Taxation in the Spirit of the U. S. Constitution

The Constitution of the United States has very little to say about taxes, especially in its original form before the 16th amendment was passed, but also even now. It explicitly grants Congress the power to levy and collect them (Article 1, Section 8), but it absolutely does not specify what forms of taxation are allowed or disallowed, except with a few key restrictions. The most telling of these is that if Congress decides to impose a capitation or direct tax, meaning essentially a per-person “head tax” as opposed to a tax on an activity such as earning income or purchasing goods,[1] then that tax has to be the same for all persons.[2] In other words, the tax has to be levied fairly—Congress is not allowed to collect $5000 from merchants but only $500 from government employees, for example, or $5000 from New Yorkers but only $500 from Virginians.

While this “fairness principle” laid down in the Constitution only explicitly applies to direct taxes, is it not obvious that the spirit behind the regulation ought to be extended to all forms of taxation? In other words, what I am claiming is that it is against the spirit of the Constitution, though admittedly not against the specific words, to levy any kind of tax that unfairly targets one group of people over another, or privileges one group of people over another, even if there may be economic reasons for doing so.

This is admittedly not a black-and-white doctrine. The definition of “fair” is not unambiguous, and no form of tax is completely immune from the criticism of unfair targeting. Yet we should not let this slippery-slope argument dissuade us from even striving at all for fairness in our tax code in the spirit of the Constitution. Fairness, and not just economic stimulus, ought to be a primary goal. It’s just...well, fair. If Congress were to enact a national sales tax, for example, in general it would be unfair to target that tax in such a way as to hit some people harder than others. I say “in general” because I think a good case could be made in the name of fairness for exempting necessities (e.g., basic food items) from such a sales tax, which would essentially result in the poor paying proportionately less than the rich. But it would be clearly unfair to target doctors as opposed to lawyers, for example, or southerners as opposed to northerners, or even the poor as opposed to the rich instead of the other way around (e.g., by taxing basic items but exempting yachts, or by taxing used cars at 20% but new cars at only 2%).

With this in mind I applaud the fact that the major form of taxation the U. S. Government has chosen to levy is the income tax. I do not say other forms of taxation cannot also be considered and imposed in a basically fair manner, but it seems to me that an income tax is indeed in principle among the most fair of all possible taxes. I would argue that it is significantly more fair than a direct head tax, for example, which would be overly burdensome to the poor while hardly being felt by the rich. It is also more fair than a property tax, which would be born disproportionately by farmers over city-dwellers. It is more fair than an import tax, which would favor those whose professional needs can be supplied by U. S. goods over those in professions that have genuine needs for various imported goods. The list could go on.

Even income tax is not automatically fair, however. Once the decision to go with an income tax is made, the greatest debate will probably be over how progressive to make the rate. Should everyone pay the same percentage, or should the rich pay a higher percentage than the poor? Even a flat rate is really progressive in effect if it includes any deductions or personal exemptions, so in practice this is not really an argument about whether to make the rate progressive, but rather about how progressive to make it. I think some progression in income tax (whether by multiple brackets or simply by personal exemptions) is in principle fair. A person should not be as fully taxed on income until that income is at least above some minimal poverty line, wherever we decide that poverty line should be drawn. I am much less convinced of the fairness of many of the other deductions and exemptions that currently exist in our tax code, but in my opinion these issues pale in comparison to a much hotter debate on the topic of income tax fairness.

The debate I am referring to is whether or not it is fair for the income tax to target certain types of income more than others. More specifically, is the current income tax in keeping with the spirit of fairness implied by the Constitution when it taxes ordinary income, income from salaries and wages, at a much higher rate than it taxes income from capital gains and stock dividends, the type of income that is mostly made by the wealthiest class of Americans?

Not so long ago, Republican President Ronald Reagan argued that such “loopholes” were not fair, that the types of income made by the rich should be taxed at the same or higher rates than the types of income made by the poor.[3] Today, this has inexplicably become the exclusive platform of the Democrats rather than of the Republicans or of a significant portion of both parties. When President Obama began his campaign to raise the capital gains tax rate so that multi-billionaire Warren Buffet would be taxed at a higher effective rate than his secretary instead of a lower rate, the vast majority of Republican commentators and pundits immediately cried foul. The Republican presidential candidates began accusing him of engaging in a “divisive strategy” of “class warfare” even though it was their own hero, Ronald Reagan, who signed the tax reform act of 1986 that accomplished virtually the same thing Obama is trying to do.

