Courthouse Steps Preview: Moore v. United States

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On December 5, 2023, the Supreme Court will hear oral argument in Moore v. United States. At issue is whether the 16th Amendment authorizes Congress to tax unrealized sums without apportionment among the states. 

Please join us as Professor James W. Ely and Professor Calvin H. Johnson discuss their amicus briefs examining the original public meaning of the taxing power and apportionment. The discussion will be moderated by Elizabeth H. Slattery, Director of Constitutional Scholarship at Pacific Legal Foundation.


Professor James W. Ely, Milton R. Underwood Professor of Law Emeritus and Professor of History Emeritus, Vanderbilt University

Professor Calvin H. Johnson, John T. Kipp Chair Emeritus in Corporate and Business Law, The University of Texas at Austin School of Law

Moderator: Elizabeth H. Slattery, Director of Constitutional Scholarship, Pacific Legal Foundation


To register, click the link above. 


As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

Event Transcript



Emily Manning:  Hello, everyone, and welcome to this Federalist Society virtual event. My name is Emily Manning, and I’m an Associate Director of Practice Groups with The Federalist Society. Today, we’re excited to host a Courthouse Steps Preview: Moore v. United States. We’re joined today by Professor James W. Ely, Professor Calvin H. Johnson, and our moderator today is Elizabeth H. Slattery, Director of Constitutional Scholarship at Pacific Legal Foundation.

      If you’d like to learn more about today’s speakers, their full bios can be viewed on our website, After our speakers give their opening remarks, we will turn to you, the audience, for questions. If you have a question, please enter it into the Q&A function at the bottom of your Zoom window, and we will do our best to answer as many as we can.

      Finally, I’ll note that, as always, all expressions of opinion today are those of our guest speakers, not The Federalist Society. With that, thank you for joining us today. And, Elizabeth, the floor is yours. 

Elizabeth H. Slattery:  Thank you, Emily, and good afternoon, everyone. Next week, the Supreme Court will hear oral argument in Moore v. United States, which asks whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states.

Under the original Constitution, Congress had the power to levy indirect taxes uniformly, whereas direct taxes had to be apportioned among the states. Apportionment was set in proportion to the census or enumeration of the state’s population, meaning that if one state had [inaudible 01:33] population of another, it had to contribute twice as much.

In Pollock v. Farmers’ Loan & Trust, in 1895, the Supreme Court held taxes on income of real estate and of personal property—such as rents and dividends—are direct taxes. Backlash to this ruling led in part to the ratification of the Sixteenth Amendment, which overruled Pollock and created a limited exception to the apportionment requirement. The amendment allows Congress to lay and collect taxes on incomes from whatever source derived without apportionment among the states. It left undisturbed the requirement that Congress apportion other types of direct taxes, such as a tax on property interest.

That brings us to Moore v. United States, which concerns a provision of the Tax Cuts and Jobs Act of 2017. This provision is called the “mandatory repatriation tax” or the MRT. It’s a one-time tax targeting U.S. shareholders of foreign corporations that reinvested earnings overseas rather than distributing them to shareholders as dividends.

Before this law went into effect, shareholders would incur tax liability when a foreign corporation distributed earnings and the shareholders repatriated those gains. But the MRT tried something new—deeming the foreign corporation’s retained earnings as shareholder income and taxing shareholders according to their proportional ownership stake.

Charles and Kathleen Moore are minority shareholders in a foreign corporation that reinvested its earnings to grow its business without distributing a penny to any of its shareholders. The MRT tagged the Moores with over $130,000 in taxable income based on their shares. They sought a refund for taxes they paid on this unrealized income, which led to the case that is now before the Supreme Court.

The Moores argued below that MRT is an unapportioned direct tax because it taxed them on ownership of personal property—their shares—rather than on income they had realized. The lower court rejected this, holding instead that realization of income is not constitutionally required in order for Congress to levy a tax consistent with the Sixteenth Amendment. “The amendment’s reach is limited to taxes on incomes,” the Moores explain in their brief to the Supreme Court, “and realization is not only what distinguishes income from property in general but what makes income income.”

To unpack the history and original meaning of the taxing power and apportionment and preview what’s coming up at the Court, we’re fortunate to have two distinguished guests with us today. James Ely, Jr. is the Milton R. Underwood Professor of Law Emeritus and Professor of History Emeritus at Vanderbilt University. Professor Ely is a renowned legal historian and property rights expert, as well as the author of several books, including The Guardian of Every Other Right: A Constitutional History of Property Rights.

Calvin Johnson holds the John T. Kipp Chair Emeritus at the University of Texas School of Law. Professor Johnson [inaudible 04:42] is in the fields of tax law and constitutional history, and he’s the author of Righteous Anger at the Wicked States: The Meaning of the Founders’ Constitution. I love the title of that book.

With that, we’ll get into our discussion. So we’ll begin with some opening remarks from Professor Ely.

