Appeal from the Circuit Court of the United States for the Southern District of New York.

The following opinions were filed upon the reargument of the above-entitled cases. The facts of these cases, and the former opinions, will be found fully reported in 15 Sup. Ct. 673.

Jos. H. Choate and W. D. Guthrie, for appellants. Atty. Gen. Olney and Asst. Atty. Gen. Whitney, for appellees.

*Mr. Chief Justice FULLER delivered the opinion of the court:

Whenever this court is required to pass upon the validity of an act of congress, as tested by the fundamental law enacted by the people, the duty imposed demands, in its discharge, the utmost deliberation and care, and invokes the deepest sense of responsibility. And this is especially so when the question involves the exercise of a great governmental power, and brings into consideration, as vitally affected by the decision, that complex system of government, so sagaciously framed to secure and perpetuate "an indestructible Union, composed of indestructible states."

We have, therefore, with an anxious desire to omit nothing which might in any degree tend to elucidate the questions submitted, and aided by further able arguments embodying the fruits of elaborate research, carefully re-examined these cases, with the result that, while our former conclusions remain unchanged, their scope must be enlarged by the acceptance of their logical consequences.

The very nature of the constitution, as observed by Chief Justice Marshall in one of his greatest judgments, "requires that only its great outlines should be marked, its important objects designated, and the minor ingredients which compose those objects be deduced from the nature of the objects themselves." "In considering this question, then, we must never forget that it is a constitution that we are expounding." Maryland, 4 Wheat. 316, 407.

McCulloch v.

As heretofore stated, the constitution divided federal taxation into two great classes,the class of direct taxes, and the class of duties, imposts, and excises,-and prescribed two rules which qualified the grant of power as to each class.

The power to lay direct taxes, apportioned among the several states in proportion to their representation in the popular branch of congress,-representation based on population as ascertained by the census,-was plenary and absolute, but to lay direct taxes without apportionment was forbidden. The power to lay duties, imposts, and excises was subject to the qualification that the imposition must be uniform throughout the United States.

Our previous decision was confined to the consideration of the validity of the tax on the income from real estate, and on the income from municipal bonds. The question

v.15s.c.-58

thus limited was whether such taxation was direct, or not, in the meaning of the constitution; and the court went no further, as to the tax on the income from real estate, than to hold that it fell within the same class as the source whence the income was derived,that is, that a tax upon the realty and a tax upon the receipts therefrom were alike direct; while, as to the income from municipal bonds, that could not be taxed, because of want of power to tax the source, and no reference was made to the nature of the tax, as being direct or indirect.

We are now permitted to broaden the field of inquiry, and to determine to which of the two great classes a tax upon a person's entire income-whether derived from rents or products, or otherwise, of real estate, or from bonds, stocks, or other forms of personal property-belongs; and we are unable to conclude that the enforced subtraction from the yield of all the owner's real or personal property, in the manner prescribed, is so different from a tax upon the property itself that it is not a direct, but an indirect, tax, in the meaning of the constitution.

The words of the constitution are to be taken in their obvious sense, and to have a reasonable construction. In Gibbons v. Ogden, Mr. Chief Justice Marshall, with his usual felicity, said: "As men whose intentions require no concealment generally employ the words which most directly and aptly *express the ideas they intend to convey, the enlightened patriots who framed our constitution, and the people who adopted it, must be understood to have employed words in their natural sense, and to have intended what they have said." 9 Wheat. 188. And in Rhode Island v. Massachusetts, where the question was whether a controversy between two states over the boundary between them was within the grant of judicial power, Mr. Justice Baldwin, speaking for the court, observed: "The solution of this question must necessarily depend on the words of the constitution, the meaning and intention of the convention which framed and proposed it for adoption and ratification to the conventions of the people of and in the several states, together with a reference to such sources of judicial information as are resorted to by all courts in construing statutes, and to which this court has always resorted in construing the constitution." 12 Pet. 721.

We know of no reason for holding otherwise than that the words "direct taxes," on the one hand, and "duties, imposts and excises," on the other, were used in the constitution in their natural and obvious sense. Nor, in arriving at what those terms embrace, do we perceive any ground for enlarging them beyond, or narrowing them within, their natural and obvious import at the time the con. stitution was framed and ratified.

