Direct Taxes and the Border Adjustment Tax

Former Solicitor General Ted Olson has an op-ed in The Washington Post arguing that a border-adjustment tax would be subject to the state apportionment requirement of the Constitution’s Direct Tax Clause. I see no prospect that a border-adjustment tax will be enacted, but if one is I think that Olson’s argument is without merit.

Let’s start with a point that is missing from the op-ed. The term “direct taxes” in the Constitution is largely a euphemism for “taxes on slaves.” Supporters of slavery in the Constitutional Convention faced a dilemma–suppose Congress were to tax slaves at a very high rate? Would that not give Congress the power (in practice) to abolish slavery? The solution was to say that direct taxes had to be apportioned among the states, which meant that even states with no slaves would have to pay a slave tax.  This was a strong disincentive for such a tax, which was never enacted.

When the Supreme Court first interpreted the Direct Tax Clause in 1795, Justice Patterson (who was a member of the Convention) explained this point in his separate opinion. The import of this history is that the Court never (despite many invitations) applied the Direct Tax Clause from 1795 to 1895. (To the extent that Congress did, it was only for taxes on land.)  In 1895, the Court deviated from this deferential posture and held that the income tax was a direct tax, but that was overruled by the Sixteenth Amendment. Since then, no other tax has been deemed direct.

In the face of this original understanding and overwhelming precedent, Olson musters very little in response. He simply tries to define a border-adjustment tax as direct from first principles. Maybe if given the chance he could say more (an op-ed is, after all, a very limited forum), but I doubt it.

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4 Responses

  1. Joe says:

    The discussion at one point says the provision is “largely” about slaves but does later also reference how it applied to “land.”

    Hylton v. U.S. is the early case cited. The opinion by Judge Patterson said: “Whether direct taxes, in the sense of the Constitution, comprehend any other tax than a capitation tax, and tax on land, is a questionable point. ”

    This had a slavery implication — certain states had large amounts of land used for slavery — but a rule about land is one that holds even without slavery. Olson broadly says “property,” which is dubious, but “land” isn’t just about slavery. The rule in part protected states with thinly populated large tracts of land generally speaking.

    Anyway, a “border adjustment tax” sounds like some sort of excise tax to me. So, the end result is basically the same: no sale. *

    * CNN at one point noted: “A border adjustment tax would give tax breaks to American companies that ship products to other countries, and it would strip away tax breaks from American companies that import goods from other countries.”

    • Brett Bellmore says:

      I think you have it, Joe.

      There’s a fad these days to attribute every possible clause of the Constitution to slavery. It’s part of an effort to discredit the Constitution, because people who don’t like the Constitution are running into the fact that it’s more popular with the public than they are. (Yes, Sandy, I’m talking to you.)

      I don’t think Gerald falls into that group, but he may have fallen prey to their efforts.

      I am, by the way, stunned by just how unpersuasive Olsen’s reasoning is. You’d normally expect better out of him.

      • Joe says:

        The provision does have something to do with slavery & don’t think it mere coincidence that the 3/5 rule applies to direct taxes too. My concern is more that it isn’t MERELY about that.

        * Representatives and direct Taxes shall be apportioned among the several States” etc.

  2. Joe says:

    ETA: The IRS notes: “Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline.”

    “direct tax: A tax that cannot be shifted to others, such as the federal income tax.”

    Anyway, figure it is one of these: “Taxes, Duties, Imposts and Excises” and indirect.