SUPREME COURT OF THE UNITED STATES
_________________
No. 22–800
_________________
CHARLES G. MOORE, et ux., PETITIONERS
v. UNITED STATES
on writ of certiorari to the united states
court of appeals for the ninth circuit
[June 20, 2024]
Justice Thomas, with whom Justice Gorsuch
joins, dissenting.
Charles and Kathleen Moore paid $14,729 in taxes
on an investment that never yielded them a penny. They challenge
that tax—the Mandatory Repatriation Tax (MRT)—as unconstitutional.
As relevant, they argue that a tax on unrealized investment gains
is not a tax on “incomes” within the meaning of the Sixteenth
Amendment, and it therefore cannot be imposed “without
apportionment among the several States.”
The Moores are correct. Sixteenth Amendment
“incomes” include only income realized by the taxpayer. The text
and history of the Amendment make clear that it requires a
distinction between “income” and the “source” from which that
income is “derived.” And, the only way to draw such a distinction
is with a realization requirement. Our precedent says as much. In
Eisner v.
Macomber,
252 U.S.
189 (1920), the Court explained that “the characteristic and
distinguishing attribute of income,” as the term is used in the
Sixteenth Amendment, is that it is “
received or
drawn
by the recipient (the taxpayer) for his
separate use,
benefit and disposal.”
Id., at 207. Because the Moores never
actually received any of their investment gains, those unrealized
gains could not be taxed as “income” under the Sixteenth
Amendment.
The Ninth Circuit wrongly rejected the Moores’
challenge on the ground that “realization of income is not a
constitutional requirement.” 36 F. 4th 930, 936 (2022). That
conclusion cannot be reconciled with the Sixteenth Amendment as the
Court correctly interpreted it in
Macomber. We therefore
granted certiorari to answer the question “[w]hether the Sixteenth
Amendment authorizes Congress to tax unrealized sums without
apportionment among the states,”
i.
e., as “incomes.”
Pet. for Cert. i.
Today, the Court upholds the MRT only by
ignoring the question presented. It does “not address the
Government’s argument that a gain need not be realized to
constitute income under the Constitution.”
Ante, at 12–13,
n. 3. Instead, the Court answers the question “whether
Congress may attribute an entity’s realized and undistributed
income to the entity’s shareholders or partners, and then tax the
shareholders or partners on their portions of that income.”
Ante, at 8. After changing the subject, the majority upholds
the MRT by relying on unrelated precedent to derive a “clear rule”
that “Congress can attribute the undistributed income of an entity
to the entity’s shareholders or partners.”
Ante, at
10–11.
I respectfully dissent. The Ninth Circuit erred
by concluding that realization is not a constitutional requirement
for income taxes. And, the majority’s “attribution” doctrine is an
unsupported invention.
I
The Sixteenth Amendment provides: “The
Congress shall have power to lay and collect taxes on incomes, from
whatever source derived, without apportionment among the several
States, and without regard to any census or enumeration.” The
central dispute in this case—at least, in the case briefed by the
parties—concerns the meaning of the word “incomes” in the
Amendment. The Moores define “income” as “ ‘a gain, a profit,
[or] something of exchangeable value’ [that] is ‘
received or
drawn by the recipient (the taxpayer) for his
separate use, benefit and disposal.’ ” Brief for
Petitioners 1 (quoting
Macomber, 252 U. S., at 207).
This idea—that “income” is only something actually available for
the taxpayer’s use—is known as “realization.” The Government
rejects the realization requirement, arguing instead that “income”
captures “all economic gains” whether or not they are actually
realized. Brief for United States 14 (internal quotation marks
omitted).
“Income” in the Sixteenth Amendment refers only
to income realized by the taxpayer. The Amendment resolved a
long-running conflict over the scope of the Federal Government’s
taxing power. It paved the way for a federal income tax by creating
a new constitutional distinction between “income” and the “source”
from which that income is “derived.” Drawing that distinction
necessitates a realization requirement.
A
To understand the text of the Sixteenth
Amendment—and, in particular, the meaning of the word “income”—one
must first understand how the Amendment came about. The
Constitution’s original taxing provisions divided taxes into two
classes: direct and indirect taxes. And, as part of a delicate
constitutional compromise, the original taxing provisions required
direct taxes to be apportioned among the States based on
population. Disputes about the scope of the direct-tax category
came to a head in
Pollock v.
Farmers’ Loan & Trust
Co.,
158 U.S.
601 (1895), when this Court held that many income taxes were
direct taxes subject to the apportionment requirement. In reaching
this conclusion, the Court held that income could not be
distinguished from its source for purposes of classifying an income
tax as direct or indirect. The Sixteenth Amendment was ratified to
overrule that holding from
Pollock, and it can therefore be
understood only in the context of
Pollock and the preceding
history.
1
The Sixteenth Amendment modified the
Constitution’s original regulations of Congress’s taxing power. The
text of those provisions is therefore the natural starting point
for interpreting the Sixteenth Amendment. The Taxing Clause
provides Congress with broad authority to impose taxes. Other
Clauses, including the Direct Tax Clause, classify different kinds
of taxes and set corresponding limitations on Congress’s power to
impose them. The Sixteenth Amendment alters those rules by making
clear that taxes on income are not subject to the limitations
imposed on direct taxes.
The Constitution gives Congress the power to
impose “Taxes” of any kind, including income taxes. The Taxing
Clause provides that “Congress shall have Power To lay and collect
Taxes, Duties, Imposts and Excises, to pay the Debts and provide
for the common Defence and general Welfare of the United States;
but all Duties, Imposts and Excises shall be uniform throughout the
United States.” Art. I, §8, cl. 1. This Clause is the
sole source of Congress’s authority to impose taxes. And, that
authority is broad. Nothing in the Constitution limits the kinds of
taxes that Congress may impose. As the Court has explained, “the
authority conferred upon Congress by” the Taxing Clause “is
exhaustive and embraces every conceivable power of taxation.”
Brushaber v.
Union Pacific R. Co.,
240 U.S.
1, 12 (1916).
But, the Constitution restricts the manner in
which Congress may impose taxes. It accomplishes this by dividing
taxes into two classes—direct and indirect taxes—and imposing a
distinct limitation applicable to each of those classes.[
1]
Start with the class of direct taxes. The Direct
Tax Clause provides: “No Capitation, or other direct, Tax shall be
laid, unless in Proportion to the Census or Enumeration herein
before directed to be taken.” Art. I, §9, cl. 4. The
Constitution does not expressly identify any tax as direct other
than a “Capitation.” A “capitation”—also called a “poll tax”—is
“[a] fixed tax levied on each person within a jurisdiction.”
