America’s Heritage: Constitutional Liberty
by Herbert W. Titus and Gerald R. Thompson
TAXING & SPENDING OVERVIEW
- Protection Against Tyranny in Taxation
No Taxation Without Representation
Limitations on the Power to Consent
Legitimate Purposes of Taxation
Legitimate Purposes of Spending
Abuses of the Power to Tax
Let every person be in subjection to the governing authorities. For there is no authority except from God, and those which exist are established by God. Therefore he who resists authority has opposed the ordinance of God; and they who have opposed will receive condemnation upon themselves. For rulers are not a cause of fear for good behavior, but for evil. Do you want to have no fear of authority? Do what is good, and you will have praise from the same; for it is a minister of God to you for good. But if you do what is evil, be afraid; for it does not bear the sword for nothing; for it is a minister of God, an avenger who brings wrath upon the one who practices evil. Wherefore it is necessary to be in subjection, not only because of wrath, but also for conscience’ sake. For because of this you also pay taxes, for rulers are servants of God, devoting themselves to this very thing. Render to all what is due them: tax to whom tax is due; custom to whom custom; fear to whom fear; honor to whom honor. (Romans 13:1-7)
An essential attribute of every civil government is the power to tax, for without taxation, civil government could not exist. Yet, so great a power is taxation, that its abuse has long been regarded as tyranny. The founders of our nation safeguarded against tyranny by taxation by requiring all taxation to be subject to the consent of the governed. The founders recognized that the power to tax is inherent in no man, but must be delegated by the people. Thus, taxation in the United States is limited by the terms and purposes of the delegations of power. This chapter will examine the principle of taxation by consent, and the limited purposes for which taxes may be imposed, in order to chart a path for liberty in the midst of civil taxation.
Romans 13:4 twice refers to the civil ruler as a “minister of God,” linking this with the duty to pay taxes in verse 6. Thus, the Bible declares that taxation is defined and limited by the purposes of civil government to do the will of God. It should be no surprise that the power to tax, being exclusively the attribute of civil government, is ordained by God, but instituted among men. This may be expressed in four propositions. First, the nature of taxation is defined by God. Second, every civil ruler is a minister and servant of God to do His will. Third, the power to tax is limited by the terms of grants from the people. Fourth, the authority of the people to grant taxing authority is itself limited by the law of nature.
The biblical framework of taxation by consent is based upon the law of delegated authority. Authority is not self-originating, or inherent, in any man. All human authority is derived from God as His image-bearer, pursuant to grants contained in God’s covenants with man. For example, the authority to bear children is not inherent, but results from God’s covenant with Adam and his descendants. The authority to eat meat is not inherent, but results from God’s covenant with Noah and his descendants. In every case, no man can lawfully do anything except as God has specifically authorized him to act. God’s grant of authority to man is always a manifestation of His grace, to accomplish some divine purpose.
The authority given to one man to rule over another is no exception. Taxation is a clear example of the exertion of the rule of one man over another. Consequently, the biblical pattern for taxation is that the civil ruler cannot lawfully do anything except as the people have specifically authorized it to act. The grant of authority by the people to their rulers is a manifestation of consent, not obligation, to accomplish specific civil purposes.
The constitutional law of enumerated powers embodies the biblical law of delegated authority. The law of enumerated powers holds that the national government has only those powers which are expressly delegated to it by the people pursuant to the terms of the U.S. Constitution. The national government has no implied powers, and no authority apart from express grants contained in the Constitution. According to Chief Justice Marshall, in McCulloch v. Maryland, “This government is acknowledged by all to be one of enumerated powers. The principle, that it can exercise only the powers granted to it, would seem too apparent . . ..” Thus, taxation under the U.S. Constitution arises only by the consent of the people.
The framers of the U.S. Constitution took great pains to guarantee taxation by consent in the structuring of the national government. They did so because they studied historical abuses of taxing power, having suffered the heavy taxation of American colonies by England. The law which guaranteed taxation by consent was popularly known as “no taxation without representation.” This phrase was not just a convenient slogan to get people to follow a bunch of revolutionaries. It was a principle of great importance, and was one of several fundamental laws King George III was accused of violating in the Declaration of Independence.