And, passing from the text, we regard the conclusion reached as inevitable, when the circumstances which surrounded the conven

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tion and controlled its action, and the views of those who framed and those who adopted the constitution, are considered.

We do not care to retravel ground already traversed, but some observations may be added.

In the light of the struggle in the convention as to whether or not the new nation should be empowered to levy taxes directly on the individual until after the states had failed to respond to requisitions,-a struggle which did not terminate until the amendment to that effect, proposed by Massachusetts and concurred in by South Carolina, New Hampshire, New York, and Rhode Island, had been rejected,-it would seem beyond* reasonable question that direct taxation, taking the place, as it did, of requisitions, was purposely restrained to apportionment according to representation in order that the former system as to ratio might be retained, while the mode of collection was changed.

This is forcibly illustrated by a letter of Mr. Madison of January 29, 1789, recently published,1 written after the ratification of the constitution, but before the organization of the government and the submission of the proposed amendment to congress, which, while opposing the amendment as calculated to impair the power, only to be exercised in "extraordinary emergencies," assigns adequate ground for its rejection as substantially unnecessary, since, he says, "every state which chooses to collect its own quota may always prevent a federal collection by keeping a little beforehand in its finances, and making its payment at once into the federal treasury."

The reasons for the clauses of the constitution in respect of direct taxation are not far to seek. The states, respectively, possessed plenary powers of taxation. They could tax the property of their citizens in such manner and to such extent as they saw fit. They had unrestricted powers to impose duties or imposts on imports from abroad, and excises on manufactures, consumable commodities, or otherwise. They gave up the great sources of revenue derived from commerce. They retained the concurrent power of levying excises, and duties if covering anything other than excises; but in respect of them the range of taxation was narrowed by the power granted over interstate commerce, and by the danger of being put at disadvantage in dealing with excises on manufactures. They retained the power of direct taxation, and to that they looked as their chief resource; but even in respect of that they granted the concurrent power, and, if the tax were placed by both governments on the same subject, the claim of the United States had preference. Therefore they did not grant the power of direct taxation with

1 By Mr. Worthington C. Ford in The Nation, April 25, 1895; republished in 51 Alb. Law J. 292.

out regard to their own condition and re sources as states, but they granted the power of apportioned direct taxation,—a power just as efficacious to serve the needs of the general government, but securing to the states the opportunity to pay the amount apportioned, and to recoup from their own citizens in the most feasible way, and in harmony with their systems of local selfgovernment. If, in the changes of wealth and population in particular states, apportionment produced inequality, it was an inequality stipulated for, just as the equal representation of the states, however small, in the senate, was stipulated for. The constitution ordains affirmatively that each state shall have two members of that body, and negatively that no state shall by amendment be deprived of its equal suffrage in the senate without its consent. The constitution ordains affirmatively that representatives and direct taxes shall be apportioned among the several states according to numbers, and negatively that no direct tax shall be laid unless in proportion to the enumeration.

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The founders anticipated that the expenditures of the states, their counties, cities, and towns, would chiefly be met by direct taxation on accumulated property, while they expected that those of the federal government would be for the most part met by indirect taxes. And in order that the power of direct taxation by the general government should not be exercised except on necessity, and, when the necessity arose, should be so exercised as to leave the states at liberty to discharge their respective obligations, and should not be so exercised unfairly and discriminatingly, as to particular states or otherwise, by a mere majority vote, possibly of those whose constituents were intentionally not subjected to any part of the burden, the qualified grant was made. Those who made it knew that the power to tax involved the power to destroy, and that, in the language of Chief Justice Marshall, "the only security against the abuse of this power is found in the structure of the government itself. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation." 4 Wheat. 428. And they retained this security by providing that direct taxation and representation in the lower house. of congress should be adjusted on the same

Cooley (Tax'n, p. 3) says that the word "duty" ordinarily "means an indirect tax, imposed on the importation, exportation, or consumption of goods"; having "a broader meaning than 'custom,' which is a duty imposed on imports or exports"; that "the term 'impost' also signifies any tax, tribute, or duty, but it is seldom applied to any but the indirect taxes. An 'excise' duty is an inland impost, levied upon articles of manufacture or sale, and also upon licenses to pursue certain trades or to deal in certain commodities."

