A Short History of Congress's Power to Tax

Paul Moreno in this week's Wall Street Journal's Opinion piece provides a very succinct overview of the taxing power of the U.S. Congress. (You may read his complete opinion by clicking here.)  For those of you that do not want to read his entire opinion, the following excerpts are taking directly from Mr. Moreno:

"In 1935, Secretary of Labor Frances Perkins was fretting about finding a constitutional basis for the Social Security Act.  Supreme Court Justice Harlan Fiske Stone advised her, 'The taxing power, my dear, the taxing power. You can do anything under the taxing power.'  Last week, in his ObamaCare opinion, NFIB v. Sebelius, Chief Justice John Roberts gave Congress the same advice—just enact regulatory legislation and tack on a financial penalty, as in failure to comply with the individual insurance mandate.  So how did the power to tax under the Constitution become unbounded?

The first enumerated power that the Constitution grants to Congress is the "power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States."

Congress enacted very few taxes up to the end of the Civil War, and none that was a pretext for regulating things that the Constitution gave it no power to regulate. 

The first unabashed use of the taxing power for regulatory purposes came when Congress enacted a tax on "oleomargarine" in 1886. Dairy farmers tried to drive this cheaper butter substitute from the market but could only get Congress to adopt a mild tax, based on the claim that margarine was often artificially colored and fraudulently sold as butter.

Then, in 1914, Congress imposed taxes on druggists' sales of opiates as a way to regulate their use. Five years later, in U.S. v. Doremus , the Supreme Court upheld the levy under Congress's express power to impose excise taxes.

Then, in 1922, the court rejected Congress's attempt to prohibit child labor by imposing a tax on companies that employed children.

Things came to a head in the New Deal, when Congress imposed a tax on food and fiber processors and used those tax dollars to provide benefits to farmers. Though in U.S. v. Butler (1936) the court adopted a more expansive view of the taxing power—allowing Congress to tax and spend for the "general welfare" beyond the powers specifically enumerated in the Constitution—it still held the ends had to be "general" and not transfer payments from one group to another.

And now, in 2012, Justice Roberts has confirmed that there are no limits to regulatory taxation as long as the revenue is deposited in the U.S. Treasury."

Therefore, as long as Congress calls it a tax and the proceeds are deposited in the U.S. Treasury, it is constitutional.  How long do you think that it will take our Congress to abuse this "renewed" power?  That is why we need the Fair Tax, which would abolish the income tax completely, and get rid of the Internal Revenue Service.  In addition it would repeal the 16th Amendment so income cannot be taxed. It would replace the income tax revenue with an equal amount using a national sales tax. Same tax dollars but a different point of collection.  And, it would take away the ability of Congress to pass legislation and fund it with a so-called tax.