This principle has a long constitutional history, the roots of which trace back to the “Rights of Englishmen” in the Magna Carta of 1215, the Confirmatio Cartarum of 1297, and the English Bill of Rights of 1689. John Adams maintained that the principle of no taxation without representation was a foundational right in any government properly constituted and maintained. In other words, Adams affirmed that taxation by consent is rooted in the law of nature. The Declaration of Independence claimed it was a violation of the laws of nature and of nature’s God “for imposing Taxes on us without our Consent.” This law was also embodied in many of the other important documents of the American revolutionary period.
For example, the Resolutions of the Stamp Act Congress of 1765 declared that “it is inseparably essential to the freedom of a people . . . that no taxes should be imposed on them, but with their own consent.” The Declaration and Resolves of the First Continental Congress of 1774 stated that “the foundation . . . of all free government, is a right in the people to participate in the legislative council . . . in all cases of taxation.” And, all taxation is subject to the prescription in the Declaration of Independence, that “governments are instituted among men, deriving their just powers from the consent of the governed.”
The consent of the people to taxation by the United States government is secured by several constitutional provisions relating to “no taxation without representation.” Article I, Section 7, Clause 1 provides that “All bills for raising revenue shall originate in the House of Representatives.” Apart from knowing the history of America, it would be difficult to understand why a revenue bill must originate in the House of Representatives.
Under the U.S. Constitution prior to the adoption of the 17th Amendment in 1913, there was only one ruling body directly elected by the people, the House of Representatives. The U.S. Senate, at that time, was elected by the state legislatures of each of the states in the Union. Thus, Senators were not directly responsible to the people. Since legislative power did not reside with the President, the only place where the principle of no taxation without representation could be insured is if revenue bills were required to originate in the House. Thus, this provision guarantees that it will always be the people, through their elected representatives, whose consent must precede the imposition of any federal tax.
The law of no taxation without representation secures the consent of the people with respect to two basic kinds of taxation under the U.S. Constitution. According to the Supreme Court in Pollock v. The Farmer’s Loan & Trust Co.,
In the matter of taxation, the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely: The rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts, and excises.
The term “indirect taxes” is not used in the Constitution. It is merely a label for all duties, imposts and excises taken as a group, and is commonly understood as referring to any tax which is not “direct”. Article I, Section 8, Clause 1 of the Constitution provides that “all duties, imposts and excises shall be uniform throughout the United States.” A uniform tax is not “intrinsically equal,” that is, a tax which is uniform as to rate or amount. Rather, a uniform tax is one which applies equally in each state, so that its uniformity is geographic.
The relation of this provision to the law of no taxation without representation is that the people of the United States must be regarded as an indivisible whole. If the representatives and Senators of certain states could join together and pass revenue measures levied against the people in only certain other states, it would have the effect of imposing a tax on some of the people without their consent. The representative nature of Congress would become a mockery if it could raise revenue from other than the whole people. Thus, the whole purpose of requiring indirect taxes to be uniform is to secure the law of no taxation without representation.
The constitutional provisions relating to direct taxes accomplish the same result, but by a different mechanism. Direct taxes need not be uniform, but only apportioned. A direct tax presumes that Congress fixes the amount of revenue it wants to raise, and then levies the people of each state with their proportionate share of the total amount. A direct tax may be collected either by assessments made by federal officials, or by the states on behalf of their own constituents, which the states can then assess and collect in any way they choose.
Article I, Section 9, Clause 4 of the Constitution provides that “No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration before directed to be taken.” Although utilizing a different mechanism than a uniform tax, this provision also guarantees that the burden of federal taxation will be based upon the representation of the people in the several states. The method of revenue collection may vary from state to state, but each state’s overall share is indexed according to the representation of its people in the House of Representatives. Thus, the imposition of any direct tax is in essence “taxation proportionate to representation.”
In addition to securing taxation by consent, the preceding principles of law also prohibit any civil ruler from becoming a tyrant, through taxation or otherwise. A tyrant acknowledges no limits to his authority, and rules in derogation of the limited grants of authority from God and man. The nature of every tyranny is that it usurps the jurisdiction of other institutions of government. Tyranny through taxation inevitably violates the non-civil jurisdictions of the individual, the family and the church. More about these other institutions of government will be said later, but the root of many evils is the taxation by civil rulers of matters within the exclusive jurisdiction of other governments.
A corollary of the law of enumerated powers is that there must be rights of the people which have not been numbered among the powers of the federal government, or indeed, among the powers of any civil government. This principle of law is recognized in the Ninth Amendment to the U.S. Constitution: “The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.” These rights include the inalienable rights of the people, which by definition cannot be delegated. Inalienable rights are those which pertain to the people in the exercise of individual, family or church government. The people cannot be legally regarded as having consented to be taxed in ways which undermine or infringe their inalienable rights.