Black’s Law Dictionary 1760 (11th ed. 2019) (defining “tax”). At
the founding, the class of direct taxes was also understood to
include taxes on real property, and perhaps taxes on personal
property. See
infra, at 14–15.
Indirect taxes, on the other hand, include
“Duties, Imposts and Excises.” Art. I, §8, cl. 1. These
were taxes that people could avoid by adjusting their
behavior—generally, taxes on articles of consumption. See The
Federalist No. 21, p. 116 (E. Scott ed. 1898) (A. Hamilton).
“Indirect taxes” are not identified by that name in the
Constitution. But, the Constitution’s delineation of a direct-tax
category signals the existence of a complementary indirect-tax
category.
For each class of taxes, the Constitution limits
Congress’s power with a distinct rule. Direct taxes are subject to
the rule of apportionment. The Constitution twice specifies that
“direct Taxes shall be apportioned among the several States
. . . according to their respective Numbers.”[
2] Art. I, §2, cl. 3; see
also §9, cl. 4. A tax is apportioned among the States if “each
State pays in proportion to its population.”
National Federation
of Independent Business v.
Sebelius,
567 U.S.
519, 570 (2012). An example best demonstrates what
apportionment requires. Suppose that Congress imposed a direct tax
on houses, and apportioned the tax such that two States of equal
population were both responsible for paying $100 in taxes. If the
first State contained 100 houses and the second State only 10,
houses in the first State would be taxed at $1 each ($100 divided
by 100 houses), whereas houses in the second State would be taxed
at $10 each ($100 divided by 10 houses).
Indirect taxes are subject to the rule of
uniformity: “[A]ll Duties, Imposts and Excises shall be uniform
throughout the United States.” Art. I, §8, cl. 1. The
Court has explained that “the words ‘uniform throughout the United
States’ . . . signify . . . a geographical
uniformity.”
Knowlton v.
Moore,
178 U.S.
41, 106 (1900). In other words, a “tax is uniform when it
operates with the same force and effect in every place where the
subject of it is found.”
Head Money Cases,
112 U.S.
580, 594 (1884). So, a duty on the importation of tea must
impose the same rate on imports coming through Boston as those
coming through Savannah.[
3]
The Sixteenth Amendment, on its face, narrows
the scope of the apportionment requirement. While direct taxes must
be apportioned, the Sixteenth Amendment allows Congress to tax
incomes “without apportionment.” But, it did not remove the Direct
Tax Clause or the apportionment requirement from the Constitution
entirely. To appreciate the extent of the change, and its
implications for the meaning of the word “incomes,” it is necessary
to examine the origins of the Direct Tax Clause and how disputes
about the Clause’s scope led to the Sixteenth Amendment.
2
The Direct Tax Clause was a critical aspect of
the balance between state and federal power in the original design
of the Constitution. It is easy today to take the federal taxing
power for granted. But, at the founding, allowing the National
Government to exercise such a power was a radical proposal. The
importance of the limitations imposed by the Direct Tax Clause to
the compromise struck by the Constitution has significant
implications for the meaning of “incomes” in the Sixteenth
Amendment.
The American colonial experience inspired
widespread distrust of taxation. See,
e.
g.,
Declaration of Independence ¶19. The Articles of Confederation
reflected that distrust. Under the Articles, the entire taxing
power was exclusive to the States. The National Government had no
power to impose taxes of any kind. The only revenue for the
National Government was funds “supplied by the several States”
pursuant to requisitions “in proportion to the value of all land
within each State.” Articles of Confederation, Art. 8. And,
the taxes for paying those requisitions were imposed solely by the
States themselves.
The requisition system showed immediate signs of
inadequacy. Raising funds through requisitions was often
ineffective because States felt little urgency to pay their
obligations. See Federalist No. 30, at 160 (A. Hamilton)
(explaining that requisitions were formally “obligatory upon the
States,” but that “in practice” the right to disregard them was
“constantly exercised”). And, the financial strain placed on the
National Government by the Revolutionary War made that inefficiency
an existential threat to the fledgling Nation.
The Continental Congress quickly concluded that
financing the war effort would require another source of revenue
for the National Government. “[T]o establish the national credit,”
the Congress’s finance Committee reported in December 1780, “it
will be necessary” for the States to “vest[t] in Congress” “[t]he
exclusive right to duties arising on certain imported articles.” 18
Journals of the Continental Congress 1774–1789, p. 1157 (G.
Hunt ed. 1910). The Congress therefore proposed the Impost of 1781,
“recommend[ing] to the several states, as indispensably necessary,
that they . . . vest a power in Congress, to levy for the
use of the United States, a duty of five per cent.” on most
imports. 19 Journals of the Continental Congress 112 (1912)
(footnote omitted). The President of the Continental Congress
transmitted the proposal to the States on February 8, 1781, under a
cover letter stressing the “precarious Manner” in which Congress
had to fund the Army under the requisition system. 5 Letters of
Members of the Continental Congress 564 (E. Burnett ed. 1931).
Every State but Rhode Island approved the Impost
of 1781. See 1 Documentary History of the Ratification of the
Constitution 63 (M. Jensen ed. 1976) (Documentary History). But,
because the Articles of Confederation required amendments like the
impost to be approved unanimously, Rhode Island’s refusal defeated
the amendment. Articles of Confederation, Art. 13; see also 23
Journals of the Continental Congress 783–784 (1914). In a letter to
the Confederation Congress,[
4]
the Rhode Island Legislature explained that it rejected the impost
“[b]ecause it would be unequal in its operation, bearing hardest on
the most commercial states,” including Rhode Island.
Id., at
788. One State’s jealousy of its lucrative tax base prevented the
reform of the Articles’ flawed requisition system.
A year later, the Confederation Congress again
proposed a national taxing power with the Impost of 1783. The
proposal languished for years, and then failed after New York
refused its consent in February 1787. See 1 Documentary History
190, n. 3. As the second impost awaited its slow death, the
Confederation Congress issued a dire warning about the financial
condition of the National Government in February 1786. See 30
Journals of the Continental Congress 70, 75 (J. Fitzpatrick ed.
1934). Faced with mounting threats to the security of the country,
and requisitions that had become “so irregular in their operation”
as to be “dangerous to the welfare and peace of the Union,”
Congress asserted “that the crisis has arrived” when the people of
the United States must decide whether, “for want of a timely
exertion in establishing a general revenue,” they will risk both
the existence of the Union and the liberty that they won in the
Revolution.
Id., at 72, 75.
