Boston Tea Party

Taxing and Spending - Outline

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I.     Lonang basis of taxation.

    A.     The Law of Service Debt (Romans 13:6-7) - Lonang justification for taxation.
      1.     Taxing power: Civil gov't. performs services which are necessary to society and unique, but which produce no direct revenue. Such services confer a public benefit for which the people are indebted to pay the costs via taxes. See, McCulloch v. Maryland.
      2.     Spending power: Tax revenues may be spent only for legitimate civil purposes, that is, to punish wrongdoers and to secure our rights.
    B.     The Law of Exaction.
      1.     The payment of a true tax is not voluntary (a contribution), but compulsory (an exaction).
      2.     Only the civil ruler can bear "the sword" to compel payment of debts.
      3.     Non-civil gov'ts cannot "tax" anybody. - Church tithe is not a tax.
      4.     Lotteries - not a true tax: not an exaction.
    C.     The Law of Jurisdiction. The individual, family and church are institutions whose jurisdictions are co-equal to, but not shared with or under, civil gov't. These institutions serve different (and mutually exclusive) objects, or purposes.
      1.     The civil sphere of purposes. Rom. 13:1-4 - punish, not prevent, wrongdoing; commend or secure, not perform good conduct.
      2.     Taxing power: A tax cannot lawfully be imposed on any incident which infringes the jurisdiction of the individual, family, or church, e.g., a property tax.
      3.     Spending power: Tax revenues cannot be spent to accomplish purposes entrusted to the individual, family or church, e.g., religion or education.
    D.     The Law of Love. Some transactions are governed exclusively by love as part of God's reserved jurisdiction, such as gifts.
      1.     Lonang basis.
        a.     Acts of love cannot be humanly enforced. See, Romans 13:8.
          1)     Love originates from the heart, which is part of God's jurisdiction. [1Tim. 1:5.] [1Pet. 1:22.]
          2)     A chief duty of the law of love is to love your neighbor as yourself. [Lev. 19:18.] [Lu. 10:27.]
          3)     The duty to love one's neighbor is owed directly to God, and only indirectly to the recipient. That is, love must come from the heart of a person freely; love cannot be either claimed as a right or earned (merited) by the recipient. In other words, love is a matter of grace, not works. [Eph. 2:8-9.]
        b.     Any act of charity, such as a gift (charity is another word for love) is among the actions governed exclusively by the law of love.
          1)     People are to meet their neighbor's need from heartfelt compassion, not a sense of civilly enforced justice. See, the parable of the Good Samaritan. [Lu. 10:36-37.]
          2)     Any gift or act of love ("grace") must be voluntary and undeserved (not a matter of "works"), or it is not love at all. [Rom. 11:6.]
          3)     Charity which is either claimed as a matter of right or merited is not given freely out of a sincere motivation of the heart. Therefore, love cannot be compelled, nor can the failure to love be punished by men. Such matters are governed exclusively by the law of love, over which civil rulers have no jurisdiction.
        c.     Love v. Commerce. Deut. 23:19-20; 15:2-3.
          1)     "Commerce" is any mutual exchange for value.
          2)     Civil sphere limited to commerce
            - cannot compel charitable acts or transactions.
            - cannot perform charitable acts or transactions.
            - cannot tax charitable acts or transactions.
      2.     Taxing power: No transaction which is governed exclusively by love can be taxed, such as gifts, estates and inheritances.
        a.     Gift Tax.
          1)     Non-commercial transaction by definition.
          2)     Inseparable part of property ownership.
        b.     Estate/Inheritance taxes: Same.
      3.     Spending power: Neither can civil gov't. compel people to be charitable, nor determine who deserves to receive charity. Tax revenues cannot be spent for charitable purposes, e.g., welfare, food stamps.
      4.     Implications
        a.     Welfare & other "entitlements."
          - forced charity, not voluntary (on the part of taxpayers).
          - based on merit and qualifications, not grace.
        b.     Redistribution of wealth.
          - no valid civil service purpose.
          - usurps family dominion over property.
II.     Historic Principles of Taxation.
    A.     The Law of No Taxation Without Representation.
      1.     Traced to Magna Carta (¶12): government by consent.
        12. No scutage or aid shall be imposed in our kingdom except by the common council of our kingdom.
      2.     Taxes cannot lawfully be imposed except by the consent of the people through their representatives.
      3.     Thus, all federal revenue bills must originate in the House of Representatives. Art I, Sec 7, Cl.
        - This has not changed, in spite of the 17th amend.
    B.     The Law of Direct & Indirect Taxation.
      1.     "Direct" Taxes. Art I, Sec 9, Cl. 4.
        a.     Direct taxes consist solely of capitation (head) taxes and property taxes.
        b.     A tax on status, or being.
        c.     Direct taxes must be apportioned among the states according to their representation in Congress.
        d.     Apportionment: diversity in assessment.
      2.     "Indirect" Taxes. Art I, Sec 8, Cl. 1.