Prof. James W. Ely:  Thank you very much, Elizabeth. Let me turn to consider the Moore case. To appreciate the egregious nature of the Moore majority opinion by the Ninth Circuit, one must make an excursion into constitutional history. In so doing, I will stress these points.

One, the Framers were deeply concerned about the potential abuse of tax -- direct taxation and sought to place meaningful restraints on such levies by inserting two provisions in the Constitution mandating apportionment of direct taxes among states according to population.

Two, the dicta by three Justices in the Hylton case was erroneous and utterly failed to adequately define direct taxes or to grapple with the purpose of the constitutional restraints on direct taxation. Three, in Pollock, the Supreme Court, for the first time, carefully analyzed the history and purpose of the Direct Tax Clauses and correctly decided that the 1894 income tax was a direct tax subject to the apportionment rule.

Four, the Sixteenth Amendment overruled Pollock only with respect to income taxation and left other direct taxes subject to the apportionment rule. Five, offering no fresh analysis, the Moore court upheld the power of Congress to tax unrealized gain, vesting in Congress almost unlimited power to define income and thus evade important constitutional safeguards.

It was widely agreed that a central defect in the Articles of Confederation was the lack of authority in the Confederation Congress to raise revenue independently of state requisitions. Yet the Framers had to walk a fine line. The United States had recently emerged from a bitter war with Great Britain to secure its independence—a struggle triggered in large measure by a dispute over the power to impose taxes. The Constitution was framed in a climate of high sensitivity over the potential for tax abuses.

Consequently, leading Framers—such as Alexander Hamilton and James Madison—stressed that Congress would rely primarily on indirect taxes on articles of consumption, whereby a person would be taxed only in proportion to his or her consumption. Direct taxes, in contrast, fell squarely upon the parties being taxed.

Hamilton explained that direct taxes encompassed taxes on land and general assessments on the whole property of individuals. The apportionment rule restricted but did not absolutely bar congressional levy of direct taxes. As Charles Beard explained, “The apportionment requirement obviously implied that such taxes were to be viewed as a last resort when indirect taxes failed to produce the required revenue.

The Framers clearly regarded the limitation on the imposition of direct taxation to be of vital importance. It bears emphasis that the apportionment rule is the sole restriction on Congress placed in the Constitution in two separate sections. It is striking that the Framers thought a limit on the levy of direct taxes by Congress was sufficiently important to warrant inclusion twice in the Constitution at the very time they were arguing that a bill of rights was unnecessary. Moreover, no Framer ever declared that Congress had plenary authority to levy taxes.

A 1794 congressional tax on the use of carriages set the stage for Hylton v. United States: the first Supreme Court decision to address the direct tax clauses and the source of a string of erroneous subsequent decisions. Beset by a host of procedural and jurisdictional issues, the Hylton case seems more in the nature of a bid for an advisory opinion than a contested case. Moreover, only three of the six Supreme Court justices participated and authored opinions. All three Justices upheld the validity of the carriage tax as an indirect tax on a commodity.

Having resolved the matter on this basis, other comments on direct taxation were merely dictum. Justice Samuel Chase, however, posited two sweeping but problematic propositions: One, that only taxes that could be reasonably apportioned were direct taxes. This is backwards reasoning. He should have begun by ascertaining the meaning of “direct” as distinct from “indirect” taxes and then considered the purpose of the congressional language. The apportionment rule was not designed to be reasonable or easy to apply. Rather, it was calculated to discourage reliance on direct taxes.

The second point that Chase made was that a tax on land was the only direct tax. But if the Framers had intended to restrict the category of direct taxes to land, they could have easily so provided instead of adopting the open-ended language or other direct taxes. The other justices in Hylton, to be fair, were less categorical than Chase, declining to determine what was the direct tax in all future situations. It bears emphasis that none of these justices addressed the validity of an income tax.

The mystery of Hylton is how dicta by three justices in a contrived case came to be seen as the definitive interpretation of the direct tax clauses. Nonetheless, in a series of rather mechanical opinions during the post-Civil War decades, the Supreme Court endorsed the Hylton dicta and the narrow reading of the Direct Tax Clauses. At no point before 1895 did the Court investigate the meaning of “direct taxes” and simply repeated Hylton by rote.

The eminent treatise writer Thomas Cooley differentiated direct and indirect taxes in his magisterial 1876 treatise on the law of taxation. He defined “direct taxes” as those assessed on the property or persons of those who have to pay. Obviously, Cooley’s perception of direct taxation was much broader than that of the Hylton court.

In the 1895 Pollock case, Chief Justice Melville W. Fuller, speaking for a divided Supreme Court, made the first serious judicial effort to probe the history of the Direct Tax Clauses. In two opinions, he concluded that taxes on real and personal property and on the income thereof were direct taxes that must be apportioned. Fuller pointed out that Hylton actually only determined that a tax on carriages was an excise on a commodity and therefore an indirect tax.

As agitation for an income tax mounted in the second decade of the twentieth century, Congress proposed and the states ratified the Sixteenth Amendment to empower congress to levy a tax on income without apportionment. The congressional debates make clear that the amendment was confined to income taxation. Indeed, a more radical proposal to eliminate the direct tax clauses from the constitution altogether was defeated by voice vote.