The practical impossibility of reforming the
Articles to include a national taxing power was among the primary
reasons for the Constitutional Convention of 1787. John Adams later
reflected as Vice President: “The opposition of Rhode Island to the
impost seems to have been the instrument which providence thought
fit to use for the great purpose of establishing the present
constitution.” 26 Documentary History 743 (J. Kaminski et al.
eds. 2013). In February 1787, the Continental Congress endorsed the
call for a convention of delegates in Philadelphia. See 32 Journals
of the Continental Congress 74 (R. Hill ed. 1936). Virginia had
been the first State to answer that call, and in appointing
delegates, made prominent reference to the Confederation Congress’s
“alarming representations” about the poor state of public finance.
1 Documentary History 196–198 (discussing Congress’s warning of
February 1786). The Virginia delegation likewise emphasized the
“inefficiency of requisitions” when it opened the proceedings at
the Convention. 1 Records of the Federal Convention of 1787, pp.
18–19 (M. Farrand ed. 1911) (Farrand’s Records).
The possibility of a federal taxing power was
highly controversial at the Constitutional Convention, despite
widespread acknowledgment of the need to reform public finance. The
Virginia plan—a broad outline that was selected as the basis for
the new Government—did not go so far as to include a federal taxing
power. The Virginia delegation apparently considered it less
controversial to open the Convention with a proposal that gave the
Federal Government the ability to enforce requisitions against the
States by military force.
Id., at 21. The New Jersey plan,
by contrast, did include federal taxing powers.
Id., at 243.
Reason prevailed, and the Convention judged it more prudent to risk
a federal taxing power than the extraction of federal revenue by
the use of military force against the States. See
id., at 54
(“[Madison] observed that the more he reflected on the use of force
[against delinquent States], the more he doubted the
practicability, the justice and the efficacy of it”). The
Convention proposed the Constitution with its taxing provisions as
described above; they would be ratified unchanged. See 2
id., at 590, 594, 596;
supra, at 4–6.
Unsurprisingly, the proposed creation of a
federal taxing power provoked many of the most passionate
criticisms by opponents of ratification. The Antifederalists warned
that a federal taxing power would destroy the state governments.
Brutus wrote that the central question presented by ratification
was “whether the thirteen United States should be reduced to one
great republic . . . or whether they should continue
thirteen confederated republics.” Brutus No. 1 (Oct. 18,
1787), in 2 The Complete Anti-Federalist 364 (H. Storing ed. 1981).
In support of his dramatic thesis, Brutus asserted that “the
individual states must very soon be annihilated,” in part by the
federal taxing power.
Id., at 365.
The destructive force of the federal taxing
power, as Brutus explained it, arose from the fact that it forced
the States to compete with the Federal Government for a tax base.
Because the Constitution prevented the States from emitting paper
money and laying duties or imposts, “[t]he only mean therefore
left, for any State to support its government and discharge its
debts, is by direct taxation.”
Id., at 366. But, even the
ability to resort to direct taxes would be fruitless, because the
power of direct taxation was shared with the Federal Government.
Ibid. Brutus thus argued that once the Federal Government
“begins to exercise the right of taxation in all its parts, the
legislatures of the several states will find it impossible to raise
monies to support their governments” and then “dwindle away.”
Ibid. Other Antifederalists sounded the same theme at the
state ratifying conventions. See,
e.
g., 3 Debates on
the Constitution 29 (J. Elliot ed. 1836) (Elliot’s Debates) (George
Mason arguing in Virginia that the “two concurrent powers” of the
State and Federal Governments to impose taxes directly upon the
people “cannot exist long together”).
The Federalists’ defense of the new national
taxing power stressed that the Federal Government would impose
direct taxes only sparingly, as needed to supplement the revenue
from imposts in emergencies. Madison explained that “[w]hen
. . . direct taxes are not necessary, they will not be
recurred to. It can be of little advantage to those in power to
raise money in a manner oppressive to the people.”
Id., at
95. And, Federalists highlighted the protection provided by the
rule of apportionment. Hamilton explained that direct taxes “never
can oppress a particular state by an unequal imposition; because
the Constitution has provided a fixed ratio, a uniform rule, by
which this must be regulated.” 2
id., at 365. Madison argued
that because representation and direct taxation were apportioned by
the same formula, unjust taxes could not feasibly be imposed; those
responsible for paying direct taxes are correspondingly able to
defeat their imposition. See 3
id., at 256–257.[
5]
With the Constitution’s ratification, the
requisition system was replaced by a system that gave the Federal
Government the taxing power it had lacked under the Articles of
Confederation. That increase in power came at the expense of the
States. The States gave up the power to tax interstate and foreign
commerce, which was expected to be the main source of federal
revenue. They did retain the power of direct taxation, but had to
share it with the Federal Government—an arrangement that motivated
significant opposition to the new Constitution. The limitations on
the Federal Government’s ability to exercise that concurrent power
were thus an essential component of the constitutional
compromise.
3
Postratification disagreement about what
qualified as a “direct tax” would eventually lead to the adoption
of the Sixteenth Amendment. Even though the distinction between
direct and indirect taxes was an important component of the
founding compromise, it was not entirely clear how to distinguish
between the two classes of taxes. The scope of the “direct tax”
category proved immediately controversial. And, that controversy
eventually came to bear on the question of income taxation, with
the Court initially concluding that the Direct Tax Clause was not a
barrier to taxing incomes.
As the Constitution’s text made clear, a
“Capitation” was “direct.” Art. I, §9, cl. 3. And, all
agreed that taxes on land and slaves were considered direct. See 3
Elliot’s Debates 229. But, beyond that, the precise boundary
between direct and indirect taxes was debatable. An exchange at the
Constitutional Convention preserved in Madison’s notes is often
cited on the subject: “Mr King asked what was the precise meaning
of
direct taxation? No one answd.” 2 Farrand’s Records
350.
This Court grappled with the question in a
significant case decided soon after ratification. In 1794, the
Third Congress passed “An Act laying duties upon Carriages for the
conveyance of Persons.” Act of June 5, 1794, ch. 45, 1Stat. 373.
The tax was not apportioned among the States. Some opposed the tax
on the theory that a tax on personal property, such as carriages,
was a direct tax that required apportionment.[
6]
When Daniel Hylton failed to pay the tax on his
125 carriages, the United States brought a suit against him, and
the case soon found its way to the Supreme Court.
Hylton v.
United States, 3 Dall. 171, 171–172 (1796) (
Hylton’s
Case). “The argument turned entirely upon . . .
whether the tax . . . was a direct tax.”
Id., at
172. The four Justices who sat for the case each agreed that the
tax was constitutional, and the three who offered reasons suggested
that “direct” taxes were limited to capitation and land taxes. But,
they did so with some caution.
