginia in 1794.
Just 7 years after the ratifying of the U.S. Constitution, a case came before the Supreme Court that required the Justices to rule on the nature and scope of federal taxation.
Ironically, the revolt led to a Supreme Court case that many people at the time thought was poorly decided and many people today have never heard of. That, all the same, would eventually become one of the most important Supreme Court decisions for the way it enabled an ever-expanding federal taxation power.
Let’s examine the 1796 U.S. Supreme Court case of Hylton vs. The United States to learn what the Constitution actually says about taxation and why a simple tax on carriages exposed a deep ideological split within the new country itself.
Congress Passes a “Carriage Tax” (1794)
In June 1794 the United States Congress passed a tax on the ownership of carriages. The tax called for a levy:
Upon all carriages for the conveyance of persons, which shall be kept by or for any person for his or her own use, or to be let out to hire or for the conveyance of passengers, the several duties and rates following.
Act of June 5. 1794, ch. 45. §1.1 Stat. 373, 374 (repealed 1802)
When the tax came due in September, Daniel Lawrence Hylton, a wealthy Virginia businessman, refused to pay it because in his opinion it was unconstitutional and void. He was not alone in his refusal to pay the tax. Virginia jurist and constitutional scholar St. George Tucker wrote to future president James Monroe:
A friend of yours in this place refused to pay the carriage tax, upon the ground that it was a direct tax, & not imposed according to the Constitution. So did Mr. Pendleton, Mr. Roan[e], Col Taylor, Mr. Page & some others.
Saint George Tucker Letter to James Monroe – March 8, 1795
The place was Williamsburg, Virginia. And the men who refused to pay the tax were some of the brightest legal minds in the country. They, like Hylton, also believed that the tax was unconstitutional and thus void. Their reasoning went like this:
The federal government’s carriage tax was a direct tax. The tax however was not apportioned among the states but directly on the citizens of the states. Therefore, the tax was unconstitutional and thus did not have to be paid.
At the urging of Alexander Hamilton, the federal government rejected this argument and proceeded to sue Daniel Hylton in federal court over the tax. The case eventually made its way to the Supreme Court and became known as Hylton v. United States.
Hylton went ahead without any justices’ questioning the court’s authority to hear the case or directly questioning the court’s power to nullify congressional acts on constitutional grounds. The court thus implicitly accepted its power to nullify an act of Congress seven years before the better-known decision in Marbury v. Madison (1803)
Nonetheless, in a 4-0 decision the Court ruled against Hylton. Justices Chase, Iredell, Paterson, and Wilson unanimously found that the federal government’s direct excise tax on the ownership of carriages was constitutional. The justices’ opinion was essentially based on two main arguments.
The first went like this:
- The only direct taxes are land and capitation taxes.
- The carriage tax is neither a land nor a capitation tax
- Therefore, the carriage tax is an indirect tax and thus constitutional
The second argument was as follows:
- Direct taxes must be apportioned among the states.
- The carriage tax cannot be apportioned among the states
- Therefore, the carriage tax is an indirect tax and thus constitutional
Both of those legal justifications rely on the kind of flimsy false equivalence that would be embarrassing to try and use in a high school debate team competition, much less as part of the primary holding in a landmark Supreme Court case regarding a topic as fundamental as the meaning and scope of the Congressional taxing power.
Though many at the time considered the justices’ premises to be faulty and believed that the decision was based purely on politics, the case nonetheless became a landmark decision. While Hylton was decided over two centuries ago, it has played an important role in numerous Supreme Court decisions that have justified the expansion of federal taxation. While many today have not heard of Hylton v. United States, it has played a pivotal role in the development of current federal tax policy. Consider this list of past cases where Hylton’s precedent was used to justify expanded federal taxation:
Hylton v United States : Cited In Subsequent Supreme Court Cases
- 1868 Pacific Insurance Company v. Soule The federal government’s 1866 law that taxed the income and dividends of insurance companies was constitutional
- 1869 Veazie Bank v. Fenno The 1866 federal government’s tax of 10% on state banknotes was constitutional
- 1874 Scholey v. Rew A federal tax on the inheritance of land was constitutional
- 1880 Springer v. United States The federal government’s income tax of 1864 was constitutional
- 1895 Pollock v Farmers’ Loan and Trust Company The federal government’s 1894 tax on income from rental property was found to be unconstitutional. The dissenters cited Hylton extensively.
