The Supreme Court’s June 20 decision in Moore v. United States continues the long-standing controversy over the Constitution’s distinction between “direct” and “indirect” taxes. Writing for the Court, Justice Brett Kavanagh stated that “Generally speaking, direct taxes are those taxes imposed on persons or property” while indirect levies are “imposed on activities and transactions.” Apparently based on that standard, he concluded that income taxes are indirect.
In her concurring opinion, Justice Ketanji Brown Jackson wrote, “[I]t appears the category [of direct taxes] was originally intended to encompass only land and head taxes.”
From an originalist standpoint, these statements are wrong. A full review of the historical record leaves little doubt that the direct/indirect distinction was both clear to the Founders and quite different from either description in Moore.
Although the difference between direct and indirect taxes probably did not affect the result in Moore, it continues to be consequential. It governed the result in National Federation of Independent Business v. Sebelius, the 2012 case that upheld the penalty in the Affordable Care Act (ACA) for not purchasing health insurance. The Court held that (1) the penalty, although intended primarily to affect behavior and not raise revenue, was a tax, and (2) that it was an indirect tax.
For reasons set forth below, both holdings were erroneous—the product, I believe, of the fact that parties and amici both under-briefed the tax issue. The Founding-era record shows that the ACA penalty was not a tax. And that if it were a tax, it would be a capitation, and therefore direct.
More recently, some commentators have argued that a federal wealth tax should be considered “indirect.” Some maintain that the decision in Pollock v. Farmers Loan and Trust, holding that the income tax is direct, was erroneous. Then there are those who think the direct-tax apportionment rule was a product of slavery.
The Founding-era record does not support any of these contentions.
Direct Tax Statutes
During the 18th century, direct tax laws were omnibus statutes imposing specific rates on an identified base—sometimes called the “ratable estate.” The content of the base occasionally was amended, but mostly remained stable from year to year. However, the elements in the base were subject to periodic assessment. Hence variations on the word “assessment” were associated closely with direct tax statutes.
Such statutes commonly apportioned tax revenue among counties, towns, or other subdivisions.
Apportionment aside, direct tax statutes were somewhat similar in structure to modern real property tax laws. And early (pre-1700) statutes of this kind, particularly in Britain, focused mostly on land and improvements to land.
By the Founding-era, although land continued to be the most valuable part of the base, the statutes had been expanded to include many other items. By way of example, consider a British direct tax law adopted in the reign of Queen Anne (1713)—linked here. Note that it is elaborately apportioned among political subdivisions. Note also that the base includes not only land but wealth and income: “ready Money” (cash), debts receivable, other personal property, and income from a range of employments.
The income tax rate imposed in this statute was ten percent—that is, “Two Shillings for every Twenty Shillings which he she or they do receive in One Year by virtue of” such income.
Now let’s go stateside. Here is a link to a 1780 Massachusetts direct tax statute. It also is apportioned by geographic location. It levies on “male polls above the age of sixteen years,” personal estates, “including money at interest . . . monies of all kinds in hand, and also the amount of the just value of all goods, wares, and merchandize, stock in trade, vessels of all sorts . . . plate, horses, oxen and cattle . . . sheep, swine and grain of all sorts, and all kind of produce of the land, and all other property whatsoever . . . [unimproved land and certain general exceptions follow].” Thus, this direct tax statute levied on almost all kinds of wealth and property.
But that’s not all. It also levied “on the amount of their income from any profession, faculty [i.e., occupation], handicraft, trade or employment; and also on the amount of all incomes and profits gained by trading by sea and shore.”
In other words, it was also an income tax law.
This link connects to a 1777 Connecticut direct tax statute. It imposes a charge on the “clear annual profits” of workers in a wide range of professions. This was another income tax law, with a flat rate of six percent.
This link connects to an excerpt from the 1788 Journal of the New Hampshire House of Representatives. It records passage of a bill imposing direct taxes on land, livestock, and “mills wharves and ferries.” The last three were income-producing properties. The tax was “estimated at one twelfth part of their net yearly income”—8.33 percent.
This link connects to a 1788 South Carolina direct tax statute. Its ratable estate is narrower than those of Great Britain, Massachusetts, Connecticut, or New Hampshire. But it is not limited to real estate and capitations; rather, it also includes carriages, “and other taxable property.”
Statements by the Founders
These statutes are fully consistent with utterances from leading figures in the 1787-1790 constitutional debates. For example:
- After the Pennsylvania ratifying convention was over, a group of dissenters issued an apologia stating that the subjects of direct taxes included “land, cattle, trades, occupations, etc.”
- During the Virginia ratifying convention, John Marshall, the future Chief Justice, said that “The objects of direct taxes are well understood” and that they include “[l]ands, slaves, stock [i.e., business capital] of all kinds, and a few other articles of domestic property.” Indeed, just three years earlier, Virginia had imposed a direct tax statute (“the Revenue Tax”) that covered rental income as well as land, livestock, carriages, and billiard tables.
- During the Connecticut ratifying convention, Oliver Ellsworth, one of the Constitution’s framers and another future Chief Justice, observed that targets of direct taxes included (he did not say “were limited to”) the “tools of a man’s business … necessary utensils of his family.”
- The “Federal Farmer,” a highly regarded moderate Anti-Federalist, listed as objects of direct taxation “polls, lands, houses, labour, &c.”
The potential scope of direct taxation was so wide that it offered the Anti-Federalists an opportunity to attack the proposed Constitution. “The Impartial Examiner” argued against granting Congress authority to levy direct taxes by pointing out that:
“So different are many species of property, so various the productions, so unequal the profits arising, even from the same species of property, in different states, that no general mode of contribution can well be adopted in such a manner as at once to affect all in an equitable degree.”