The Sixteenth Amendment authorized Congress to impose taxes on income. Now, this raised a number of critical questions, but among them, who’s to decide the meaning of “income?” This is the critical inquiry in Moore.

In 1920, the Supreme Court ruled that congress could not just adopt any definition of “income” it might wish. In other words, courts must define “income” as a constitutional term. It was generally understood at the time the Sixteenth Amendment was ratified that “income” meant realized gain.

In contrast, the Moore court recast the meaning of income and vested in Congress virtually unlimited power to define income. Such a remarkable conclusion finds no support in the history of the Sixteenth Amendment or the Direct Tax Clauses and opens the door to the expansion of federal taxation power beyond constitutional limits.

The Supreme Court should reverse the Ninth circuit’s opinion and affirm the continuing validity of the Direct Tax Clauses. James Madison saw these provisions as one of the safeguards of the Constitution. We should heed his wisdom. Thank you.

Elizabeth H. Slattery:  Thank you, Professor Ely. And before we turn over to Professor Johnson, I want to invite participants, the audience, to submit questions through the Q&A feature, and we will get to those after the opening presentation. So with that, Professor Johnson?

Prof. Calvin H. Johnson:  Thank you very much. I speak to this body with the voice of Antonin Scalia calling from beyond the grave, imploring you, begging you, to decide this constitutional case according to the original understanding of the people who wrote the words of the text of the Constitution if this Court is indeed loyal to the original meaning of the Constitution and is not just a Harlan Crow court protecting wealth. And this case, Moore v. The United States, will go in favor of the government, and the challenge to tax will fail.

The Constitution requires that direct tax be apportioned among the states by population. Population in the Direct Tax Clause was consistently used only as a measure of wealth in the 1783 debates that formulated the rule, in the 1787 debates that carried the rule—including three-fifths measurement of slaves—unto the constitutional text and in the 1788 debates that ratified the rule.

In the current case, the Moores rely on an 1895 case, Pollock v. Farmers Trust, which claimed—quite in error—that the Direct Tax Clause was written to protect wealth from assault by mere numbers. In fact, there is not a scintilla of evidence in the original debate supporting that proposition. Nothing contradicts the proposition that population only measures wealth. We now need to throw off the doctrinal error of Pollock, a corruption on the original documents, and return to the original meaning of the text.

Pollock should also have been killed by the Sixteenth Amendment, which was written specifically to drive the last nail in the coffin and get rid of it. And it is not legitimate ever again to cite Pollock as a way to kill a tax.

The Articles of Confederation before the Constitution allowed Congress to tax only by requisitions, that is, by direct taxes on the states. The Articles determined each state’s quota in the requisition according to the fair market value of real estate and improvements in each state. The states, however, cheated on the appraisals to lower their quotas. Pennsylvania prominently seems to have put in appraisals at about half of what their real value of their real estate was. Congress had no staff to correct them.

So the Constitution abandoned measuring wealth of estates by appraisals of real estate and went over to measuring wealth by the contribution of the labor of the population of the state to its wealth. Nathan Gorham of Massachusetts told the Constitutional Convention that the most exact proportion prevailed between numbers of people in property in his state of Massachusetts. James Wilson said the same thing was true in his state. And James Madison—always the generalizer—said that, “So long as labor moved freely, labor would always measure wealth moving away from the pine barrens and the mountains and on to the rich bottomland and the cities.”

The delegates returned to their states for ratification, explained uniformly, without exception, again, that population was used in this Constitution, in this direct tax clause, only to measure wealth. This is a tax that is trying to tax wealth. There is no protection for wealth in this thing.

Their definition of “direct tax” subject to apportionment implicitly assumed a tax base that was equal per capita in every state. Equal per capita allowed them to conclude that tax rates would be uniform in every state. The assumed exact proportion between population and wealth meant that those delegates—and there were quite a few who believed that those who owned the country should run it, that votes in government should be determined by property—if they believe that, they would nonetheless be reforced to measure wealth by population.

Now, apportionment by population worked fine on equal amounts per capita in every state, but it did not work when the tax rate -- when the tax base varied. During the Great Depression, for example, Mississippi’s gross domestic product was about one-fourth of New York’s. If New York tax rates had to be 20 percent on any fair measure of New York economics to fight a war or do anything, 20 percent is not all that high.

But apportionment would then require tax rates in Mississippi to be at the 80 percent rate. And indeed, an apportion tax of 25 percent in New York would mean 100 percent tax in Mississippi—just ship the whole state over to the federal government. Mississippi is a poor state with a thin tax base over which to spread its quota. These results are absurd, and it’s exactly the system that professor Ely is calling for.