- 2012 NFIB v Sebelius The Affordable Care Act (ACA) or “Obamacare” is constitutional.
In Sebelius, Chief Justice John Roberts cited the Hylton case in support of his opinion that the Individual Mandate provision of the Affordable Care Act was constitutional. By doing so, Roberts followed the lead of a long line of Supreme Court justices who also appealed to Hylton in order to find a new federal tax constitutional. Why is this such an important precedent for past and present Supreme Court cases?
Debating the Constitutional Taxation Clauses: Early Warnings from the Anti-Federalists
For 3 years, from 1787 – 1790, beginning at the Constitutional Convention in Philadelphia and later in state ratification conventions, Federalists and Anti-Federalists debated the merits of the newly proposed U.S. Constitution. These debates often became contentious and many questioned whether the new Constitution should even be ratified. Anti-Federalist George Mason, a delegate from Virginia to the Constitutional Convention, declared:
…he would sooner chop off his right hand” than see the Constitution, as it then stood, passed.
Speech at Philadelphia Convention, 31 August 1787
Patrick Henry speaking about the newly proposed U.S. Constitution at the Virginia ratifying convention remarked,
And yet who knows the dangers that this new system may produce; they are out of the sight of the common people: They cannot foresee latent consequences… I see great jeopardy in this new Government.
Speech at the Virginia Ratifying Convention, 5 June 1788
One section of the Constitution the Anti-Federalists were particularly concerned with was the general taxation clause.
The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States
Article 1, § 8, Clause 1
Anti Federalists, such as Robert Yates and future president James Monroe, believed that the clause was too vague and would eventually allow the federal government unlimited taxing power.
About the clause, the pseudonymous Brutus wrote:
To detail the particulars comprehended in the general terms, taxes, duties, imposts and excises, would require a volume, instead of a single piece in a newspaper. Indeed… they extend to every possible way of raising money, whether by direct or indirect taxation. We may say then that this clause commits to the hands of the general legislature every conceivable source of revenue within the United States… It will lead to the passing of a vast number of laws, which may affect the personal rights of the citizens of the states, expose their property to fines and confiscation, and put their lives in jeopardy.
Brutus was not vague on what he thought the clause would entail. He believed that the clause would eventually lead the Federal government to tyrannically abuse their power to tax. However, James Madison disagreed with Brutus’ interpretation of the clause:
It has been urged and echoed, that the power “to lay and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States, amounts to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare. No stronger proof could be given of the distress under which these writers labor for objections, than their stooping to such a misconstruction.
Madison obviously thought that unlimited federal taxation was a misunderstanding:
Had no other enumeration or definition of the powers of the Congress been found in the Constitution, than the general expressions just cited, the authors of the objection might have had some color for it; though it would have been difficult to find a reason for so awkward a form of describing an authority to legislate in all possible cases…
Madison believed that the Anti-federalist’s fears over the general taxation clause were unwarranted.
He argued that there were other enumerations or clauses in the proposed Constitution that would prevent a potential federal government abuse of this clause. Madison was correct. There are other taxation clauses besides the general taxation clause in the constitution. It is probable that the other federal taxation limiting enumerations Madison was referring to were the direct tax clauses in the Constitution:
They stipulate how direct taxes are to be apportioned among the states. Madison was sure these clauses would restrain federal taxation. However, what if Madison’s interpretation of the direct tax clauses was different from other federalist leaders? What if Madison’s interpretation of the direct tax clauses was different from the federalist judges? What if the federalists did not view the direct tax clauses as a significant check on federal taxation?
As we will see, the federalists had a completely different vision of federal taxation than the anti-federalists.
