Does the Takings Clause Limit Congress’s Power to Tax?

September 15, 2008

A reader writes in with the following:

The 5th Amendment [of the U.S. Constitution] requires the government upon taking private property to return to the owner "just compensation." Granted this clause anticipates a taking of real property, it must also apply to other forms as well. Since money is only property in currency (and the government may take one's real property upon non payment of tax) it seems to follow that the taxpayer – his property in money being taken – is entitled to just compensation.

Since just compensation in this sense can only be returned in services and protections and the value of these cannot cannot be discreetly differentiated between one taxpayer and another (and in fact it can be shown that non-taxpayers receive a direct benefit that payers do not) it must follow as a logical necessity that taxpayer A who pays $5000 is not receiving just composition vis-à-vis tax payer B who pays only $1000. This dilemma cannot be solved under an income tax regime thus making the tax unconstitutional under this clause in the Bill of Rights.[…] Has this theory been court tested[….?]

I'll treat this as three questions.

First, does the Takings Clause of the Fifth Amendment require the payment of just compensation when private property is taken for public use? Yes. (There are some instances where private property may be taken without just compensation but are not relevant here, such as zoning restrictions (Village of Euclid v. Ambler Realty Co.) and regulatory takings (Penn Central Transp. Co. v. New York City).)

Second, since money collected for taxes is at some point private property, must just compensation be paid? No. In Brushaber v. Union Pacific R.R. (1916), the Supreme Court unanimously rejected the plaintiff's claim that the cost of complying with the income tax was a taking without just compensation. The Court wrote:

So far as the due process clause of the Fifth Amendment is relied upon, it suffices to say that there is no basis for such reliance, since it is equally well settled that such clause is not a limitation upon the taxing power conferred upon Congress by the Constitution; in other words, that the Constitution does not conflict with itself by conferring, upon the one hand, a taxing power, and taking the same power away, on the other, by the limitations of the due process clause.[…]

240 U.S. 1, 24. In short, no constitutional provision may be read as eliminating Congress's power to tax, because to do so would be contradictory. In Billings v. United States (1914), the Court had said something similar regarding a challenge to a tax on yachts: "It is also settled beyond dispute that the Constitution is not self-destructive. In other words, that the powers which it confers on the one hand it does not immediately take away on the other; that is to say, that the authority to tax which is given in express terms is not limited or restricted by the subsequent provisions of the Constitution or the Amendments thereto, especially by the due process clause of the Fifth Amendment." 232 U.S. 261, 282. In McCray v. United States (1904), an excise tax was challenged as a taking because its motivation was the elimination of the taxed product. The Court responded that it cannot inquire into alleged motives behind taxing schemes: "The judicial department cannot prescribe to the legislative department limitations upon the exercise of its acknowledged powers. The power to tax may be exercised oppressively upon persons; but the responsibility of the legislature is not to the courts, but to the people by whom its members are elected. Whilst undoubtedly both the Fifth and Tenth Amendments qualify, insofar as they are applicable, all the provisions of the Constitution, nothing in those amendments operates to take away the grant of power to tax conferred by the Constitution upon Congress. The contention on this subject rests upon the theory that the purpose and motive of Congress in exercising its undoubted powers may be inquired into by the courts, and the proposition is therefore disposed of by what has been said on that subject." 195 U.S. 27, 60-61.

Third, if the "just compensation" is the benefit of government services, then is an individual who pays more than others being insufficiently compensated? This question is mooted by the answer to question two, since the collection of tax is a power exclusive of the limitation on the taking of private property. Again in Brushaber, the Supreme Court held that even punitive taxation does not rise to "a gross and patent inequality" in violation of the Fifth Amendment. 240 U.S. at 24-25. The Court cites Knowlton v. Moore (1900), where over the dissent of Justice Brewer, it was held that progressive taxation, by itself, does not violate the Fifth Amendment. Congress is permitted to make rational classifications in enacting taxes, so long as the members of each class are treated uniformly, and that the tax is uniform geographically. See, e.g., Magoun v. Ill. Trust & Savings Bank, 170 U.S. 283, 299-301.

In short, while the Takings Clause of the Fifth Amendment is a limit on the taking of private property, Congress's collection of income taxes is not so restrained. Such a conflict would destroy Congress's granted power to tax, and in any event, even punitive and progressive taxation have been upheld since distinguishing them from other taxes would require problematic inquiry into congressional intent. So long as taxes are uniform, they are constitutional.

It may well be inequitable if the level of taxation on someone is so high as to exceed all benefits received and enjoyed in return. But that inequity will not be entertained as a constitutional violation under present law.

It must also be noted that a taxpayer who does not pay federal income tax on the grounds that it violates the Fifth Amendment will likely face fines and criminal penalties, since that argument has been ruled frivolous. See Revenue Ruling 2005-19, 2005-1 C.B. 819.

As we noted here, the Internal Revenue Code is long and complicated, and we at the Tax Foundation work for a tax system that is simple and transparent, and doesn't inhibit our economy with excessive burdens on individuals. But we're not there yet. If someone tries to convince you that there's no obligation to pay income taxes, remember that if it sounds too good to be true, it often isn't true.

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