Now, in 1796, in Hylton v. United States, the Supreme Court—still peopled by the Founders on this issue—made explicit what had been implicit before that direct tax was only a tax with a tax base that was equal in each state. This Constitution, the Court held—not dicta, but held—contemplated no taxes as direct tax but only as Congress could lay in proportion to a census. “The rule of apportionment,” they said, “is only to be adopted in such cases where it reasonably applied.”

Each of the justices deciding Hylton had contributed at least a surviving paragraph in the original debates on direct tax. They were the Founders on this issue, and they know the Constitution better than you do—better than we do.

Hylton ruled that apportionment was not required when it yielded absurdity was a stable constitutional doctrine for a hundred years. The rule repeated faithfully over and over again justified taxes on property, on wealth, on capital, including, for instance, a tax on federal income tax.

In 1895, however, the snake came into the garden. The Court in Hylton, in Pollock v. Farmers Trust, struck down an income tax. The Court stated that the direct tax was written “to prevent an attack upon accumulated wealth by the mere force of numbers.” Pollock imposed a presupposition, a prefabrication on words they did not understand. And they got it exactly wrong.

Direct tax was written to reach wealth, not to protect wealth from tax. In a democracy, the force of mere numbers in Congress assembled decides what to tax. This is a democracy, not run by unelected people making up rules that are not part of the original debate. Pollock also treated the direct tax as a restriction on tax, but no federalist proponent of the constitution would have tolerated such a restriction.

The whole point of the Constitution is, in fact, to raise money for the -- to pay off the Dutch in the coming inevitable war. They needed federal tax. “The power of Congress,” The Federalist said, “can be no other than unlimited power of taxation if the common defense requires it.” There’s not a word in the original debate suggesting that this was anything other than a way to reach wealth. It’s not a restriction.

Oh, I lost my page. That’s terrible. I’ve got it. Sorry, guys. Now is the time to return to the Founder’s meaning and stop the use of a Direct Tax Clause to veto a tax passed by the democracy. The original surviving documents tell us unambiguously that population measures wealth. And if apportionment is unreasonable, the tax is not direct and is not required.

Now, that’s my major speech, but I’ve got three supplemental comments. I could quit now, except I got some time. One, Eisner. V. Macomber in 1920 held that income within the Sixteenth Amendment has to be severed from capital that generated.

Now, severance makes sense for consumption. You have to cut a slice off of the loaf of bread in order to consume it. But severance makes no sense for savings. Savings doesn’t have to be severed. It can stay on the loaf. It is a cushion that can be pulled down in case of a tsunami or other emergency. And it is a command over resources. It has value because it represents the discounted present value of future cash flows. And savings is future consumption, future cash flows, future severance. It hardly needs to be severed as Moore.

You take Eisner v. Macomber seriously, then you have tax on cash only. And cash is a terrible tax because it’s so elastic; it’s so easy to avoid, and it doesn’t include any savings. This is an income tax, not a consumption tax, not a sales tax. And savings, of course, includes your command over resources, whether those resources arose by appreciation or arose by some kind of receipts. There is no severance requirement for savings to be its full function.

The second supplemental comment is that the Moores challenged the U.S. tax on earnings of a controlled foreign subsidiary. The right way to tax income in a consolidated group, in a big group, is take only the full consolidated return. The accountants will not accept a separate return from an individual subsidiary because it doesn’t mean anything. It has no economic importance at all.

What goes on the return of any subsidiary is dictated from the U.S. headquarters of the company according to what most pleases me. If U.S. headquarters said, “I want you to do this accounting in this way. Jump,” the subsidiary had better already be in the air and say, “How high was I supposed to be going?” It has no meaning. It is simply jotting down on a return. It should not be admissible. No return.

This Constitution says, “You may tax income from whatever source derived,” and that includes savings, claims over resources, that includes stuff that comes out of India. It’s part of whatever source derived.

Finally, I want to say this as gracefully and as kindly as I can, but I need to say it. Professor Ely is behaving below the minimum standards of the discipline of history. As far as I can tell—and he told me this—he has not read the 1783 documents that formulated the direct tax rule, and he has not tried to understand what they were trying to do in 1783 with those words. He has not read the documents of 1787 that carried over the direct tax rule into the constitutional text. He has not read the ratification document. He does not understand the words.

All the surviving documents tells that a portion of direct tax was to reach wealth, not protect wealth. Professor Ely is imposing his presuppositions, his prefabrication on words he does not understand. If he wants to be a professional, he needs to go back to the original documents. Thank you.

Elizabeth H. Slattery:  All right. Professor?

Prof. Calvin H. Johnson:  I guess I didn’t say it very kindly, and I didn’t say it very gently, but I—with full respect.

Elizabeth H. Slattery:  I’d like to give Professor Ely an opportunity to respond, particularly to that last charge. And then we have some questions from the audience, and I have some questions for you both as well. So, Professor Ely?

Prof. James W. Ely:  Well, I have, in fact, read numerous debates during the entire time period. The debates of 1783 involved a failed attempt to amend the Articles of Confederation. I don’t think, frankly, it is very germane to the topic at hand.

