In his column today, George Will excoriates supporters of a value-added tax. Among the points he makes is that the VAT should only be implemented in conjunction with abolition of the 16th Amendment to the Constitution in order to avoid double taxation of income and consumption.
This is a frivolous argument because it shows no knowledge of what the 16th Amendment actually did. As historian David B. Levenstam explained in the libertarian magazine Reason, repeal of it would do nothing to prohibit Congress's ability to tax incomes because Congress clearly had that power before its enactment. As he explains:
Contrary to popular belief, repealing the 16th Amendment wouldn't eliminate Congress' power to impose an income tax, because not all income taxes were held unconstitutional by the Supreme Court before the 16th Amendment was ratified. From 1861 to 1872, Congress imposed income taxes without any interference from the high court. In fact, in the 1881 case, Springer v. United States, the Court upheld the 1864 income tax. From 1862 to 1870, Congress imposed inheritance taxes, which applied to certain gifts as well. In 1874 the Supreme Court upheld the Civil War inheritance taxes in Scholey v. Rew, categorizing an inheritance tax as an excise or impost rather than a direct tax.
At the core of the Pollock decision [which found the 1894 income tax unconstitutional] is the distinction between direct and indirect taxes. Article I, Section 9, paragraph 4 of the Constitution stipulates that "No Capitation [head], or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken." "Publius" (presumed to be Alexander Hamilton), in Federalist 22, held that taxes "of the direct kind, which principally relate to land and buildings, may admit a rule of apportionment. Either the value of the land, or the number of the people, may serve as a standard." In the 1796 case, Hylton v. U.S.,Hamilton, as chief counsel for the government, persuaded the Supreme Court that only head taxes and taxes on real estate should be considered direct taxes. A tax on tangible personal property, such as carriages, was not a direct tax.
So in ruling on the constitutionality of the 1894 income tax in Pollock, the Court faced a century-old precedent holding that the only taxes Congress could not impose without doing so proportionately among the states were head taxes and real property taxes. Opponents of the income tax argued that taxing income from property was the equivalent of taxing the property itself.
But the Supreme Court did not say that the remaining provisions of the law, had they passed independently, would have been unconstitutional. To the contrary, the Court made clear that Congress could impose a tax on income from wages, salaries, and other compensation for personal services, as well as on income from intangible property such as stocks, bonds, patents, and copyrights. The Court ruled the law unconstitutional because it taxed income from tangible property without apportionment.
So even without the 16th Amendment, Pollock would allow Congress to impose a tax on a broad range of income. The Supreme Court clarified the point in a series of cases, including Brushaber v. Union Pacific Railroad (1915), Stanton v. Baltic Mining Company (1916), and Eisner v. Macomber (1920). In these cases, the Court ruled that the 16th Amendment granted Congress no new power to tax; the 16th Amendment simply reclassified an income tax on tangible property as an indirect tax. Demonstrating that the 16th Amendment granted no new power, the Court held that Congress still couldn't tax interest earned on state and local bonds--much to the chagrin of not only Progressives but also of Secretary of the Treasury Andrew Mellon and other tax cutters, who believed that the tax-exempt status of state and local bonds was redirecting capital from efficient allocation in the private marketplace into bloated state and local government bureaucracies.
Even before the 16th Amendment, the Pollock, Spreckles, and Flint decisions gave a clear signal to Congress that it could impose a tax on wages, salaries, professional service fees, interest, dividends, royalties from intellectual property, estates, gifts, gross receipts, and any income earned by corporations. Congress could even double tax corporate income.
Eliminating Congress' power to tax income, as many supporters of a national sales tax propose, would require more than merely repealing the 16th Amendment. We would have to ratify an amendment prohibiting Congress from imposing any income tax as well as estate, gift, and gross receipts taxes.
In short, even if it were possible to repeal the 16th Amendment it would not lead to abolition of the income tax on constitutional grounds. I think it's reasonable to say that the consensus view among constitutional scholars today is that the Pollock decision was an aberration, one that would never be duplicated. In fact, many scholars argued that the 16th Amendment was unnecessary to enact an income tax in 1913 because it was extremely unlikely that the Supreme Court would uphold the Pollock decision. Some historians suggest that the amendment was put forward by Republican William Howard Taft in 1909 as a political ploy to divert conservative opposition away from him.
The 16th Amendment issue should be seen for what it is: a red herring. If people don't think we should have both an income tax and a broad-based consumption tax at the national level, fine. That's a good debate to have and I for one don't oppose abolishing the income tax and replacing it with a VAT. But the idea that we must repeal the 16th Amendment as a precondition for consideration of a VAT in order to prevent the possibility of having both an income tax and a VAT is not a serious proposal. It's just a trick to put up an insurmountable barrier to adoption of a VAT without addressing the questions of how we will stabilize the national debt without higher revenues or why a VAT is a better way to raise those revenues than higher income tax rates, which is the default option in the absence of a VAT.
I'm disappointed to see Will make such a frivolous argument against the VAT.
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