States rely on equity in federal tax burdens---the apportioned nature of a wealth tax violates the Direct Tax Clause and wrecks federalism

Although I do not necessarily agree with the Pollock majority’s characterization of the Direct Tax Clause, it is not unreasonable. Under the Articles of Confederation, the national government had no independent taxing power but relied on the states and foreign loans to sustain its operations. An intense object of debate leading up to the ratification of the Constitution, therefore, concerned the broad taxing power granted to the national government under Article I,56 and, more precisely, whether state and local governments could continue to raise revenue after the federal government chose to exercise its taxing power.57 After the Civil War, constitutional amendments repealed many of the pro-slavery provisions (e.g., the Fourteenth Amendment repealed the Three-Fifths Clause),58 but the Direct Tax Clause was left intact. For a textualist originalist court, since the Direct Tax Clause remains in the constitutional text, and since the Civil War ended the institution of slavery, a ready option is to interpret the Clause at a high level of generality. Read as a provision of federalism, the Direct Tax Clause is meant to preserve the taxing capacities of state and local governments, so that they can exercise their traditional taxing power concurrently with the federal government, and consequently spend in accordance with local priorities and preferences. Therefore, at least with respect to wealth taxation, we can easily reconcile the underlying rationale of Pollock with the functional rule of Hylton. If apportionment of a direct tax would produce, in Hylton’s words, “great inequality and injustice” among the states,59 it would necessarily impair the ability of some states to tax (though perhaps rewarding other states with increased ability to tax).60 To use the example that Justice Chase offered in Hylton: if the carriage tax is apportioned among the states, and state A faces an $80 tax per carriage while state B faces an $8 tax per carriage, the apportionment would clearly impair state A’s taxing capacity. An apportioned wealth tax would be even more detrimental to the ability of certain state and local governments to tax, for two reasons: first, wealth includes a much broader set of personal properties than carriages, so an apportioned wealth tax would more completely destroy the ability of certain (i.e., poor) states to tax—not only would the state be unable to tax carriages, it would also find other property taxes hard to collect; second, wealth, unlike ordinary consumer goods, is more unevenly distributed, especially for households with net worths above $50 million—New York likely has many more ultra-millionaires than West Virginia, even after adjusting for differences in population.61 The upshot is that the functional rule of Hylton concerns the unfair consequences of apportioning a direct tax not only to the taxpayers but also to the states and localities that rely on at least some inter-jurisdictional equity in the distribution of federal tax burdens. In short, both equitable treatment of similarly situated individual taxpayers and federalism animate the functional rule.