Accordingly, even the authority of the people to consent to taxation is limited, for no man has authority to consent to being ruled by a tyrant. A constitution is a civil covenant pursuant to the authority of the people to reflect God’s image in covenant-making. This authority comes from God, and cannot be used to erect a false sovereign, such as a civil tyrant. The people of any nation have not been delegated the authority to usurp God’s law by delegating duties to the civil ruler which God requires someone else to perform. Constitutional delegations of taxing authority cannot exceed the authority of the people to covenant as determined by a biblical law framework. Therefore, consensual tyranny through taxation indicates that the people have abdicated their lawful duties owed to God.
James Madison, in his Memorial and Remonstrance Against Religious Assessments, had this to say:
The preservation of a free government requires . . . [that it not] be suffered to overleap the great Barrier which defends the rights of the people. The Rulers who are guilty of such an encroachment, exceed the commission from which they derive their authority, and are Tyrants. The People who submit to it are governed by laws made neither by themselves, nor by an authority derived from them, and are slaves.
The clauses of the U.S. Constitution pertaining to taxation therefore necessarily circumscribe the federal taxing authority. The limitations on taxation must be determined according to an object, or purpose, analysis, as with other provisions of the Constitution. The purposes of federal taxation which are constitutionally permissible must be determined from the express consent of the people. As Chief Justice Marshall said in Gibbons v. Ogden, “We know of no rule for construing the extent of such powers, other than is given by language of the instrument which confers them, taken in connection with the purposes for which they were conferred.”
Hence, the authority of any civil government is defined in terms of the purposes, or objects, entrusted to it. The objects which are reserved to non-civil governments are immune from civil jurisdiction generally, and immune from taxation specifically. Under no circumstances is the extent of civil jurisdiction determined by the status of the persons sought to be taxed. There are no persons (including corporate bodies) who are completely immune from taxation. Personal immunity is based upon a subject, not object, approach to law, contrary to biblical and constitutional principles. Every person is subject to more than one government. This will be discussed in more detail in later chapters.
Though civil government is limited in its powers, it is supreme within its sphere of action. That is, civil supremacy is limited to the purposes for which civil powers are granted. Thus, federal power is “plenary” as to the purposes entrusted to the federal government, but not every purpose has been entrusted to it. Federal taxing power is plenary as to the purposes specified for taxation in the Constitution, but Congress does not have unlimited taxing power. The taxation of persons and property for anything other than an enumerated constitutional purpose is unconstitutional. Chief Justice Marshall stated, in McCulloch v. Maryland, that the power of taxation extends only to matters which are not inalienable:
[T]he power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the government may choose to carry it. . . . All subjects over which the sovereign power of a State extends, are objects of taxation; but those over which it does not extend are, upon the soundest principles, exempt from taxation. This proposition may almost be pronounced self-evident. The sovereignty of a State extends to everything which exists by its own authority or is introduced by its permission.
But, what are the purposes of civil government which require the imposition of taxes? 1 Peter 2:14 describes the purpose of civil government as “the punishment of evildoers and the praise of those who do right.” Similarly, Romans 13:3-4 describes the purpose of civil government as praising good behavior and bringing “wrath upon the one who practices evil.” Romans 13 goes on to say that “because of this you also pay taxes.” In other words, the law of the nature of taxation is that taxes enable the civil ruler to perform its duty as a minister of God for the benefit of men.
This principle may be referred to as the law of service debt, which can be explained as follows: In God’s plan for man’s government, certain purposes are entrusted to the civil ruler, which no other institution of government may lawfully fulfill. The civil ruler fulfills these purposes by performing services of a unique nature, such as police protection and national defense. These services confer a benefit on the people, but do not produce revenue (civil services are not an aspect of family dominion). Thus, civil services must be compensated by the people in order for civil government to exist. “The laborer is worthy of his wages.”
Taxation does not presuppose that a civil government may control all the material resources of the nation, nor that all wealth is created or owned by the civil ruler. The exclusive legal justification for taxation is based on the rendering of a service which must be compensated. God is the ultimate Creator of all wealth, and He has placed its use, control, and ownership in the hands of the family, not the civil ruler. The civil ruler has no first claim to the wealth of the family, or of the nation.