Justice Chase was “inclined to think, but [did]
not give a judicial opinion, that the
direct taxes
contemplated by the Constitution, are only
two, to wit, a
capitation, or
poll tax,
simply, without
regard to
property,
profession, or any
other
circumstance; and a tax on land.”
Id., at 175. He
“doubt[ed] whether a tax, by a
general assessment of
personal property, . . . is included within the
term
direct tax.”
Ibid. Justice Paterson observed
that “[w]hether direct taxes, in the sense of the Constitution,
comprehend any other tax than a capitation tax, and tax on land, is
a questionable point.”
Id., at 177. Justice Iredell opined
that “[p]erhaps a direct tax in the sense of the Constitution, can
mean nothing but a tax on something inseparably annexed to the soil
. . . . A land or poll tax may be considered of this
description.”
Id., at 183.
Additional disputes over what constituted direct
taxation arose when the Government resorted to new forms of
taxation to finance the Civil War. In several cases decided shortly
after the war, the Court relied on
Hylton’s Case to conclude
that new taxes were indirect. First, the Court reasoned that “[i]f
a tax upon carriages, kept for his own use by the owner, [was] not
a direct tax,” then “a tax upon the business of an insurance
company” was not a direct tax.
Pacific Ins. Co. v.
Soule, 7 Wall. 433, 446 (1869). Next, the Court concluded
that a tax on the circulation of bank notes was also indirect, but
it surveyed ratification-era sources to hint at a slightly more
expansive definition of direct taxes.
Veazie Bank v.
Fenno, 8 Wall. 533, 544 (1869) (“direct taxes were such as
may be levied by capitation, and on lands and appurtenances; or,
perhaps, by valuation and assessment of personal property upon
general lists”). Finally, the Court concluded that a tax on the
devolution of title to real estate was indirect, acknowledging that
“it never ha[d] been decided” whether any taxes besides “[t]axes on
lands . . . and capitation taxes” were “direct taxes.”
Scholey v.
Rew, 23 Wall. 331, 347 (1875).
The Civil War also prompted Congress to enact
the Nation’s first-ever federal income tax. In 1861, Congress
imposed a tax of three percent “upon the annual income of every
person residing in the United States, whether such income is
derived from any kind of property, or from any profession,
. . . or from any other source whatever,” to the extent
that income exceeded $800. §49, 12Stat. 309. Over the course of the
Civil War, the income tax was paid by as many as 1 in 10 Union
households and accounted for about a fifth of federal revenues. S.
Weisman, The Great Tax Wars 101–102 (2002) (Weisman). The tax
remained in force, with modifications, until it expired in 1871.
§6, 16Stat. 257.
The Court did not consider the constitutionality
of the Civil War income tax until a decade after its expiration, in
Springer v.
United States,
102
U.S. 586 (1881). The “main question” was whether the tax was an
unapportioned direct tax that violated the Direct Tax Clause.
Id., at 595. The Court held that the income tax was not a
direct tax. Relying heavily on
Hylton’s Case, the Court
reasoned “that
direct taxes, within the meaning of the
Constitution, are only capitation taxes . . . and taxes
on real estate.” 102 U. S., at 602. Accordingly, the income
tax at issue was “within the category of an excise or duty.”
Ibid.[
7]
In summary, after disputes over the scope of the
Direct Tax Clause between the founding and the expiration of the
Civil War income tax, the Court apparently concluded that direct
taxes were limited to poll taxes and taxes on land.
Ibid.
But, the Court expressed some doubt as to the proper classification
of taxes “levied by . . . valuation and assessment of
personal property.”
Veazie Bank, 8 Wall., at 544. Based on
that narrow reading of the Direct Tax Clause, the Court upheld the
Civil War income tax against a constitutional challenge. But, the
long-running skirmishes about direct taxation would soon come to a
dramatic climax following the imposition of the first federal
income tax in peacetime.
4
I next consider the single most important
piece of context for understanding the Sixteenth Amendment:
Pollock v.
Farmers’ Loan & Trust Co.,
158 U.S.
601, the case that the Amendment overruled. In
Pollock,
the Court concluded, for the first time, that a tax was direct, not
apportioned, and therefore unconstitutional. The Court’s reasoning
turned on the premise that the Constitution permits no distinction
between taxing income and taxing the source from which that income
is derived. The holding of
Pollock thus meant that most
income taxes would have to be apportioned, a requirement that made
them politically unpalatable. See
supra, at 6 (describing
possible state-by-state variations in rates for apportioned taxes).
Because the Sixteenth Amendment overruled the result in
Pollock, an accurate understanding of the case is essential
to understanding the Amendment.
Congress imposed the Nation’s first peacetime
income tax as part of the Revenue Act of 1894. The Act paired a new
tax on the incomes of the wealthiest two percent of Americans with
tariff cuts that would benefit less wealthy consumers. See Weisman
132–133, 145. The income-tax component of the Act provided:
“That [from 1895 until 1900] there shall
be assessed, levied, collected, and paid annually upon the gains,
profits, and income received in the preceding calendar year by
[citizens and resident aliens], whether said gains, profits, or
income be derived from any kind of property, rents, interest,
dividends, or salaries, or from any profession, trade, employment,
or vocation . . . , or from any other source
whatever, a tax of two per centum on the amount so derived over and
above four thousand dollars.” §27, 28Stat. 553.
The income tax was not apportioned among the
States by population.
In
Pollock v.
Farmers’ Loan &
Trust Co.,
157 U.S.
429 (1895), the Court considered whether the 1894 income tax
was a direct tax that failed to satisfy the Direct Tax Clause’s
apportionment requirement. The taxpayer argued that portions of the
tax were direct because “imposing a tax on the income or rents of
real estate, imposes a tax upon the real estate itself.”
Id., at 555. And, taking the position that taxes on personal
property are also direct taxes, the taxpayer argued that “imposing
a tax on the . . . income of bonds or other personal
property . . . imposes a tax on the personal estate
itself.”
Ibid.
The Court endeavored to determine what “were
recognized as direct taxes” “at the time the Constitution was
framed and adopted.”
Id., at 558. The Court considered
historical context, the records of the Constitutional Convention,
the Federalist Papers, other documents from the ratification
debates, the 1794 carriage tax, and
Hylton’s Case. 157
U. S., at 558–568, 570–572. The Court concluded that “all
taxes on real estate or personal property or the rents or income
thereof were regarded as direct taxes” at the time the Constitution
was ratified.