Under Reagan’s tax reform of 1986, capital gains and dividends were taxed at the same rate as ordinary income, which he set at 28%. (This was down from the previous maximum rate of 50% for ordinary income prior to that reform, but up from 20% for long term capital gains.) Sadly, Reagan’s spirit of fairness did not last. Under Bill Clinton the rate for capital gains dropped back down to 20%, and then under George W. Bush it dropped to an unprecedented (in the modern era) 15%. Meanwhile, the tax rate for ordinary income went up to a maximum of 31% under Bush I and 39.6% under Clinton before dropping slightly to 35% under Bush II. At the same time, additional loopholes started appearing in the tax code that allowed some of the wealthiest people to pay an effective rate of even less than the 15% imposed on dividends and long term capital gains. While it is true that Reagan wanted all income to be taxed at a lower rate than the current maximum for ordinary income, he did not oppose closing loopholes by raising certain taxes when it was appropriate and fair to do so, in part to help enable ordinary income to be taxed at a lower rate. This is completely unlike so many of the current Republicans who have signed a ridiculously ideological pledge never to raise any kind of tax under any circumstance whatsoever. When Obama campaigns to raise the effective capital gains tax rate to 30%, he is far closer in spirit to Ronald Reagan than his Republican opponents are.

My purpose in pointing this out is not to enter into the argument over the whether the current tax rates are too high or too low in overall average effect. I am not taking sides on that debate. My only purpose is to address the current inequity in the rates. My question to all Republicans is whether or not they really think it in the spirit of fairness intended by the U. S. Constitution that the types of income made primarily by the rich are taxed at less than half the maximum rate imposed on the types of income made by most ordinary folk. I believe that it is not. And even if the Republican politicians may have other reasons besides fairness for parting ways with the sensibilities of Ronald Reagan and Barack Obama and the majority of Americans on this issue, I do not think this justifies their persistent rhetoric that Obama is an economic lightweight engaging in “class warfare” on this issue, that he has an unfair intent of “soaking the rich.” I believe these Republicans are only exposing their own blatant demagoguery, foolish party spirit, and utter disregard for the ideals on which this country was founded when they they such things. I do not say this issue is the most important one facing our nation, so that it alone should determine our choice in the next election, but I do say that the more the Republican candidates keep pushing their extreme tax policies as one of the main reasons to support them, the more unlikely they are to get my vote.


[1]   Technically, a direct tax would also include a tax on a person’s possessions, though the original framers of the Constitution were apparently only thinking of a head tax when they penned the proportionality regulation for direct taxes. Almost certainly contrary to the original framers’ intentions, the Supreme Court later ruled that a tax on any type of income which was derived from possessions (as opposed to ordinary income which is derived from an activity and its resultant wages) would therefore also qualify as a direct tax and be subject to the letter of the regulation, which in practice meant it couldn’t be levied. Since it would be blatantly unfair to levy an income tax only on one kind of income but not on the other, this decision led to the passage of the 16th amendment, which explicitly allowed for income tax to be collected on any source of income without following the proportionality rules of the census. (See [2] for further explanation.)
[2]   The actual requirement is that direct taxes must be “in proportion to the Census or enumeration herein before directed to be taken.” The reason for this odd-sounding phraseology, and presumably for singling out the consequences of the fairness principle for direct taxes in the first place, is that the Constitution originally counted slaves as only 3/5 of a person and Indians as no persons at all for the purposes of this Census to which direct taxation also had to be proportioned (Article 1, Section 2). In other words, Indians would not be taxed at all in a direct tax, and slaves would presumably be taxed at a 3/5 ratio, payable by their masters. Now that slavery has been outlawed and Indians are treated the same as everyone else for such purposes, however, the effect is the same as if the regulation had simply stated that direct taxes must be the same for all persons.
[3]   For example, in his June 6, 1985 speech at Northside High School in Atlanta, Ga. (Hear excerpts at

This page copyright © 2012 Edward A. Morris.  Created February 24, 2012.  Last updated February 24, 2012.

Back to home page