In the constitution, the words "duties, imposts, and excises" are put in antithesis to direct taxes. Gouverneur Morris recognized this in his remarks in modifying his celebrated motion, as did Wilson in approving of the motion as modified. 5 Elliot, Deb. 302. And Mr. Justice Story, in his Commentaries on the Constitution (section 952), expresses the view that it is not unreasonable to presume that the word "duties" was used as equivalent to "customs" or "imposts" by the framers of the constitution, since in other clauses it was proIvided that "no tax or duty shall be laid on articles exported from any state," and that "no state shall, without the consent of congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws"; and he refers to a letter of Mr. Madison to Mr. Cabell, of September 18, 1828, to that effect. 3 Madison's Writings, 636.

In this connection it may be useful, though at the risk of repetition, to refer to the views of Hamilton and Madison as thrown into relief in the pages of the Federalist, and in respect of the enactment of the carriage tax act, and again to briefly consider the Hylton Case, 3 Dall. 171, so much dwelt on in argument.

The act of June 5, 1794, laying duties upon carriages for the conveyance of persons, was enacted in a time of threatened war. Bills were then pending in congress to increase the military force of the United States, and to authorize increased taxation in various directions. It was therefore as much a part of a system of taxation in war times as was the income tax of the war of the Rebellion. The bill passed the house on the 29th of May, apparently after a very short debate. Mr. Madison and Mr. Ames are the only speakers on that day reported in the Annals. "Mr. Madison objected to this tax on carriages as an unconstitutional tax; and, as an unconstitutional measure, he would vote against it." Mr. Ames said: "It was not to be wondered at if he, coming from so different a part of the country, should have a different idea of this tax from the gentleman who spoke last. In Massachusetts, this tax had been long known, and there it was called an 'excise.' It was difficult to define whether a tax is direct or not. He had satisfied himself that this was not so."

On the 1st of June, 1794, Mr. Madison wrote to Mr. Jefferson: "The carriage tax, which only struck at the constitution, has passed the

house of representatives." The bill then went to the senate, where, on the 3d day of June, it "was considered and adopted"; and on the following day it received the signature of President Washington. On the same 3d day of June the senate considered "An act laying certain duties upon snuff and refined sugar"; "An act making further provisions for securing and collecting the duties on foreign and domestic distilled spirits, stills, wines, and teas"; "An act for the more effectual protection of the southwestern frontier"; "An act laying additional duties on goods, wares and me"chandise," etc.; "An act laying duties on licenses for selling wines and foreign distilled spirituous liquors by retail"; and “An act lay-, ing duties on property sold at auction." *It appears then that Mr. Madison regarded the carriage tax bill as unconstitutional, and accordingly gave his vote against it, although it was to a large extent, if not altogether, a

war measure.

Where did Mr. Hamilton stand? At that time he was secretary of the treasury, and it may therefore be assumed, without proof, that he favored the legislation. But upon what ground? He must, of course, have come to the conclusion that it was not a direct tax. Did he agree with Fisher Ames, his personal and political friend, that the tax was an excise? The evidence is overwhelming that he did.

In the thirtieth number of the Federalist, after depicting the helpless and hopeless condition of the country growing out of the inability of the confederation to obtain from the states the moneys assigned to its expenses, he says: "The more intelligent adversaries of the new constitution admit the force of this reasoning; but they qualify their admission, by a distinction between what they call 'internal' and 'external' taxations. The former they would reserve to the state governments; the latter, which they explain into commercial imposts, or rather duties on imported articles, they declare themselves willing to concede to the federal head." In the thirty-sixth number, while still adopting the division of his opponents, he says: "The taxes, intended to be comprised under the general denomina. tion of internal taxes may be subdivided into those of the direct and those of the indirect kind. As to the latter, by which must be understood duties and excises on articles of consumption, one is at a loss to conceive what can be the nature of the difficulties apprehended." Thus we find Mr. Hamilton, while writing to induce the adoption of the constitution, first dividing the power of taxation into "external" and "internal," putting into the former the power of imposing duties on imported articles and into the latter all remaining powers; and, second, dividing the latter into "direct" and "indirect," putting into the latter duties and excises on articles of consumption.