Id., at 573–574. After reaching a conclusion
about the original meaning of the Constitution, the Court surveyed
its precedents and observed that “in none of them is it determined
that taxes on rents or income derived from land are not taxes on
land,” and that “none . . . discussed the question
whether a tax on the income from personalty is equivalent to a tax
on that personalty.”
Id., at 579. The Court had some
difficulty explaining
Springer, which stated that direct
taxes are limited to capitation and land taxes and concluded that a
tax on income was an indirect tax. See
supra, at 15. But,
the Court returned to “[t]he original record” in
Springer to
review the sources of the taxpayer’s income, and it distinguished
the case on that ground. 157 U. S., at 578–579.
In the end, the Court concluded that income
could not be distinguished from the source from which it was
derived for purposes of determining whether a tax on that income
would be direct or indirect. It was “unable to perceive any ground”
“upon which to rest the contention that real estate belongs to one
of the two great classes of taxes,”
i.
e., the
direct-tax class, “and the rent or income which is the incident of
its ownership belongs to the other,”
i.
e., the
indirect-tax class.
Id., at 581. It grounded that conclusion
in the fact that the Direct Tax Clause was a federalism provision
at the heart of the constitutional compromise: “If, by calling a
tax indirect when it is essentially direct, the rule of protection
could be frittered away, one of the great landmarks defining the
boundary between the Nation and the States of which it is composed,
would have disappeared, and with it one of the bulwarks of private
rights and private property.”
Id., at 583.
The Court held that the Act was unconstitutional
in part, “so far as it levies a tax on the rents or income of real
estate.”
Ibid. But, the Justices divided evenly on the
question whether the tax was unconstitutional “as to the income
from personal property.”
Id., at 586. The case was therefore
scheduled for rehearing.
After rehearing, the Court extended its logic
and held that a tax on income derived from personal property—like a
tax on income derived from real property—was a direct tax. 158
U. S., at 625. The Court offered a more thorough explanation
for why income could not be distinguished from its source when
classifying a tax
. It began by observing that the
distinction between direct and indirect taxes was critical to our
system of federalism. By ratifying the Constitution, the States
“gave up the great sources of revenue derived from commerce” and
“retained the power of direct taxation,” but only concurrently with
the Federal Government.
Id., at 620. Limitations on federal
direct taxation offered state governments a fiscal safe haven
against expanding federal authority, in recognition of the fact
“that the power to tax involved the power to destroy.”
Id.,
at 621. “[T]he qualified grant” of an apportioned direct-taxation
power built security into the “structure of the government itself
. . . by providing that direct taxation and
representation in the lower house of Congress should be adjusted on
the same measure.”
Id., at 621–622.
The Court relied on those federalism principles
to reject the argument “that income is taxable irrespective of the
source from whence it is derived.”
Id., at 629. It explained
that the Constitution—read “in its plain and obvious sense” and in
the context of “the circumstances attending the formation of the
government”—could not be understood to treat income “as belonging
to a totally different class” of taxation than the class “which
includes the property from whence the income proceeds.”
Id.,
at 627–628. Such an interpretation would leave the Direct Tax
Clause “utterly illusory and futile, and the object of its framers
defeated.”
Id., at 628. The Court refused to allow the
effect of the Direct Tax Clause to be “refined away by forced
distinctions between” income and source.
Ibid.
5
The Sixteenth Amendment was designed to
overrule
Pollock’s obstacle to an income tax, and it was
understood by the public in those terms.
Pollock stood in
some tension with the Civil War tax cases, and it was not well
received. Critics likened it to
Dred Scott v.
Sandford, 19 How. 393 (1857), and the decision became a
major issue in the 1896 Presidential election. Weisman 148. By the
1908 Presidential election, both major political parties supported
finding a way,
Pollock notwithstanding, to impose an income
tax. See E. Seligman, The Income Tax 591–592 (2d ed. 1914).
In 1909, President Taft pledged his support for
an income-tax amendment. In a widely published message to Congress,
he explained that “[t]he decision of the Supreme Court” in
Pollock “deprived the national government of a power which”
it “ought to have.” Taft Asks for Tax, Washington Post, June 17,
1909, p. 4. Taft therefore asked Congress to “propose an
amendment to the Constitution conferring the power to levy an
income tax upon the national government without apportionment.”
Ibid.
Shortly after the President delivered his
message, Senator Norris Brown of Nebraska proposed an income-tax
amendment providing: “The Congress shall have power to lay and
collect direct taxes on incomes without apportionment among the
several States according to population.” 44 Cong. Rec. 3377 (1909).
The proposed amendment’s narrow focus on an income tax was
significant. After all, a constitutional amendment could have
easily eliminated
Pollock’s obstacle to income taxation by
removing the Constitution’s direct-tax provisions
wholesale.[
8]
A few weeks later, the proposed amendment
emerged from Committee in its modern form. It is not clear how the
original proposal’s reference to “direct taxes” was removed, or how
the phrase “from whatever source derived” was added. See E. Jensen,
The Taxing Power, the Sixteenth Amendment, and the Meaning of
“Incomes,” 33 Ariz. St. L. J. 1057, 1116–1117 (2001). The
Amendment was passed by Congress on July 12, 1909. See 44 Cong.
Rec. 4440. And, the Secretary of State certified that the Amendment
had been ratified by the States on February 25, 1913. 37Stat.
1785.
B
With a full understanding of the context
against which the Sixteenth Amendment was ratified, two conclusions
become clear. First, because the Amendment abolished
Pollock’s rule that an income tax must be classified as
direct or indirect based on whether a tax on the
source of
that income would be direct or indirect, the Amendment created a
constitutional distinction between income and its source. Second,
because Sixteenth Amendment “income” must be distinguished from its
source, the Amendment includes a realization requirement.
1
I return, finally, to the text of the
Sixteenth Amendment: “The Congress shall have power to lay and
collect taxes on incomes, from whatever source derived, without
apportionment among the several States, and without regard to any
census or enumeration.” Against the background of
Pollock,
the “power to lay and collect taxes on incomes, from whatever
source derived, without apportionment” under the Sixteenth
Amendment has an obvious and narrow meaning. The only thing the
Amendment changed about the Constitution was to abolish
Pollock’s rule that an income tax is a direct tax if a tax
on the source of the income would be a direct tax. The Sixteenth
Amendment left everything else in place, including the federalism
principles bound up in the division between direct and indirect
taxes.
The Court was first asked to interpret the
Sixteenth Amendment in
Brushaber v.
Union Pacific
Railroad Co.,
240 U.S.
1. A taxpayer raised an exhaustive set of “twenty-one
constitutional objections” to the first income tax under the
Sixteenth Amendment.
