Pollock v. Farmers Loan & Trust
Co. (1898)
Pollock v. Farmers Loan &
Trust Co. (1895)
INCOME TAX IS UNCONSTITUTIONAL in 1895
In the early 1890’s Congress passed a law that tried to
impose a direct income tax on the interest and dividends from stocks and bonds,
paid by companies to shareholders, and on
interest earned on deposits at
This decision states that it is UNconstitutional for Congress to try to impose a federal tax on the income of the U.S citizens derived from those sources, because that would be a Direct Tax WITHOUT APPORTIONMENT, which Congress is not authorized to enact, and is in fact, specifically prohibited by the Constitution (Article 1 Section 2, Clause 3).
Excerpts from the decision:
"...Ordinarily, all taxes paid primarily by persons who can shift the burden upon someone else, or who are under no legal compulsion to pay them, are considered indirect taxes; but a tax upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided, are direct taxes ..."
and;
“… it is apparent (1) that the distinction between direct and indirect taxation was well understood by the framers of the constitution and those who adopted it; (2) that, under the state system of taxation, all taxes on real estate or personal property or the rents or income thereof were regarded as direct taxes;” Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 574 (1895)
and;
“... A tax upon one's whole income is a tax upon the annual receipts from his whole property, and as such falls within the same class as a tax upon that property, and is a direct tax, in the meaning of the Constitution.... “
“We are of
opinion that the law in question, so far
as it levies a tax on the rents or income of real estate, is in violation of
the constitution, and is invalid.”
Pollock v. Farmer’s Loan & Trust Co.,
157
and;
“...We have unanimously held in
this case that, so far as this law operates on the receipts from municipal
bonds , it cannot be sustained,
because it is a tax on the powers of the States, and on their instrumentalities
to borrow money, and consequently
repugnant to the Constitution. ...it follows that, if the revenue from
municipal bonds cannot be taxed because the source cannot be, the same rule applies to revenue from any
other source not subject to the tax; and the lack of power to levy any but an apportioned tax on real and
personal property equally exists as to the revenue therefrom. Admitting
that this act taxes the income of property irrespective of its source, still we
cannot doubt that such a tax is
necessarily a direct tax in the meaning of the Constitution. In
and, from the supporting opinion of Justice Fields in this case:
“I am of opinion that the whole law of 1894 should be declared void,
and without any binding force,-that part which relates to the tax on the rents, profits, or income from real estate, that is,
so much as constitutes part of the direct tax, because not imposed by the rule of apportionment according to the
representation of the states, as
prescribed by the constitution; and that part which imposes a tax upon the
bonds and securities of the several states, and upon the bonds and securities
of their municipal bodies, and upon on the salaries of judges of the courts of
the United States, as being beyond the
power of congress; and that part which lays duties, imposts, and excises, as
void in not providing for the uniformity required by the constitution in
such cases” Pollock v. Farmer’s Loan & Trust Co.,
157 U.S. 429, 607 (1895)
But wait, he’s not done yet:
“The income tax law under
consideration is marked by discriminating features which affect the whole law.
It discriminates between those who receive an income of $4,000 and those who do
not. It thus vitiates, in my judgment,
by this arbitrary discrimination, the whole legislation.
His words ring as truly prophetic, as we are certainly now confronted today with all of the same aspects of the income tax that he confronted and rejected in his day. Justice Fields further pursues this issue,
“The legislation, in the discrimination it makes, is class
legislation. Whenever a distinction is made in the burdens a law imposes or
in the benefits it confers on any citizens by
reason of their birth, or wealth, or religion, it is class legislation, and leads
inevitably to oppression and abuses, and to general unrest and disturbance in
society. It was hoped and believed
that the great amendments to the constitution which followed the late Civil War
had rendered such legislation impossible for all future time. But the
objectionable legislation reappears in the act under consideration.” Pollock v. Farmer’s Loan & Trust Co.,
157
And, in recognition of the long since forgotten constitutional limitations on the federal power to tax,
“There is no such thing in the theory of our national government as unlimited
power of taxation in congress. There are limitations, as he justly
observes, of its powers arising out of the essential nature of all free
governments; there are reservations of individual rights, without which society
could not exist, and which are respected by every government. The right of taxation is subject to these
limitations. Citizens' Savings Loan
Ass'n v.
“The inherent and fundamental
nature and character of a tax is that of a contribution to the support of the
government, levied upon the principle of
equal and uniform apportionment among the persons taxed, and any other exaction does not come within the
legal definition of a 'tax.'” Pollock
v. Farmer’s Loan & Trust Co.,
157
And finally from Justice Fields
“Here I close my opinion. I
could not say less in view of questions of
such gravity that go down to the very foundation of the government. If the provisions of the constitution can
be set aside by an act of congress, where is the course of usurpation to end?
The present assault upon capital is but the beginning. It will be but the
stepping-stone to others, larger and more sweeping, till our political contests
will become a war of the poor against
the rich,-a war constantly growing in intensity and bitterness. 'If the
court sanctions the power of discriminating taxation, and nullifies the
uniformity mandate of the constitution,' as said by one who has been all his
life a student of our institutions, 'it
will mark the hour when the sure decadence of our present government will
commence.' If the purely arbitrary limitation of four thousand dollars in
the present law can be sustained, none having less than that amount of income
being assessed or taxed for the support of the government, the limitation of future
congresses may be fixed at a much larger sum, at five or ten or twenty thousand
dollars, parties possessing an income of that amount alone being bound to bear
the burdens of government; or the limitation may be designated at such an
amount as a board of 'walking delegates' may deem necessary. There is no safety
in allowing the limitation to be adjusted except
in strict compliance with the mandates of the constitution, which require
its taxation, if imposed by direct
taxes, to be apportioned among the states according to their
representation, and, if imposed by
indirect taxes, to be uniform in operation and, so far as practicable, in
proportion to their property, equal upon
all citizens. Unless the rule of the constitution governs, a majority may
fix the limitation at such rate as will not include any of their own
number.” Pollock v. Farmer’s Loan & Trust Co.,
157
and, even in dissent:
“...that personal property, contracts, obligations,
and the like, have never been regarded by Congress as proper subjects of direct
tax. The
(Entire
text of ruling)
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