Secondly, the Federalist spokesman during the ratification debates repeatedly said direct taxes would be rare; they would rarely be imposed, that they would be relying primarily on consumption taxes. So unless they were all just lying, that was a repeated theme throughout the entire thing. And people had distinguished between direct and in taxes for a long time. Try, for example, Adam Smith, who weighed in on the subject long before this, and who, incidentally, had said that a tax on carriages was an indirect tax.

So I would say that I believe my conclusions are historically very well grounded. I believe that I can rely on Adam Smith, Alexander Hamilton, James Madison, Thomas Cooley—a very distinguished treatise writer—all of which, I think, does support to the position that I’ve advanced.

Prof. Calvin H. Johnson:  May I get just a very short -- a fair dialogue? And, one, 1783 is where the rule was formulated, including the Three-Fifths Clause. Certainly right. It was a proposal. Articles of Confederation required unanimity, and they couldn’t get unanimity. But at the constitutional time, they said, “Look, 11 of 13 states had endorsed this rule. We endorse it,” and it is pulled in in full by James Wilson specifically quoting the 1783 provisions. You cannot understand what they were trying to do unless you see them formulating the rule. You cannot rely on subsequent guesses that are not accurate to that rule.

The Direct Tax Clause was the most important issue of the ratification debate. It absolutely separated federalists from anti-federalists. No anti-federalist would allow the federal government to have direct tax, and no federalist would let it go.

George Washington had to explain to Thomas Jefferson where he returned, that direct tax is the only thing that really counts. If we are not to have direct tax, then how are we going to retain or revive the federal honor—meaning pay our debts—and we might as well go back to the Articles of Confederation if we can’t pay our debts.

On the federalist side—as apart from the anti-federalist side who are trying to defeat this Constitution with every possible ridiculous argument that they can drum up—on the federalist side, no restriction on direct tax was ever tolerable. A government without direct tax within its power was like a man with one hand tied behind his back.

All of the federalist debates—as apart from the junk said on that later—look but Cooley got it wrong. Pollock got it completely wrong. There’s lots and lots of people who so badly want to have protection from the people who own the country should run it, that they misread this document to warp. On the other hand, the Hylton judges are the Founders. They all participated in the issue. They know better than we do and better than Cooley did and better than Pollock did about what is really going on.

This cannot be a restriction. The democracy needs to, in fact, impose taxes without this ugly claim, especially in time of war and especially in time of desperation.

Prof. James W. Ely:  Well, it does seem to me that there are some concerns here. For one thing, if you want to dismiss the anti-federalists, of course, that would include Samuel Chase, who, in fact, opposed ratification of the Constitution at the Maryland Convention. So he wasn’t necessarily speaking for everybody, or maybe he changed his mind. But the guy was hardly the voice of paragon of consistency here. And to say he was in on the Founding seems to me, frankly, a bit of a stretch.

The fact is, secondly, were the Framers trying to establish a democracy? They went about it in a very curious way: divided the legislative branch who set up a Supreme Court which presumably would eventually gain judicial review—not exactly democratic. I’m not sure that we have a democracy in some senses today. We certainly didn’t have it in the eighteenth century, nor do I think that’s what the Framers were necessarily trying to achieve. They were simply trying to achieve a free government, a balanced, free government—a Republican government, as they would have said in those days.

So I think that we have to be very careful here. Certainly, Alexander Hamilton was a very prominent federalist, and he specifically stated that direct taxes would be infrequent. And he gave several examples—some of which I made reference to in my opening remarks—as to what would qualify as direct taxes. So I think clearly some of the federalists did, in point of fact, have concern about taxes.

When Washington said Congress has to have ability to direct taxes, I think -- I suggest to you what he meant was they have to be able to raise revenue independently of the states. That’s not the same thing as a direct tax. So any event, I leave it with that.

Prof. Calvin H. Johnson:  I would come in and agree with him, if I can, of all things. One of the glorious things about the assumption that population measures wealth is that they could bring in that very considerable, I think, minority but nonetheless considerable bloc who did believe that votes should depend upon wealth, contribution to tax, and not according to people. But under their strict assumption that this is an exact ratio between the two, that those people were needed to use population as a measure of wealth -- but there’s no question these are not democratic times, and that’s why the glory of this particular assumption.

Anti-federalists did not write the Constitution. They were not at the Convention. They didn’t get organized until quite a time after everyone had left. There is one, maybe two people, who are in fact anti-federalists within the -- three within the convention. They had no effect on the logic. They hated everything they saw. They were sitting there telling you that, “This Constitution would burn out, that would black out the lights of heaven.” And they go on and on and on about everything can be.

Everything is accursed about this Constitution to them. They are not the authors. They only silhouette. Whatever they said, the Constitution is the opposite of. And you cannot go somehow citing anti-federalist rhetoric, no question, in opposition to direct tax. Direct tax is the single most issue—important issue—of the ratification of the splits, the one and the two. But you cannot cite them as an interpretation of what the proponents, what the words were written in order to say. If anything, you’re completely on your way to distorting your full understanding of what these things and what they were trying to say.