Id., at 10. Recognizing that the text
of the Amendment could not be understood in a vacuum, the Court
began with the text of the original taxing provisions and the
history of the disputes over direct taxes from
Hylton’s Case
to
Pollock. 240 U. S., at 12–17. I can little improve
on
Brushaber’s explanation of the Sixteenth Amendment.
“[T]he whole purpose of the Amendment was to
relieve all income taxes . . . from apportionment [based
on] a consideration of the source whence the income was derived.”
Id., at 18.
Pollock stood for the rule that “whether
a tax on income [is] direct” must be determined based upon a
consideration of “the property from which the income [is] derived.”
240 U. S., at 18. It was by “the rule applied in the
Pollock Case . . . alone” that income “taxes were
removed from the great class of [indirect taxes] and were placed
under the . . . direct class.”
Id., at 19. The
Amendment did nothing more than remove that rule. The result was
“the prevention of the resort to the sources from which a taxed
income was derived in order to . . . place [an income
tax] in the class of direct taxes.”
Ibid. But, other than
that change, the Amendment “was drawn with the object of
maintaining the limitations of the Constitution,” including
Pollock’s holding that direct taxes included “taxes levied
directly on personal property because of its ownership.”
Ibid.
The Sixteenth Amendment thus facilitated an
income tax by creating a new constitutional distinction between
“income” and its “source.” Under the Amendment, “from whatever
source” income is “derived,” a tax on it is indirect and therefore
not subject to the rule of apportionment. But, as to taxes on the
sources of income, the restrictions imposed by the division between
direct and indirect taxes continued to apply with full force. And,
taxes on property continued to be classified as direct taxes.
2
Because the Sixteenth Amendment requires a way
to distinguish between income and source, it includes a realization
requirement. The text of the Amendment incorporates such a
requirement, and the concept of realization was well understood at
the time of ratification. The Constitution thus limits
unapportioned income taxes to taxes on
realized income.
The word “income” in the Sixteenth Amendment
must be interpreted in light of the Amendment’s distinction between
income and source. As the Court appreciated in
Eisner v.
Macomber, failure to understand “income” in this way leads
to an interpretation of the Sixteenth Amendment that mistakenly
displaces aspects of the original taxing provisions that the
Amendment left in place: “In order, therefore, that the clauses
cited from Article I of the Constitution may have proper force and
effect, save only as modified by the Amendment, and that the latter
also may have proper effect, it becomes essential to distinguish
between what is and what is not ‘income.’ ” 252 U. S., at
206.
Without an understanding of “income” that
distinguishes it from “source,” the Sixteenth Amendment undermines
the restriction imposed by the Direct Tax Clause. The Government
asserts that the Sixteenth Amendment uses “ ‘income’
. . . to refer to all economic gains.” Brief for United
States 14 (some internal quotation marks omitted). That
understanding of “income” would allow taxes on real and personal
property without apportionment. To be sure, most of the
Government’s arguments focus on “taxes on individuals’ pro rata
shares of undistributed corporate earnings.”
Id., at 13.
But, the Government is not shy about the fact that its definition
of income includes things such as “increase in the value of a
corporation’s capital assets,” “increase in the value of unsold
property,” and “appreciation in the value of securities.”
Id., at 16 (alterations and internal quotation marks
omitted). Those increases are “income” in a purely economic sense,
but not in a sense that meaningfully distinguishes between “income”
and the “source” from which it is “derived.” A tax on each, whether
it be an increase in assets, unsold property, or securities, would
be a tax on the value of real estate or property, and should
therefore require apportionment under the Direct Tax Clause.
The text of the Sixteenth Amendment points to
the concept of realization, as the Court explained that concept in
Macomber. The Amendment is clear that the word “income”
refers to something that is “derived.” Dictionaries at the time of
ratification defined “derive” as “[t]o receive, as from a source or
origin” and “to draw.” Webster’s New International Dictionary 601
(1913) (Webster’s). And, that sense of “derived” maps neatly onto
Macomber’s realization-focused definition of “income” as
being “
received or
drawn by the recipient (the
taxpayer) for his
separate use.” 252 U. S., at 207.
In fact, the idea of realization as the
distinction between income and source long predates both
Macomber and the Sixteenth Amendment. As the Government
acknowledges, “the concept” of “realization . . . was
well established when the Amendment was adopted.” Brief for United
States 15. The term “
realized” appeared in several Civil War
income tax provisions.
Id., at 16 (citing §116, 13Stat. 281;
§7, 16Stat. 257–258). And, contemporaneous “[d]ictionaries defined
‘realize’ as ‘to convert any kind of property into money.’ ”
Brief for United States 15–16 (quoting Webster’s 1778, and citing
Black’s Law Dictionary 993 (2d ed. 1910); alteration omitted). The
Government argues that the decision to omit the often-used word
“realized” from the Sixteenth Amendment is significant evidence
that the Amendment does not require realization. See Brief for
United States 16. But, the choice to instead use the near-synonym
“derived” merely reflects the repeated use of the word “derive” to
describe the relationship of income to its source in
Pollock, to which the Sixteenth Amendment was a direct
response. See 158 U. S., at 618, 629, 635.
The metaphor that the Court famously used in
Macomber also shows the deep roots of the realization
concept. To illustrate the “fundamental relation of ‘capital’ to
‘income,’ ”
Macomber compared “the former
. . . to the tree or the land, [and] the latter to the
fruit or crop.” 252 U. S., 206. That understanding of income
as being something “
severed from” its source predated the
Sixteenth Amendment. In a well-cited case from 1878, the Georgia
Supreme Court relied on a tree-and-fruit analogy in a tax case to
explain the difference between income and property: “The fact is,
property is a tree; income is the fruit.”
Waring v.
Mayor
and Aldermen of Savannah, 60 Ga. 93, 100 (1878); see also
Black’s Law Dictionary, at 612 (defining “income” (citing
Waring, 60 Ga., at 99)).
The text of the Sixteenth Amendment, read
against the background of its adoption, confirms that the “incomes”
that the Sixteenth Amendment allows Congress to tax without
apportionment are only
realized incomes. We granted
certiorari in this case to answer whether Congress may “tax
unrealized sums without apportionment among the states.” Pet. for
Cert. i. As the Sixteenth Amendment makes clear, the answer to that
question is a resounding “no.” The Court errs today by failing to
correct the Ninth Circuit’s contrary understanding.
* * *
It is imperative to give the original taxing
provisions in Article I their proper effect. Those provisions
reflect a delicate compromise under which the founding generation
took the great risk of ceding much of the States’ exclusive taxing
authority to the Federal Government.
Supra, at 7–12. Without
that compromise, the Constitution could easily have been rejected.