It seems to us to inevitably follow that in Mr. Hamilton's judgment at that time all in

ternal taxes, except duties and excises on articles of consumption, fell into the category of direct taxes.

Did he, in supporting the carriage tax bill, change his views in this respect? His argument in the Hylton Case in support of the law enables us to answer this question. It was not reported by Dallas, but was published in 1851 by his son, in the edition of all Hamilton's writings except the Federalist. After saying that we shall seek in vain for any legal meaning of the respective terms "direct and indirect taxes," and after forcibly stating the impossibility of collecting the tax if it is to be considered as a direct tax, he says, doubtingly: "The following are presumed to be the only direct taxes: Capitation or poll taxes; taxes on lands and buildings; general assessments, whether on the whole property of individuals, or on their whole real or personal estate. All else must, of necessity, be considered as indirect taxes." ""Duties,' 'imposts,' and 'excises' appear to be contradistinguished from 'taxes.'" "If the meaning of the word 'excise' is to be sought in the British statutes, it will be found to include the duty on carriages, which is there considered as an excise." "Where so important a distinction in the constitution is to be realized, it is fair to seek the meaning of terms in the statutory language of that country from which our jurisprudence is derived." 7 Hamilton's Works, 328. Mr. Hamilton therefore clearly supported the law which Mr. Madison opposed, for the same reason that his friend Fisher Ames did, because it was an excise, and as such was specifically comprehended by the constitution. Any loose expressions in definition of the word "direct," so far as conflicting with his well-considered views in the Federalist, must be regarded as the liberty which the advocate usually thinks himself entitled to take with his subject. He gives, however, it appears to us, a definition which covers the question before us. 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. And Mr. Hamilton, in his report on the public credit, in referring to contracts with citizens of a foreign country, said: "This principle, which seems critically correct, would exempt as well the income as the capital of the property. It protects the use, as effectually as the thing. What, in fact, is property, but a fiction, without the beneficial use of it? In many cases, indeed, the income or annuity is the property itself." 3 Hamilton's Works, 34.

We think there is nothing in the Hylton Case in conflict with the foregoing. The case is badly reported. The report does not give the names of both the judges before whom the case was argued in the circuit court. The record of that court shows that

Mr. Justice Wilson was one and District Judge Griffin, of Virginia, was the other. Judge Tucker, in his appendix to the edition of Blackstone published in 1803 (1 Tuck. BL Comm. pt. 1, p. 294), says: "The question was tried in this state in the case of Hylton v. U. S., and, the court being divided in opinion, was carried to the supreme court of the United States by consent. It was there argued by the proposer of it (the first secretary of the treasury), on behalf of the United States, and by the present chief justice of the United States on behalf of the defendant. Each of those gentlemen was supposed to have defended his own private opinion. That of the secretary of the treasury prevailed, and the tax was afterwards submitted to, universally, in Virginia."

We are not informed whether Mr. Marshall participated in the two days' hearing at Richmond, and there is nothing of record to indicate that he appeared in the case in this court; but it is quite probable that Judge Tucker was aware of the opinion which he entertained in regard to the matter.

Mr. Hamilton's argument is left out of the report, and in place of it it is said that the argument turned entirely upon the point whether the tax was a direct tax, while his brief shows that, so far as he was concerned, it turned upon the point whether it was an excise, and therefore not a direct tax.

Mr. Justice Chase thought that the tax was a tax on expense, because a carriage was a consumable commodity, and in that view the tax on it was on the expense of the owner. He expressly declined to give ang opinion as to what were the direct taxes contemplated by the constitution. Mr. Justice Paterson said: "All taxes on expenses or consumption are indirect taxes. A tax on carriages is of this kind." He quoted copiously from Adam Smith in support of his conclusions, although it is now asserted that the justices made small account of that writer. Mr. Justice Iredell said: "There is no necessity, or propriety in determining what is or is not a direct or indirect tax in all cases. It is sufficient, on the present occasion, for the court to be satisfied that this is not a direct tax, contemplated by the constitution."