        a.     Indirect taxes are all federal taxes that are not direct, i.e., duties, imposts, and excises.
        b.     A tax on action, or doing.
        c.     An indirect tax must be assessed uniformly among the people of the states. Uniformity is geographic, not intrinsic, equality.
      3.     Both direct and indirect taxes are designed to secure taxation according to representation.
        a.     Direct taxes are proportionate to representation.
        b.     Indirect taxes must be uniform.
    C.     The Law of Federalism.
      1.     Federal & state taxing powers are concurrent, not "shared".
        - Gibbons v. Ogden.
        - State and federal taxes may use the same means of taxation or tax the same incidents, but must serve different (and mutually exclusive) objects, or purposes.
      2.     Federal and state powers defined by object analysis.
      3.     McCulloch.
    D.     The Law of Enumerated Powers.
      1.     Federal government is the creature/agent of the people: Hamilton, Federalist #78:
        There is no position which depends on clearer principles than that every act of a delegated authority, contrary to the tenor of the commission under which it is exercised, is void.
        - Parallel with lonang law of delegated authority.
      2.     McCulloch: unalienable rights may not be taxed.
        - The "incidence" of any tax may not infringe matters reserved by the people.
        - does the Congress have jurisdiction (object/purpose analysis) over the matter?
      3.     Property Tax implications.
        a.     Ownership is non-transaction, non-commercial
        b.     Violation of dominion authority.
        c.     Civil ruler is servant, not master, for people.
      4.     McCulloch: lawfulness of taxation is not a matter of degree.
    E.     The Law of Spending Authority.
      1.     The Purpose of Taxation is to Raise Revenue - Art. I, § 8, cl. 1.
        - not to penalize, nor to regulate. "Penalty" => regulation.
        - the purpose of taxing must be to spend.
      2.     Child Labor Tax Case (1922).
        a.     Upholds Marshall legacy.
          - textual test
          - purpose analysis
          - pretext rule applied.
        b.     "Tax" is really a penalty.
      3.     U.S. v. Butler (1936).
        A tax case, not a commerce clause case. Tax v. Penalty again.
        Follows Child Labor - the purpose of taxing is to spend.
        The spending power has limits, such as federalism.
    F.     The Law of General Welfare. Spending must be for a legitimate federal purpose, that is, to "provide" (spend) for the general welfare, not to "promote" (regulate) the general welfare.
      - "Provide" for the general welfare. PROVIDE => SPEND.
      - Parallel with law of service debt. PROMOTE => REGULATE.
III.     Taxing & Spending - Modern View
    A.     Congress has the power to tax, and most taxes will be upheld if they bear some reasonable relationship to revenue production or if Congress has the power to regulate the activity taxed.
      1.     Sonzinsky (1937). S.Ct. upholds federal firearms tax.
        a.     Another tax v. penalty case.
        b.     Object analysis discarded as to "taxing."
        c.     The new test: "produces some revenue."
          - effect is to divorce taxing from spending.
      2.     Kahriger (1953). Follows Sonzinsky.
        -But, Frankfurter remembers purpose analysis.
      3.     Scholey v. Rew (1875). Federal estate tax upheld.
        a.     Court focused on direct v. indirect tax issue.
          - Estate tax deemed "indirect."
        b.     "Estate tax indistinguishable from income tax."
          - What about commercial v. noncommercial distinction?
          -Parallel with law of love.
      4.     Eisner (1921).
        a.     Property succession is the creature of civil society - Holmes.
        b.     Ignores federalism constraints.
      5.     Bromley v. McCaughn (1929). Court upholds federal gift tax.
        a.     Majority:
          1)     A gift is a transaction => gift tax is an indirect tax.
          2)     Likens gift tax to estate tax (both are indirect)
            - But, neither estate nor gift tax are commercial transactions.
        b.     Dissent:
          1)     Likens gift tax with property tax (both are a direct tax).
          2)     But, both are invalid for the same reason - taxation of inalienable right.
    B.     Spending Power. Congress may spend "to provide for the common defense and general welfare." Spending may be for any public purpose.
      1.     Steward Machine Co.
        a.     Majority opinion:
          1)   Tax incidence on unalienable rights is OK.
            - subject, not object, analysis.
          2)     Use of revenues for any purpose is OK.
            - "promotion" of the general welfare.
          3)     Takes position exactly opposite of Child Labor.
        b.     Dissenting opinion:
          1)     Majority violates General Welfare Clause - limited purposes for taxation. "Eleemosynary objects." Tracks with "law of love."
          2)     Dissent quotes from Franklin Pierce (1854).
        c.     Implications - Federal police power exists.
          1)     Abandonment of object analysis erodes federalism.
          2)     Congress has assumed state purposes in spending.
      2.     Helvering v. Davis (1937).
        a.     Follows Steward Machine Co.
        b.     Congress can deal with any problem national in scope.
        c.     Money can be spent to merely "promote" the general welfare.

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