Elizabeth H. Slattery:  So I’d like to get into some of the questions. So the first is, do you all have any predictions for how this may turn out at the Supreme Court? And are there any particular justices we should keep an eye on during the oral argument next week?

Prof. James W. Ely:  I don’t make my living predicting outcome of Supreme Court cases, and so I am very hesitant to offer any prediction. Usually, the rule of thumb is that the Supreme Court takes a case because some of the justices are bothered by the result, and there is a reasonable prospect that it will be reversed or modified in some manner. I think that is likely to be the outcome here. But beyond that, I’m not in a position to predict. I don’t live by a crystal ball.

Prof. Calvin H. Johnson:  Eric Jensen and I—I coauthor with -- on the brief with Jim—gave me a two to one bet. He will give me two dollars. I put up a dollar. We’re heavy betters on these things, and I perhaps worry about it. But nonetheless, I think it’s probably a little bit odds in his favor, meaning that he had to put up two dollars to earn a dollar from me.

I actually come another reflection. When you come with how awful reimposition of Pollock is on the federal tax, I cannot -- you cannot have an accrual method of taxing. You cannot reach abuses. There are all kinds of things. This world is built upon “cash doesn’t matter. Nobody collects cash anymore. Who bothers?” It’s all these claims of resources.

And so it has to be an utter neanderthal position to say, “I’ve got to chew on the gold to make sure the coin is good before it could possibly be taxed.” That’s just not the way that finance works, the way that economists work. It’s the claim on resources. These funny little pieces of paper with George Washington or Benjamin Franklin on you are not what is going on. It’s the real claim to real underlying sources. They could not be that crazy.

I understand it’s a 6-3 Court, and therefore, the conservative think tanks that put in the 9 briefs are smelling blood. They’re going to get rid of the administrative state. They’re on and on and on. Great victory and Dodds and, from now on, just marching on and on. But gentlemen, you cannot do that. You just cannot do that.

The real world doesn’t pay any attention to cash, and a tax on cash only is a terrible tax. People hide their cash. Three quarters of capital gain are never taxed at all because people avoid sales. They borrow, or they do derivatives. And if the Moores win and big, then the tax that will be left will be an awful tax just as a matter of tax policy.

Now, I know constitutionalists are not supposed to look at the consequence, but you have more. That’s the end of this empire. You just cannot, in fact, run a country on the basis of -- at least broadly things. You know what I mean? There may be some compromises that, “Yeah, we can pass through earnings on a consolidated basis, but we will not tax appreciation of small businesses or whatever.” Maybe there’s a compromise in there.

But I will say that if the people tasting blood can taste blood, the resulting tax system will just be an abysmal tax, terribly unfair, unable to reach either the resources or the equity of this nation, which, of course, is what the whole point of it is. “Let’s see if we can’t shoot Uncle Sam and prevent him from ever collecting a dime of tax or having an administrative state” or on and on and on and on. Who knows? I do not know how far the new conservative court will go. But gentlemen, you really cannot do that. You just can’t do it.

Elizabeth H. Slattery:  Well, there are a few ladies there these days as well. Another question from the audience. “If the Court reverses, what are the broader implications for other federal taxes—the estate tax, as one example?”

Prof. James W. Ely:  The estate tax, I think, yields to somewhat different analysis than the other taxes because taxes at time of death—whether it was called “estate tax” or “inheritance tax” in earlier times—can be traced way back into medieval England. And so that was not breaking new ground the way some of the other direct taxes, such as the income tax, were doing. They were totally innovations when they came in. I think that as a consequence, I don’t think -- however Moore comes out, even if it comes out and reverses the Ninth Circuit—which I hope it will—I don’t think it will affect the estate tax.

Prof. Calvin H. Johnson:  The Supreme Court immediately realized that Pollock was a mistake. It was attacked by the top of the bar, on and on and on. It was the Dred Scott case of tax made up fictional imposition of rules that were not in the original debate, and they backed off. And every single tax that came -- every single tax that came before the Supreme Court after Pollock was an excise tax.

Now, an excise tax originally meant whiskey tax and syntax. They taxed chocolate on the grounds you can’t have chocolate in New England syntaxes. It was a very narrow little tax, syntax. And then suddenly, Pollock used excise to expand it infinitely to say, “Oh, it governs an estate tax and a tax on capital of insurance companies and a corporate tax.” They would have said that it governed income taxes as well. It was so elastic. It did, after all, cover corporate income taxes and, in fact, under prior holdings, Moore is an excise tax because it is a corporate tax.

But all I’m saying is that was an utter and complete legal fiction explosion of this little tiny tax on chocolate to discourage our luxuries that grew to mean everything. And the function of it was, “We will not again impose Pollock.” They knew they had done evil. Oliver Wendell Holmes says, “This Court was afraid of William Jennings Brian and hit panics and had rulings, including—especially Pollock—that had no support in the Constitution. But they did back off. They would have reversed it in full if asked.