What was decided in the Hylton Case was, then, that a tax on carriages was an excise, and therefore an indirect tax. The contention of Mr. Madison in the house was only so far disturbed by it that the court classified it where he himself would have held it constitutional, and he subsequently, as president, approved a similar act (3 Stat. 40). The contention of Mr. Hamilton in the Federalist was not disturbed by it in the least. In our judgment, the construction given to the constitution by the authors of the Federalist (the five numbers contributed by Chief Justice Jay related to the danger from foreign force and influence, and to the treaty.

making power) should not and cannot be disregarded.

The constitution prohibits any direct tax, unless in proportion to numbers as ascertained by the census, and, in the light of the circumstances to which we have referred, is it not an evasion of that prohibition to hold that a general unapportioned tax, imposed upo all property owners as a body for or in respect of their property, is not direct, in the meaning of the constitution, because confined to the income therefrom?

other free citizens and inhabitants, including those bound to servitude for a term of years, and three-fifths of all other persons, except Indians not paying taxes; and Madison, Ellsworth, and Hamilton, in their address, ing sending the amendment to the states, said,* "This rule, although not free from objections, is liable to fewer than any other that could be devised." 1 Elliot, Deb. 93, 95, 98.

Nor are we impressed with the contention that, because in the four instances in which the power of direct taxation has been exercised, congress did not see fit, for reasons of expediency, to levy a tax upon personalty, this amounts to such a practical construction of the constitution that the power did not exist, that we must regard ourselves bound by it. We should regret to be compelled to

There can be but one answer, unless the constitutional restriction is to be treated as utterly illusory and futile, and the object of its framers defeated. We find it impossible to hold that a fundamental requisition deemed so important as to be enforced by two provisions, one affirmative and one negative, can be refined away by forced distinctions between that which gives value to property and the property itself.

Nor can we perceive any ground why the same reasoning does not apply to capital in personalty held for the purpose of income, or ordinarily yielding income, and to the income therefrom. All the real estate of the country, and all its invested personal property, are open to the direct operation of the taxing power, if an apportionment be made according to the constitution. The constitution does not say that no direct tax shall be laid by apportionment on any other property than land; on the contrary, it forbids all unapportioned direct taxes; and we know of no warrant for excepting personal property from the exercise of the power, or any reason why an apportioned direct tax cannot be laid and assessed, as Mr. Gallatin said in his report when secretary of the treasury in 1812, "upon the same objects of taxation on which the direct taxes levied under the authority of the state are laid and assessed."

Personal property of some kind is of general distribution, and so are incomes, though the taxable range thereof might be narrowed through large exemptions.

The congress of the confederation found the limitation of the sources of the contributions of the states to “land, and the buildings❘ and improvements thereon," by the eighth article of July 9, 1778, so objectionable that the article was amended April 28, 1783, so that the taxation should be apportioned in proportion to the whole number of white and

thus restricted, and certainly cannot accede to the idea that the constitution has become weakened by a particular course of inaction under it.

The stress of the argument is thrown, however, on the assertion that an income tax is not a property tax at all; that it is not a real-estate tax, or a crop tax, or a bond tax; that it is an assessment upon the taxpayer on account of his money-spending power, as shown by his revenue for the year preceding the assessment; that rents received, crops harvested, interest collected, have lost all connection with their origin, and, although once not taxable, have become transmuted, in their new form, into taxable subject-matter,-in other words, that income is taxable, irrespective of the source from whence it is derived.

This was the view entertained by Mr. Pitt, as expressed in his celebrated speech on introducing his income tax law of 1799, and he did not hesitate to carry it to its logical conclusion. The English loan acts provided that the public dividends should be paid "free of all taxes and charges whatsoever"; but Mr. Pitt successfully contended that the dividends for the purposes of the income tax were to be considered simply in relation to the recipient as so much income, and that the fund holder had no reason to complain. And this, said Mr. Gladstone, 55 years after, was the rational construction of the pledge. Financial Statements, 32.

The dissenting justices proceeded, in effect, upon this ground in Weston v. City of Charleston, 2 Pet. 449, but the court rejected, it. That was a state tax, it is true; but the states have power to lay income taxes, and, if the source is not open to inquiry, constitutional safeguards might be easily eluded.

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 power of the states and on their instrumentalities to borrow money, and consequently repugnant to the constitution. But if, as contended, the interest, when received, has become merely money in the recipient's pocket, and taxable.