To be sure, the States slightly altered the original agreement by
ratifying the Sixteenth Amendment. But, a constitutional amendment
does not affect our duty of fidelity to the aspects of the original
agreement that remain in place—including the Direct Tax Clause. If
a written constitution is to mean anything, the compromises it
records must bind us until we amend them.
II
The Court strains to uphold the Mandatory
Repatriation Tax without addressing whether the Sixteenth Amendment
includes a realization requirement, the question we agreed to
answer in this case. The majority starts by surveying a scattered
sampling of precedents—mostly about tax avoidance—to invent an
“attribution” doctrine that sustains the MRT. The majority also
relies on “longstanding congressional practice” to conclude that
the Moores’ claim fails because they cannot distinguish the MRT
from similar taxes imposed by Congress in the past, which the
Moores concede are constitutional. Neither point can withstand
scrutiny.
A
To avoid the question whether the Sixteenth
Amendment requires realization, the majority reframes the case as
being about whether Congress may attribute an entity’s realized
income to shareholders or partners.
Ante, at 8. According to
the majority, our precedents establish a “clear rule” that the
Sixteenth Amendment empowers Congress to choose whether “to tax
[an] entity on its income” or instead “tax the entity’s
shareholders or partners on their share of the entity’s
undistributed income.”
Ante, at 17. Applying this rule, the
Court concludes that the MRT permissibly chooses to attribute
undistributed income earned by foreign corporations to their
American shareholders. The Court thus refuses to address the
“Government’s argument that a gain need not be realized to
constitute income under the Constitution” because the foreign
corporation has realized the income.
Ante, at 12–13,
n. 3.
The majority’s Sixteenth Amendment “attribution”
doctrine is a new invention. The majority justifies its creation by
plucking superficially supportive phrases from an eclectic
selection of tax cases. But, none of the cases supports the
proposition that the Sixteenth Amendment empowers Congress to
freely attribute income to any taxpayer it reasonably chooses.
The majority begins with
Burk-Waggoner Oil
Assn. v.
Hopkins,
269 U.S.
110 (1925), a case that it says “articulated [the] fundamental
principle” that “Congress could tax . . . income as it
ch[ooses],” either by taxing an entity or an individual.
Ante, at 9. But,
Burk-Waggoner merely held that
Congress may tax a
de facto corporation on its own
income, even if it is formally a partnership under state law. See
269 U. S., at 114 (“[N]othing in the Constitution precludes
Congress from taxing as a corporation an association which,
although unincorporated, transacts its business as if it were
incorporated”). Tellingly, we have never cited
Burk-Waggoner
for the proposition derived by the majority, but instead for the
proposition that federal statutes “designed to tax income actually
earned . . . are not to be frustrated by state laws.”
Commissioner v.
Tower,
327 U.S.
280, 288 (1946) (citing 269 U. S., at 114); see also
Lyeth v.
Hoey,
305 U.S.
188, 194 (1938) (same);
Hemphill v.
Orloff,
277 U.S.
537, 550 (1928) (same).
Burk-Waggoner thus shows that
state law may not be used as a means of evading federal taxes—not
that Congress may choose whether to attribute income to entities or
individuals.
The majority then cites
Burnet v.
Leininger,
285 U.S.
136 (1932), which it says “reiterated” that Congress can choose
to impose income-tax liability “ ‘upon [a] partnership
directly’ ” or “ ‘upon the individuals carrying on
business in partnership.’ ”
Ante, at 9 (quoting 285
U. S., at 142; internal quotation marks omitted). But, the
majority quotes language that is part of a due process holding, not
an application of the Sixteenth Amendment.
Leininger
involved a taxpayer’s attempt to evade taxation by assigning half
of his share in a partnership’s income to his wife.
Id., at
138. The taxpayer argued that assessing income taxes against him
based on “a partnership interest owned by his wife” violated the
Fifth Amendment’s Due Process Clause. Brief for Respondent in
Burnet v.
Leininger, O. T. 1931, No. 426,
p. 24. The Court rejected the argument, concluding that it did
not violate due process to “tax the distributive share of each
partner” by ignoring the taxpayer’s attempt to divert his income to
his wife. 285 U. S., at 142. The majority is clear that it
offers no opinion about due process questions. See
supra, at
4–5, nn. 4, 6. Because
Leininger is a due process case,
it is unclear how it supports the majority’s Sixteenth Amendment
attribution doctrine.
Next, the majority claims that the Court
“reaffirmed that Congress may choose to tax either [a] partnership
or [its] partners” in
Heiner v.
Mellon,
304 U.S.
271 (1938), when it rejected the argument by members of a
partnership “that Congress could not tax them on income that they
did not and could not personally receive.”
Ante, at 10. But,
Heiner is a statutory interpretation case. Under the
applicable statute, the taxpayers were subject to a tax on their
“distributive share, whether distributed or not, of the net income
of the partnership.” §218(a), 40Stat. 1070. The taxpayers argued
only that “there was no distributive share” within the meaning of
the statute, because distribution was currently impossible under
state law; they made no argument about the scope of Congress’s
power. Brief for Respondents in
Heiner v.
Mellon,
O. T. 1937, No. 144 etc., p. 34.
Heiner’s
interpretation of the statutory phrase “distributive share” cannot
be understood as a holding about the scope of Congress’s supposed
attribution power.
The majority completes its survey of
“attribution” precedents with
Helvering v.
National
Grocery Co.,
304 U.S.
282 (1938), which it says extended
Heiner’s attribution
principle from partnerships to corporations.
Ante, at 10.
But,
National Grocery demonstrates Congress’s ability to
legislate against tax-avoidance schemes—not an ability to freely
attribute corporate income to shareholders. The majority
misleadingly describes
National Grocery as involving “the
controlling shareholder of a corporation” being taxed “individually
. . . on the year’s profits.”
Ante, at 10
(internal quotation marks omitted). In reality, the case involved a
tax paid by a corporation—owned 100% by one person—after the
corporation permitted profits to accumulate without distribution
“ ‘for the purpose of preventing the imposition of [a] surtax
upon [the] sole stockholder.’ ” 304 U. S., at 285. In
essence, the sole stockholder used the corporation as a tax-free
bank account to hold what was really his income. The Court
concluded that Congress may legislate to prevent “the sole owner of
[a] business” from “conducting it as a corporation” to avoid the
tax consequences that would attach if the business had “been
carried on as a partnership.”
Id., at 288. The Court cited
Heiner merely to explain those tax consequences, not to
support an attribution principle.
National Grocery is yet
another tax-evasion case, not an application of an attribution
principle.