Nonetheless, a peculiar attribute of all taxation is that its payment may be compelled by forcible means. The payment of a tax is an exaction, not a gift. Once a civil government has been constituted, it is obligated to render civil services, triggering application of the law of service debt. Since the civil ruler has no authority to be charitable, the benefit it confers is in the nature of a debt, not a gift. The citizenry does not choose to pay for these services: it must pay, or else suffer the wrath of the civil ruler as an avenger of God. Thus, the power to tax is uniquely a civil power, for only the civil ruler has been delegated the authority to bear the sword against evildoers.
Because of the compulsory nature of taxation, care must be taken to ensure that taxes do not infringe the jurisdictional spheres of non-civil governments. Providentially, the law of service debt places inherent limitations on the authority to tax. Since taxation supports the activities of civil government to be a minister of God, taxes cannot lawfully be imposed to support “services” beyond the scope of civil “ministry.” That is, all lawful taxes must relate to a service which the civil ruler is authorized to confer.
On the one hand, the “incidence” of any tax is limited to civil rights, not inalienable rights. Activities which fulfill an exclusively non-civil purpose cannot be taxed, whether performed by a person in the exercise of individual, family or church government. In addition, a valid tax levy must raise revenue solely for the purpose of paying for civil services rendered. If the purpose of any tax is otherwise, such as to redistribute wealth, or regulate activities outside of the scope of civil authority, the tax violates the law of service debt.
On the other hand, the expenditure of tax moneys must necessarily be limited to valid civil services actually rendered. It is quite possible to levy a tax on a permissible tax “incidence,” and yet spend the money raised improperly. Obviously, a civil ruler cannot compel the people to support unlawful activities. A careful reading of Romans 13 evidences no civil authority to do good, for example. Civil rulers may praise the doing of good by others, but they have no mandate to do what people in the exercise of non-civil authority neglect to do. If the purpose of any tax is to fund civilly conferred religious or charitable services, for example, the tax violates the law of service debt.
The law of service debt is mirrored, constitutionally, by the law of spending authority based on Article I, Section 8, Clause 1 of the U.S. Constitution:
The Congress shall have the power to lay and collect taxes . . . to pay the debts and provide for the common defence and general welfare of the United States.
The law of spending authority is two-pronged. First, Congress is authorized to raise revenues solely for the purpose of spending. If the purpose of any tax is not primarily to fund federal services, but is designed to penalize or regulate activities which the Constitution leaves to be regulated by another government, the tax violates the law of spending authority. The test is not whether any tax incidentally affects the conduct of activities outside of the regulatory authority of Congress, but whether the purpose of the levy is within the objects entrusted to Congress. As the Supreme Court announced in Bailey v. Drexel Furniture Co.:
“It is the high duty and function of this court . . . to decline to recognize or enforce seeming laws of Congress, dealing with subjects not intrusted to Congress, but left or committed by the supreme law of the land to the control of the states. . . . The difference between a tax and a penalty is sometimes difficult to define, and yet the consequences of the distinction . . . often are important. Where the sovereign enacting the law has power to impose both tax and penalty, the difference . . . may be immaterial; but not so when one sovereign can impose a tax only, and the power of regulation rests in another.”
Thus, a federal plan to regulate matters reserved to the states is merely a means to an unconstitutional end. Justice Frankfurter, dissenting in U.S. v. Kahriger, noted that “the Court cannot shut its eyes to what is obviously, because designedly, an attempt to control conduct which the Constitution left to the responsibility of the States, merely because Congress wrapped the legislation in the verbal cellophane of a revenue measure.”
The second part of the law of spending authority is that tax revenues can be expended only to pay for services which the federal government may lawfully render. Much of the discussion of this proposition has historically centered around the meaning of the phrase “provide for the . . . general welfare” contained in Article I, Section 8, Clause 1. The issue was debated early on by James Madison and Alexander Hamilton. Madison believed federal spending was limited to the subjects enumerated in the Constitution, whereas Hamilton regarded as appropriate any spending for a federal purpose, which purpose may include subjects not contemplated by the framers. But neither view contemplated that Congress would ever exceed the purposes entrusted to it under the Constitution.
Yet, that is exactly what has happened since the New Deal. The modern view has been stated by Justice Cardozo in Charles C. Steward Machine Co. v. Davis: “It is too late today for the argument to be heard with tolerance that in a crisis so extreme the use of the moneys of the nation to relieve the unemployed and their dependents is a use of any purpose narrower than the promotion of the general welfare.” With this language, the Supreme Court permitted Congress to spend money for anything it desired, unbounded by the purposes entrusted to it. The “General Welfare Clause” had become an unlimited grant of federal power in a Constitution of limited, enumerated powers.
