Taking Personal Wealth - The Beginning
Once the U.S. Constitution became the official organizing document of the country, you would think that personal wealth protection was a settled matter. After all, during the Convention the delegates long-debated the issue and resolved it in a way which levitated the concerns of those who feared giving such power to the government.
What they came up with was that personal wealth could be taxed by the federal government, but only if the government adhered to the difficult rule of apportionment.
From this resolution, it only took six years from the Constitution’s ratification in 1788 for Congress to pass the Carriage Tax Bill Act in 1794. The tax was on passenger carriages, not at the point of purchase, but yearly assessed on the owner for every single one they possessed.
If it were at the point of purchase, it would be an excise consumption tax, but since it was a yearly tax after the purchase, it was a direct tax to the owner that should have required the rule of apportionment.
Daniel Hylton had 125 of these kinds of buggies, so he sued believing it was a direct tax. The Supreme Court found in favor of the government ruling that the tax wasn’t direct, but indirect needing only to conform to the rule of uniformity.
I go into greater detail regarding this case in Organic Wealth. However, the main rationale used by the Court was that the tax was a yearly expense to the owner which becomes part of the cost of the carriage. So, the Court reasoned, it was an excise tax, which is in the category of indirect not direct.
The Court purposely skipped ruling on the main categories of taxation, direct or indirect. This lens is how the Framers viewed taxation, but Congress and the Court instead conformed the yearly tax to the subcategory of excise. If it’s an excise, you see, then it’s indirect not needing apportionment. That’s pretty sneaky, but it worked.
Even their logic for excise doesn’t make sense. In the book, I use the property tax for homeowners as an example. It has the same nature as this carriage tax. Both are assessed to the owner every year after purchase. But you would never say that the property tax becomes part of the cost of the house and therefore an excise. That would be ridiculous. The federal government doesn’t assess property taxes because they are recognized by everyone as direct taxes which would require apportionment. They are instead assessed by state governments.
This Hylton ruling became the precedent later Courts would use to further erode personal wealth protections. We will learn how organic wealth progressively became even more in jeopardy in later posts.