138. Constitutional Provisions Present Difficulties

Many changes and suggestions have been made to attempt to remedy some of the evils that were pointed out in the preceding chapter. One of the first things to be remembered by those who are interested in making changes in fiscal systems, is that they cannot use a free hand in the matter. In every case the provisions of the Federal Constitution as well as the provisions of the state constitutions, with their court interpretations, must be considered. The government of the United States is one of delegated powers, while the powers of the state governments are residual. That is, the Federal Constitution specifically enumerates and prescribes the activities in which the Federal government may engage, while the states are free to enter any fields of endeavor from which they are not prohibited.

The latitude of the states in tax matters is easily seen to be much broader than that of the Federal government. The fiscal provisions of the Constitution have already been enumerated - Congress shall have power to lay and collect taxes, duties, imposts, and excises; no direct tax shall be laid except in proportion to the population; no tax shall be laid upon exports; bills for raising revenue shall originate in the House. These, with the Sixteenth Amendment, which gives the power to levy an income tax, constitute the taxing powers of the Federal government.

Court Decisions. - The court interpretations, however, must not be overlooked. Taxes upon corporation incomes and inheritances, for example, have been held as not direct, and consequently do not need to be apportioned in accordance with population. An income tax at the time of the Civil War was considered constitutional, while the one of 1894 was held to exceed the powers of Congress. It has been held, moreover, that the states have no power, by taxation or otherwise, to retard, impede, burden, or in any other manner control the operation of the constitutional laws enacted by Congress. Consequently taxes upon operations which will hinder the activities of the Federal government have been held void. State laws which imposed taxes upon United States bonds, for example, have been declared unconstitutional, as interfering with the prerogatives of the Federal government. Likewise it has been held that the Federal government has no power to tax the instrumentalities or property of the states.

The Fourteenth Amendment. - The Fourteenth Amendment to the Constitution has also developed an important bearing upon taxation. The clause, "nor shall any state deprive any person of life, liberty, or property without due process of law," is frequently invoked in tax matters. The importance of this lies in the interpretation the courts place upon the phrase, "due process of law." This has frequently been invoked to prevent or annul the arbitrary assessment and collection of taxes, and to require that all taxes be levied through the general process of legislation.

Limitations by States. - State legislatures, because of the residual nature of their powers, are not limited in the field of their activities except as restrictions are placed upon them by the Federal or state constitutions. The limitations found in the state constitutions, however, have not only been rather widespread, but have frequently been barriers to securing needed tax reforms. Most of the constitutions were formed when the entire reliance for revenue was placed upon property, while the property was largely of tangible nature. The idea prevailed that this property represented the best basis for taxpaying ability, and that it should all be taxed equally.

Uniform Tax Clause. - Because of the importance attached to property, the " uniform tax clause," as it is generally known, found its way into many state constitutions. It generally takes a form somewhat as follows: all properly shall be assessed at its full value and at rates that are just and uniform. With the development of various classes of property, especially a large class of intangible property, the uselessness of attempting to assess all forms at a full value, and consequently tax them at a uniform rate, becomes apparent. Some states have been able to remove the restriction, but in many it still remains because of the fear of the citizens that if classification of property were allowed some classes of property, whose owners possess political influence, would escape taxes. Mere indifference has also had an influence in many cases.