At most, the cases cited by the majority
demonstrate that Congress may attribute income to the entity or
individual who actually controlled it when necessary to defeat
attempts to evade tax liability. They do not suggest that Congress
may freely choose whether to impose an income tax on a corporation
or on its shareholders. The “clear rule” that the majority relies
on to sidestep the realization question is thus a mirage.
Ante, at 17.
B
The majority separately concludes that the
Moores’ claim fails because they cannot distinguish the MRT from
other longstanding taxes that they concede are constitutional. The
majority sees no distinction between the MRT and older taxes on
partnerships, “S corporations,” and closely held foreign
corporations under other parts of subpart F.
Ante, at 16–21.
But, the majority’s insistence that the MRT is just like other
forms of pass-through taxation is not convincing.
First, the MRT’s taxation of corporate
shareholders is not like pass-through taxation of partners. The
Moores are correct that the Sixteenth Amendment allows Congress to
tax partners on partnership income because “partnerships hav[e] no
existence separate from their partners.” Brief for Petitioners 51.
A partner’s share of partnership income is therefore understood to
be his own income. The majority quibbles with the Moores’
understanding of early-20th century partnership law and points out
that “legislatures treated partnerships as separate entities in
many contexts,” including for some tax purposes.
Ante, at
17–18. But, the fact that a partnership can sometimes be treated as
an entity is beside the point. The significant fact is that
partners had long been considered to be subject to income taxes
without consideration of the partnership; longstanding taxes based
on that understanding are not implicated by the Moores’ challenge
to the MRT.
Second, and for similar reasons, the MRT’s
taxation of corporate shareholders is not like pass-through
taxation of shareholders of “S corporations.” An S corporation is a
corporation that does not have more than 100 shareholders, does not
have any shareholder who is not an individual or who is a
nonresident alien, does not have more than one class of stock, and
which elects to be treated as an S corporation. 26
U. S. C. §§1361(a)(1), (b)(1). These eligibility
requirements make it clear that pass-through taxation of S
corporations is merely an extension of the pass-through taxation of
partnerships. Indeed, for most tax purposes, S corporations are
equivalent to partnerships, not to corporations. “Tax practitioners
often say that an S corporation is taxed like a partnership.” CCH S
Corp. Guide ¶510, p. 505 (2013); see also West’s Tax Law Dictionary
(2024) (defining “S Corporation” as “Corporation which elects S
status and receives tax treatment similar to a partnership”).
Taxing S corporation shareholders on corporate income is
constitutional for the same reasons as taxing partners on
partnership income. To the majority, “S corporations are another
example of Congress’s authority to either tax the corporation
itself on corporate income or attribute the undistributed income to
the shareholders and tax the shareholders.”
Ante, at 19.
But, it does not make sense to look to S corporations for
conclusions about the pass-through taxation of corporate
shareholders generally.
Finally, the MRT is unlike other taxes on
shareholders of closely held foreign corporations. The MRT “differs
from other provisions of Subpart F”—the portion of the Internal
Revenue Code dealing with controlled foreign corporations—because
the MRT does not focus on “the corporation’s receipt of investment
earnings while subject to the shareholders’ control.” Brief for
Petitioners 44–45. Subpart F “aligns the corporation’s earning
of the money being taxed with the shareholder’s control
in the
same year.” Reply Brief 23. But, “[t]he MRT by its terms takes
no account of whether a shareholder had any interest or control
when the corporation made the earnings that it attributes to her.”
Ibid. In fact, the MRT “tags a shareholder with taxable
‘income’ even if ” he purchased shares “long after the
corporation earned the sums being taxed,” and it imposes no
liability on taxpayers who owned shares for years of retained
earnings but sold them before the MRT’s trigger date. Brief for
Petitioners 45. Subpart F includes some minimal requirements to
ensure that taxable “income” belongs to the shareholder in some
way; the MRT abandons that effort entirely.
The majority concludes that “the MRT
. . . has the same essential features as subpart F.”
Ante, at 21. But, unlike the rest of subpart F, the MRT has
no connection at all to any “recognition event” or “constructive
receipt of income,” and it offers no “rational basis for Congress
to attribute
income to a taxpayer.” S. McElroy, The
Mandatory Repatriation Tax Is Unconstitutional, 36 Yale J. Reg.
Bull. 69, 80–81 (2018). The MRT turns solely on the ownership of
stock on a certain date. That is a significant difference between
the MRT and the rest of subpart F, and one with constitutional
implications.
The fact that the MRT has novel features does
not mean that it is unconstitutional. But, the MRT is undeniably
novel when compared to older income taxes, and many of those
differences are constitutionally relevant. Because the MRT is
imposed merely based on ownership of shares in a corporation, it
does not operate as a tax on income.
C
The majority is not ashamed to lay bare the
consequentialist heart of its opinion. Because it wrongly concludes
that the Moores’ constitutional argument would invalidate not only
the MRT but also other longstanding taxes, the majority frets that
the Moores would “deprive the U. S. Government and the
American people of trillions in lost tax revenue” and “require
Congress to either drastically cut critical national programs or
significantly increase [other] taxes.”
Ante, at 21. “The
Constitution does not require that fiscal calamity,” the majority
proclaims.
Ibid. I agree. But, if Congress invites calamity
by building the tax base on constitutional quicksand, “[t]he
judicial Power” afforded to this Court does not include the power
to fashion an emergency escape. Art. III, §1, cl. 1.
Even as the majority admits to reasoning from
fiscal consequences, it apparently believes that a generous
application of dicta will guard against unconstitutional taxes in
the future. The majority’s analysis begins with a list of
non-existent taxes that the Court does not today bless, including a
wealth tax.
Ante, at 8, n. 2. And, it concludes by
offering a narrow interpretation of its own holding, hinting at
limiting doctrines, prejudging future taxes, cataloguing the
Government’s concessions, and reserving other questions “for
another day.”
Ante, at 22–24. Sensing that upholding the MRT
cedes additional ground to Congress, the majority arms itself with
dicta to tell Congress “no” in the future. But, if the Court is not
willing to uphold limitations on the taxing power in expensive
cases, cheap dicta will make no difference.
III
The Court today upholds the MRT, but not
because it endorses the Ninth Circuit’s erroneous view that
“realization of income is not a constitutional requirement.” 36
F. 4th, at 936. The majority acknowledges that the Sixteenth
Amendment draws a distinction between income and its source.
Ante, at 7. And, it does not dispute that realization is
what distinguishes income from property.
Ante, at 8. Those
premises are sufficient to establish that realization is a
constitutional requirement. Sixteenth Amendment “income” is only
realized income. We should not have hesitated to say so in this
case. I respectfully dissent.