The Actual Distinction
In 2015, Case Western Reserve Law Review published my conclusions on the meaning of the Constitution’s financial terms. They were:
- As the Constitution uses the word, a “tax” is a financial imposition primarily designed for the production of revenue. Impositions primarily to influence behavior are regulations and not taxes. This distinction was firmly established in American public discourse during the colonial struggle against British taxation prior to the Revolution.
- An “impost” is a tax or other exaction on imports.
- A “custom” (a word that does not appear in the Constitution) denominates an exaction on imports or exports.
- “Tonnage” is a particular kind of custom imposed on ship cargoes, either on import or export.
- An “excise” is a tax imposed on the consumption of goods bought and sold within state boundaries. Excises often were targeted at luxuries (such as carriages) and vices (such as alcohol ). They usually, although not always, were imposed at the point of sale.
- An “indirect tax” included customs and excises as well as levies on services and certain events, such as legal transactions and border crossings.
- As indicated above, a direct tax was one imposed by generally applicable statutes on an asset or income base.
- Although a “duty” was any financial imposition other than a direct tax, usually people employed the term simply as a synonym for “indirect tax.”
Reasons for Confusion
The foregoing seems reasonably clear. Then why the modern confusion over the meaning of direct and indirect tax?
One reason clearly is a lack of familiarity with 18th century tax statutes. Perhaps another is the continued use in some jurisdictions during the Founding era, of the term “land tax” to designate statutes that levied on far more than land.
Another reason certainly is the repeated republication of Rufus King’s request for a definition of “direct tax” at the Constitutional Convention and the fact that no one answered. This has been taken as evidence that the definition was unclear or unknown. But other Founding-era references to direct taxes show no uncertainty, and there could have been reasons for the silence at the convention other than ignorance. By contrast, the authoritative answers offered during the ratification debates have not enjoyed such frequent publication.
Moreover, “polls” and land did remain the most important subjects of direct taxation in the 18th century’s agrarian society, so Founding-era writings tended to employ them as examples. This does not mean, however, that they were the exclusive subjects of direct taxation.
The foremost cause of confusion may be Justice Chase’s unfortunate dictum in Hylton v. United States (1796). The issue before the court was whether an annual federal charge on carriages was direct or indirect. The issue was a close one because the levy could be characterized fairly as either a property tax (direct) or an excise on consumption (indirect). The central language in Chase’s opinion began as follows:
“I think, an annual tax on carriages for the conveyance of persons, may be considered as within the power granted to Congress to lay duties. The term duty, is the most comprehensive next to the generical term tax; and practically in Great Britain, (whence we take our general ideas of taxes, duties, imposts, excises, customs, etc.) embraces taxes on stamps, tolls for passage, etc. etc. and is not confined to taxes on importation only.”
So far, so good. Chase continued:
“It seems to me, that a tax on expence is an indirect tax; and I think, an annual tax on a carriage for the conveyance of persons, is of that kind; because a carriage is a consumeable commodity; and such annual tax on it, is on the expence of the owner.”
Still reasonable: A carriage was a luxury commodity, and a common target for excises. Notice, however, how this contradicts Justice Kavanaugh’s statement that indirect taxes are levies on transactions.
But then Chase took a stab in the dark:
“I am inclined to think, but of this I do 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. I doubt whether a tax, by a general assessment of personal property, within the United States, is included within the term direct tax.”
It is unclear why anyone should rely on this last passage. It is admittedly a guess (“I am inclined to think”), and the author himself identified it as dictum (“of this I do not give a judicial opinion.”).
We do not know why Chase made the mistake he did. Direct taxes were deeply unpopular in his native Maryland and capitations recently had been abolished. Perhaps his state’s direct tax law was limited to real estate, but I have not been able to verify this.
A Conflict of Values?
An even more fundamental reason for the confusion among modern commentators may be that their values are not the same as those of the Founders, and they are not fully aware of the fact. Modern commentators often are left-of-center, and see federal tax changes as ways to increase federal revenue and re-distribute wealth. They may not consider the danger of federal revenue squeezing out state sources.
But for the founding generation, the direct/indirect distinction was at least as much about morality and liberty as about economics. They disfavored direct taxes because they were charges against living, thrift, and productivity. They also disfavored them because cash-poor citizens found direct taxes hard to pay. Special interests that captured a legislature could use direct taxes to plunder opponents. Legislatures controlled by the rich could employ direct taxes to loot the poor, by the poor to loot the rich—and at the federal level, by some states or regions to loot others.
Such factors rendered direct taxes unpopular among members of the founding generation. Those involved in the constitutional debates of 1787-1790 seem almost universally to have hoped the federal government would not need to resort to them except in time of war.
From the Founders’ standpoint, the apportionment requirement was not only well-precedented, but it was a way to discourage direct taxes. This would promote productivity, protect the poor, inhibit governmental looting, guard state tax bases, and ensure that the federal government’s revenue demands remained modest.
Reliance on indirect taxes also served founding-era values. Excises—such as those on luxuries and alcohol—would discourage over-consumption and vice. Customs and other duties tied to trade would induce politicians to encourage commerce.
Conclusion
Among the Founders, the distinction between direct and indirect taxes was, as John Marshall affirmed, “well understood.” There is no reason we cannot understand it as well.
This article first appeared on July 12, 2025 at Volokh.com, a leading blog of constitutional commentary.