Anti-Federalist Warnings Begin to Materialize (1791 -1794)
In March of 1791, the federal government passed a whiskey excise tax that prompted a revolt by farmers in western Pennsylvania. The Whiskey Rebellion would not end until 1794 when George Washington led out an army of 13,000 men to suppress it.
Then again, in 1794 a federal excise tax on carriages produced another tax rebellion, this time in Virginia. Unlike the Whiskey Rebellion, the federal government did not choose to put this rebellion down by force.
Instead, at the urging of Secretary of State Alexander Hamilton, the federal government sued Daniel Hylton in federal court. However, it appears that Hamilton’s ultimate goal was to have this suit decided in the Supreme Court. He wrote in a letter to U.S. Commissioner of the Revenue, Tench Coxe:
It will be proper to instruct Mr. Carrington [U.S. Supervisor of the Revenue for the District of Virginia] to give facility to a legal decision in any case where it may be desired – taking care to secure an appeal in the last resort to the Supreme Court
Why was Hamilton so determined to have this case decided by the Supreme Court?
The Political Landscape (1792-1800)
By 1792 two major parties had emerged from the United States political landscape, the Federalists and the Democratic Republicans (or simply Republicans). The Republicans included men such as Thomas Jefferson, James Monroe, and James Madison.
Interestingly Madison, one of the authors of the Federalist Papers, became associated with the Republicans after 1791. The Republicans embraced ideas such as:
- A strict interpretation of the Constitution and
- A federal government with limited powers
- And thus, a federal government with limited fiscal needs
George Washington, Alexander Hamilton, and John Adams led the Federalist Party. The party was generally in favor of:
- A liberal interpretation of the new Constitution
- An expansive role for the national government
- Hamiltonian fiscal policies (Which became known as The American System)
One of the Federalist’s key fiscal policies included the use of a direct excise tax to raise funds. Apparently, a favorable decision from the court in the Hylton case would validate the constitutionality of such a tax and secure an important means of federal tax revenue in the future.
Events Leading Up to the Carriage Tax
In 1794 while Americans were fighting an Indian war in the Northwest Territory, the British began harassing U.S. merchant ships in the Atlantic. Many believed a two front war was about to ensue.
In response to a seeming need for national defense, funding the Congressional Ways and Means committee proposed a number of revenue raising initiatives. One of the proposed initiatives was the “carriage tax”. Treasury Secretary Alexander Hamilton had twice suggested a similar tax to Congress in 1790 & 1792.
This meant that if someone owned a carriage or purchased a new one the federal government would assess a tax directly on the owner of that carriage. James Madison, considered the architect of the Constitution and now a U.S. Representative, as well as several other representatives, objected to the Carriage tax on constitutional grounds. Their argument went like this.
The Carriage tax was a direct tax on a person’s property. Article 1 Section 9 Clause 4 of the Constitution mandates that direct taxes had to be apportioned among the states. Therefore, since the tax was placed directly on the person’s property, the tax was unconstitutional and thus void.
In spite of protests by Madison and others, the carriage tax passed and became law. Madison in a letter to Jefferson lamented:
The tax on carriages succeeded in spite of the Constitution…
Letter of James Madison to Thomas Jefferson, May 11, 1794
James Madison voted against the carriage tax in Congress because he thought it was direct and not apportioned. He said on the floor of the House of Representatives that he was afraid it would “break down one of the safeguards of the Constitution.”
Remember, Madison tried to convince the anti-federalists that other constitutional enumerations would be a safeguard against abusive federal taxation. The new tax took effect in September of 1794 and generated immediate controversy, even to the point of civil disobedience. The Supreme Court record states:
Daniel Lawrence Hylton…owned, possessed, and kept one hundred and twenty-five chariots for the conveyance of persons, but exclusively for his own separate use, and not to let out to hire, or for the conveyance of persons for hire.
Hylton v. United States, 3 U.S. (3 Dall.) 171, 176 (1796)
The court also stated that Hylton had prior knowledge of the Carriage tax but that he:
… Refused to…pay the duties thereupon as in and by the said recited law is required, alleging that the said law was unconstitutional and void.
