In a message dated 1/15/03 9:34:26 AM, [EMAIL PROTECTED] writes:
<< Interestingly, when the US Supreme Court knocked down the federal income
tax in 1894 as violating the direct/indirect distinction, they referred to
Physiocratic doctrine.
Fred Foldvary >>
Thank you for the interesting explanation of the earlier direct-indirect
distinction. It's been a while since I read Pollock, but I don't recall
anything like what you're describing. I do recall, however, that the court
mentioned a "pass through" doctrine In which they claimed the a direct tax
was one that a person could not pass through to some ultimate customer and an
indirect tax one they could. Thus, supposedly, a tax on carriage wheels
could be passed through to a person's customers while a tax on land could
not. It's been a couple of years since looked at Pollock, but here's what I
wrote in my prospectus the last time I did:
"According to Chief Justice Fuller, who wrote the majority opinion in Pollock
, the Founding Fathers believed that a business could pass through all of its
taxes to the customer. Fuller dismissed the underlying economic theory of
pass-through as a fallacy of the eighteenth century (one which by 1894 had
been dispelled by neoclassical economics; indeed, even earlier David Riccardo
had demonstrated that where land is a fixed factor of production, a tax on
the value of land cannot be passed through at all). Fuller held nonetheless
that as part of the original intent of the Founding Fathers, pass-through
theory still governed the definition of direct taxes: direct taxes include
all taxes which the Founding Fathers thought could not be passed through;
indirect taxes include only taxes which the Founding Fathers thought could be
passed through. If the Founding Fathers believed that a business could pass
through all taxes the government imposed on it, and if they defined direct
taxes as all taxes which a taxpayer cannot pass through, one might logically
conclude under Fuller's argument that direct taxes would include only
non-business taxes. Using quotations from the Constitutional Convention,
Fuller made a plausible case that the Founding Fathers may indeed have
defined direct taxes to include all those which under pass-through theory the
taxpayer cannot pass through to customers. (Incidentally, I know people on
the political right who still believe in pass-through theory; in political
debates over raising taxes people on the left likewise regularly claim that a
business will merely pass along any tax hike to the customer.)
Given the content of quotations Fuller used as evidence for the
definition of direct taxes, however, he made a more persuasive case that the
Founding Fathers held no common definition for direct taxes; even Founding
Fathers who defined direct taxes with reference to pass-through theory
demonstrated by their specific examples of direct taxes that they did not in
practice define direct taxes to include only those which they thought a
taxpayer cannot pass through."
David Levenstam