However, the modern view is clearly erroneous, for the phrase “promote the general welfare” appears only in the preamble to the Constitution, which grants no powers. The actual grant of Congressional authority is limited to providing for the general welfare, and the difference between “provide” and “promote” is all important. All things which provide also promote, but the reverse is not true. “Promote” is a much broader concept than “provide.” Congress cannot appropriate funds for every purpose which meets a demonstrated need, for Congress is restricted to those purposes which have been delegated to it, no matter what the need. Only one year before Justice Cardozo wrote the opinion in Steward Machine Co., the Supreme Court noted in U.S. v. Butler, that
It does not help to declare that local conditions throughout the nation have created a situation of national concern; for this is but to say that whenever there is a widespread similarity of local conditions, Congress may ignore constitutional limitations upon its own powers and usurp those reserved to the states. If, in lieu of compulsory regulation of subjects within the states’ reserved jurisdiction, which is prohibited, the Congress could invoke the taxing and spending power as a means to accomplish the same end, clause 1 of Sec. 8 of Article I would become the instrument for total subversion of the governmental powers reserved to the individual states.
In fact, a dissenting opinion in Steward Machine Co. quoted extensively from a veto message delivered by President Franklin Pierce in 1854 discussing this issue. The majority in Steward Machine Co. did not refute the dissent, but merely ignored it. President Pierce wrote, in part:
I take the received and just construction of that article, as if written to lay and collect taxes, duties, imposts, and excises in order to pay the debts and in order to provide for the common defense and general welfare. It is not a substantive general power to provide for the welfare of the United States, but is a limitation on the grant of power to raise money by taxes, duties and imposts. If it were otherwise, all the rest of the Constitution, consisting of carefully enumerated and cautiously guarded grants of specific powers, would have been useless, if not delusive.
While the phrases “no taxation without representation” and “government by consent” are repeated even today, they are sounded with a hollow ring, as Congress and state legislatures have passed a variety of laws contrary to these great principles. For example, America once believed that private property was the gift of God, and that no legislature could pass a law taking property from one person by force and giving it to another. Yet, the purpose and effect of graduated income taxes, inheritance and estate taxes, social welfare spending programs and farm price supports are nothing less than a forced redistribution of wealth.
To such a purpose the people of the United States have never consented. Indeed, for them to consent would require a rejection of the principle of the Declaration of Independence, that the pursuit of happiness (including private property ownership) is an unalienable right. It would also require denying the legal context of our nation, the laws of nature and of nature’s God, which is the foundation for all property ownership. Hence, the people could not ever have consented to a forced redistribution of wealth, even if they had wanted to.
Further, the law of no taxation without representation was not designed to protect one generation, but was designed (as the Preamble of the Constitution says) to protect our posterity. This prompted Thomas Jefferson to be concerned about the threat to that principle of no taxation without representation by borrowing and putting the government in debt. After all, if it were long term debt, those who would have to pay taxes to discharge that debt would not have been represented in the House that made the decision to borrow. Indeed, Jefferson repeatedly asked for a constitutional amendment which would prohibit the federal government from borrowing any money at all. He recognized that even though bills might originate within the House of Representatives, if there was runaway borrowing and long term debt, the principle of no taxation without representation would be illusory.
Such a provision was probably not put into the Constitution because the framers believed the constitutionally required monetary system, one based upon a gold standard, would put a natural limit upon the ability of the government to borrow. The Constitution was not designed for a fiat paper money system which opens the door to long term debt. Thus, Article I, Section 7 must be read together with Article I, Section 8, Clause 5 which requires Congress to base its monetary policy on the gold standard. Reading these two provisions together gives a better understanding to both.
In sum, the people need to return to the fundamental principles upon which taxation in America is based, in order to restore law and liberty. This must be done not only in word, but in deed. Our nation ought not be content to merely give the appearance of following the Declaration of Independence while contradicting it in practice. The consent of the governed, rightly understood, is not only the standard by which tax laws are to be measured, but is also the basis for the people to call their representatives into account. Ultimately, as the Declaration says,
whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or abolish it, and to institute new Government, laying its Foundation on such Principles, and organizing its Powers in such Form, as to them shall seem most likely to effect their Safety and Happiness.
* Copyright © 1987, 2006 Herbert W. Titus and Gerald R. Thompson. Used with permission.