Now, they had already said an income tax on corporate was perfectly okay, except that Taft was a lover of the Court, and, in fact, he became chief justice after retirement. And he said, “I do not want to embarrass them twice: once when they made this wrong decision in Pollock, and another time when we forced them to eat Crow—not Harlan Crow, but the other Crow—of pulling back again. And I would prefer a Sixteenth Amendment, three quarters of the states, two thirds of both houses of Congress instead of asking them to embarrass themselves.”

But the intent of this from the very start from -- as proposed by Taft was, in fact, to put the last nail in the coffin of a terrible decision, which was Pollock itself. There should be nothing that survives with Pollock after Taft specifically tried to get rid of. Maybe he should have asked the Supreme Court just to reverse themselves to kill it dead.

But this idea that somehow or another that rules in derogation -- constitutional amendments in derogation of what I want it to be can be interpreted out of existence is unseemly, shall we say the least? Justices are unelected officials, and they should not come to those conclusions.

Prof. James W. Ely:  Well, just as unelected officials weigh in on all kinds of subjects—not all of which I think are necessarily shared by the Democratic majority—I might point out that Holmes may not have been the most astute historian going. Brian’s campaign—the so-called “Free Silver campaign”—came about after the Pollock decision. I don’t think it had anything to do with it. He wasn’t even a major figure when the Pollock decision was rendered.

He did campaign in favor of attacking the Supreme Court in favor of the income tax, and he lost. As a matter of fact, the Democrats lost badly in the next several elections after the income tax decision, which has led some historians to suggest that much of the public was not as upset with the Pollock decision as later new deal historians would become.

Prof. Calvin H. Johnson:  Three quarters of the states, two thirds of both sides. This Sixteenth Amendment was overwhelmingly passed by the people. And for you to interpret that thing of, “Oh, just a minor little constitutional amendment” ain’t fair.

Prof. James W. Ely:  Well, what is fair is that, in fact, a proposal was made during the debate on the Sixteenth Amendment to eliminate the direct taxes, all to get Direct Tax Clauses altogether. That was voted down overwhelmingly, apparently, by voice vote. And the sponsors of the amendment specifically said they were only concerning themselves with the income tax.

Prof. Calvin H. Johnson:  We are repealing the wrong decision in Pollock. Pollock was reversed by the -- before the amendment. Three-four incidentally is an incredibly high bar. And okay, there may be some proponents who were -- think we’re only going to get 74 percent or only 66 of the Congress.

But the answer is it was well understood at the time with overwhelming sediment that this was the last nail in the coffin to get rid of a badly decided -- the Dred Scott of taxation elite opinion. In fact, the Supreme Court itself had confined Pollock to its facts. It could have been reversed with a ping. There was nobody who was arguing in favor of Pollock at the time. That was not a political banner in which you could organize any votes, that Pollock was a glorious fight for anything. This is completely made up, retroactive history.

Elizabeth H. Slattery:  So another question from the audience. “What did the general public think income was, and what did the Framers of the Sixteenth Amendment think income was at the time of ratification?”

Prof. Calvin H. Johnson:  I am of the opinion that income includes not just consumption—and you do have to sever from the loaf in order to consume the piece of bread. It’s got to be cut off. But it also includes savings. And when you state that income is the sum of consumption plus savings, then savings are just resources that are sitting in the back, can be pulled down for an emergency, represent the discounted present value of future consumption. It doesn’t have to be severed.

As soon as you think of it, the economic definition of income includes not just cash consumed but also resources under which under your command. It’s inevitable what it has to be. Savings are part of an income tax. It’s a sales tax if you don’t have -- or a consumption tax if you don’t pull in the savings. And savings are command over resources, which, in fact, unrealized appreciation is.

In fact, the accountants now say increases in the fair market value of publicly traded stock will be reported immediately as corporate earnings. The accountants who are the science of accounting, they’re the whole profession of experts, in fact, say, “Of course, increases in the fair market value of your stock, of your Google stock, is an increase in your command of resources, which will be reported under SEC auspices to all investors as part of your income.”

This argument that, “You’ve got to have gold and chew on the gold before it could possibly” -- nobody cares about cash anymore. Bezos made $18 billion last year in the increase in value of his stock. He can call that down, move it around by a little country anytime he wants to during days. It’s exactly part of his resources, part of his savings, more liquid than cash, because if he tried to take $18 billion out of his ATM machine, he would be there all year and still not get the cash out.

So to suggest that he doesn’t have any command over resources except for that in which he pulled out of cash, is going to say, “Which millennium are you in?” You’re talking not even in the twentieth century. We have said for way over it’s all through the twentieth century. Accounting, in fact, talks about command over resources, not pieces of gold, not pieces of paper. There is no legitimate position to be said that the only income that you have is that which you eat and that which is turned into gold or turned into dollars. Ridiculous position.

Prof. James W. Ely:  I believe the question really asked about what was the general understanding about income at the time that the Sixteenth Amendment was ratified? I submit that the general understanding was that income meant realized gain. That may not be the understanding today. Maybe the understanding of some accountant. I don’t know. But I think that was the general understanding.