Hylton v. United States, 3 U.S. (3 Dall.) 171, 176 (1796)
Though the terms duties, imposts, and excises are not explained or explicitly designated as direct or indirect within the Constitution itself, today they are generally considered indirect taxes. The United States government has provided a general definition of what these terms mean:The term “duty” in its widest significance is hardly less comprehensive than the term “tax.” In its restricted sense it is synonymous with the term “impost.” [An impost is defined as]… a custom, or tax levied on articles brought into a country. The Taxing Power of the Federal and State Governments (1936)
Duties and imposts therefore are generally used in relation to a tax on imports. They are also known as tariffs. An excise has been defined as a tax laid on the manufacture, sale, or consumption of commodities within a country, upon licenses to pursue certain occupations and upon corporate privileges. The IRS further defines excise taxes as:Taxes paid when purchases are made on a specific good, such as gasoline. Excise taxes are often included in the price of the product. There are also excise taxes on activities, such as on wagering or on highway usage by trucks. The constitutional clause concerning duties, imposts, and excises specifically mandates that these taxes must be applied uniformly throughout the United States. The Taxing Power of the Federal and State Governments (1936)
The constitutional clause concerning duties, imposts, and excises specifically mandates that these taxes must be applied uniformly throughout the United States. This means that a tax on an article or kind of property of the same class shall be taxed at the same rate regardless of geography. In other words, the tax rate must be uniform in all 50 states.
It is easy to see why the framers included the uniformity clause into the Constitution. It would prevent the federal government from showing favoritism toward one state or another concerning taxation.
However, there are a number of important questions about excise taxes that the Constitution does not answer:
- Can some excise taxes be considered direct taxes?
- Does the manner in which an excise tax is imposed determine whether it is a direct or indirect tax?
- What items or activities can be excised and who determines this?
- What happens if federal taxation of a particular item or activity is economically damaging to a particular state or region of the country or to a particular industry and the offended party does not have the votes to repeal the tax?
These unanswered questions will be central in the Hylton case.
The two direct tax clauses in the Constitution are:
No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.
Article 1, § 9, Clause 4
Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers, which shall be determined by adding to the whole number of free persons, including those bound to service for a term of years, and excluding Indians not taxed, three fifths of all other Persons.
Article 1, § 2, Clause 3
The second clause is only modified by the Fourteenth Amendment’s elimination of the distinction between “free Persons” and “all other Persons” and the elimination of the category of “Indians not taxed” through legislation. These constitutional direct tax apportionment provisions are still in effect.
The apportionment rule ties a state’s share of the total direct-tax liability to its share of the nation’s population, measured using census rules. This means that if a state has 1/10th of the national population, its residents would pay 1/10th of the total direct tax imposed.
However, what is extremely important concerning the direct tax clauses is their apparent vagueness. Notice here in Article 1 Section 9 Clause 4 that the term “capitation” is not defined. In addition, the phrase mentions “other direct tax”. What exactly are other direct taxes? The Constitution does not identify what they are. The question then becomes was the carriage tax an indirect excise tax that was to be applied uniformly throughout the states or was it a direct excise tax that should have been apportioned among the states?
More specifically, according to the Constitution, could an excise tax be directly imposed on individuals? The importance of this question should not be lost. If the carriage tax were classified as an indirect tax, then the federal government could tax virtually any class of property owned by Americans in any way and at any time.
This is not what the Republicans thought the Constitution allowed.
In part 2 we will we will examine the narrow and limited scope of the constitutional taxing powers as understood by the anti-federalists and Democratic Republicans. As well as looking at a recent Supreme Court case where these contrasting definitions affected all of us.
Sources & Further Information:
Professor Erik M. Jensen, The Taxing Power: A Reference Guide to the United States Constitution (2005)
The Law Practice of Alexander Hamilton: Documents and Commentary, Volume 4 (August 1794)
Hylton v. United States, 3 U.S. (3 Dall.) 171, 176 (1796)
The Taxing Power of the Federal and State Governments (1936)