How do you handle Article 1 section 9 (which is why the 16th amendment was required)?
“No capitation, or other direct tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.”
Is that crickets I hear?
Capitation refers to person or individual. For those reading, this Art. 1 Section 9 provision refers to the DIRECT TAX whereas Section 8, Clause 1 refers to the INDIRECT TAX.
The United States was funded primarily by INDIRECT taxes and the DIRECT taxes were used for large public work projects such as the Erie Canal and for War.
The INDIRECT taxes were levied on businesses or intermediaries that were expected to increase their prices by the tax and pass on the tax to their customers, much the same as a sales tax. Hence, the taxes were ‘indirect’ meaning not to the end point but rather to someone or something inbetween the tax source person and the government.
The National RETAIL Sales Tax (NRST) of the FAIRTAX Code is an INDIRECT tax and never business to business (B2B) but only to the end point, the consumer, the retail customer. A VAT is an indirect tax because it taps into business and is B2B. A VAT inflates the cost/price of goods and services where it is applied and so is hidden to the end point consumer as it is ‘embedded’. Payroll taxes and Corporate or business taxes are direct taxes in the sense that the employee or business pays directly to the government but they also inflate the ultimate cost/price of goods and services and hence they are also ‘embedded’ and hidden.
Note that the difference between a VAT and a Corporate/Business Income tax is that the VAT is indirect whereas the Corporate/Business tax is direct. A VAT is collected by a business from a customer be it a business or consumer on behalf of the government. For example, a plumbing supply store can charge its trade contractors a VAT and send the VAT to the government, hence it is indirect (Contractor—>Supplier—>Government). For example again, as to the Corporate/Business Income tax, one never sees on a receipt from any business “Business Tax” charged to its customers, so it is direct to the government(Corporate/Business—>Government).
The Founders concern about taxation in the United States was focused on FAIRNESS. The word FAIRNESS has lost its meaning today. It was at one time a simple concept implemented by making taxes UNIFORM. Today’s taxes are anything but.
The DIRECT taxes were made fair by apportioning to the census and allowing collections to go direct to state governments. In the Constitutional sense, there are three direct taxes, a head tax, a tax on personal property, a tax on income from property. There is a large body of case law surrounding these categories of direct taxes, so the clarity of what is and what is not directly taxable is tax lawyers and tax historians.
But the way to handle Section 9 is to tap directly into state tax revenues according to census figures for each state. So if say 140 billion dollars is voted by Congress as a direct tax appropriation, then the 140 billion is going to be divided by 140 million tax filers for an average $1000 head tax and California with 14 million tax filers is going to be responsible for collecting 14 billion dollars of the total appropriation. How California collects that amount is up to them. There is nothing in the US Constitution that bars California from using a direct income tax in whatever manner it chooses, but each state has its own Constitution and is restricted thereby.
Hopefully this gives some ideas to your question of how would the government handle direct taxation under the FairTax, where the apportionment clause is brought back. Direct taxes were never easy from the Founding of the United States even under the Articles of Confederation. The Direct tax provision was really intended for infrequent appropriations such as war or very large interstate projects.
And further, most of the historical problems of direct taxes surrounded what could be considered income as directly taxable with apportionment. Under the FairTax there will be zero federal tax on income so the historical problem becomes less important.
On a last note, it is interesting to ponder why the previous generations of Americans pre-1913 did not consider a FairTax for their time, and the answer is they had no administrative and technological means to do so nor did they have a means to address and mitigate the “disproportionate burden” argument used by Marxists then and by liberals even today. The FAIRTAX addresses and solves these problems in a brilliant and innovative way using technology, and this is a big reason why the FAIRTAX is so compelling today. But that’s for another post.