Certainly, that’s what Thomas Cooley advanced in his magisterial and highly influential treatise on the law of taxation and other treatise writers in the same time period and a few years later advanced exactly the same view. I think that these writers probably have a grip on it, and what people a hundred years later think they might have done is really irrelevant. The question is, “What were they thinking at the time?” And I think they meant realized game.

Prof. Calvin H. Johnson:  You cannot use Pollock again. Pollock was so wrong and so awful. You may not use Pollock to kill anything.

Elizabeth H. Slattery:  Okay. We know Professor Johnson’s position. He hates Pollock. It’s dead, dead, dead. So I have a question about the Hylton case. So in Professor Ely’s presentation, he mentioned that it was simply dicta, whereas Professor Johnson says it was a holding of the Court.

One of our audience members has quoted some language from Justice Chase and Patterson’s separate writings saying things like, “I do not give a judicial opinion.” So how is it a holding if there wasn’t a majority of the Court that agreed on what the holding was.


Prof. James W. Ely:  It wasn’t a holding.

Prof. Calvin H. Johnson:  It was the holding, I will say, direct taxes -- carriage taxes were on the list of inventory of direct taxes. They were commonly treated as direct taxes. The Treasury put together an inventory of direct taxes in preparation for a quasi-requisition upon the states, and there were all the carriage taxes that were there.

And so in order for the Court to take something that was officially treated as a direct tax as not apportionable is because they came to grips with the absurdity. Their example was that New York carriage had 10 times as many carriages per capita as Virginia, and therefore, tax rates on carriages in Virginia would have to be 10 times higher. A shilling a carriage in New York meant 10 shillings a carriage in Virginia, and that is nonsense. That is absolute, complete, ridiculous nonsense. But that is what the proponents of apportionment want.

They want to have all of Mississippi capital and income shipped over to the federal government because apportionment requires that when you have those kinds of depression-era ratings. They are holding that you cannot, in fact, find any justification for a rational tax policy under which you have apportionment, except under their strong absolute assumption that per capita tax base is absolutely the same in every state.

Outside of that assumption, it’s not a direct tax. That’s their logic. They cannot hold it any other way in the face of quotes that’s saying, “If apportionment is absurd, it is not required.” Very simple rule, straightforward, good common sense, nothing wrong with that.

Prof. James W. Ely:  If apportionment is required, and it does -- could lead to an absurd result, the idea is it would discourage levying the tax. That was the point.

Prof. Calvin H. Johnson:  No. The purpose of the Constitution is, in fact, to pay the war debts, that they are a scared country with three predator nations. They have not a dime to pay for a ship or a gun. The whole purpose of this Constitution is to give full revenue. To take away the power of direct tax is to make a man fight with one hand tied behind his back. No restriction on direct tax was tolerable to a proponent of this Constitution. Look, the anti-federalists went on and on and on.


Prof. James W. Ely:  Okay. We don’t need the dramatics.

Prof. Calvin H. Johnson:  It’s more fun with dramatics.

Prof. James W. Ely:  The point is twice we say in the Constitution that you can’t have a direct tax without apportionment. Why do they put that in—meaningless as I understand what you’re saying?

Besides, the question really came down to what about Hylton? Chase specifically says he’s not giving an opinion. Then he goes on and gives one. All the justices said it was, in fact, a valid tax. Therefore there was no other issue before the Court. They weren’t being asked to give an advisory opinion.

Prof. Calvin H. Johnson:  They did not. Anything they said about real estate was pure dicta. A real estate tax was not before the Court, and they would have gone the other way if they had seen a situation in which things were not pro rata.

Direct tax means one that has an equal tax base in every single state. They said that twice, that if it is feasible and workable, part of it is the Three-Fifths Clause. This is a fight between north and south as to who should pay the requisitions. And the south wants to say, “If you have a requisition, make sure you count our slaves only at three-fifths instead of their real value to the society.”

Elizabeth H. Slattery:  I hate to interject, but we’ve come to the end of our time. Emily has rejoined us, so I think that means that our time is up. But I want to thank Professor Johnson and Professor Ely for their comments today on the Moore case. And thank you to our very engaged audience. I’m sorry we didn’t get a chance to get through all of your questions, but thank you all for joining us today.

Prof. James W. Ely:  Thank you.

Prof. Calvin H. Johnson:  Thank you very much.

Prof. James W. Ely:  Thank you very much.

Prof. Calvin H. Johnson:  It was a pleasure.

Prof. James W. Ely:  It was a pleasure. Bye-bye, Calvin.

Prof. Calvin H. Johnson:  Bye-bye.

Emily Manning:  On behalf of The Federalist Society, thank you all for joining us for this great discussion today, and thank you to our audience for joining us as well. We greatly appreciate your participation.

      Check out our website,, or follow us on all major social media platforms @FedSoc to stay up to date with announcements and upcoming webinars. Thank you once more for tuning in, and we are adjourned.