Pollock v. Farmers Loan & Trust Co. (1898)


Pollock v. Farmers Loan & Trust Co. (1895)Hot!


In the early 1890’s Congress passed a law that tried to impose a direct income tax on the interest and dividends from stocks and bonds, paid by companies to shareholders, and on interest earned on deposits at U.S. banks. This tax was challenged immediately, and the challenge was settled by the Supreme Court in 1895 in the Pollock v. Farmer’s Loan & Trust Co. decision.

This decision states that it is UNconstitutional for Congress to try to impose a federal tax on the income of the U.S citizens derived from those sources, because that would be a Direct Tax WITHOUT APPORTIONMENT, which Congress is not authorized to enact, and is in fact, specifically prohibited by the Constitution (Article 1 Section 2, Clause 3).

Excerpts from the decision:

"...Ordinarily, all taxes paid primarily by persons who can shift the burden upon someone else, or who are under no legal compulsion to pay them, are considered indirect taxes; but a tax upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided, are direct taxes ..."


“… it is apparent (1) that the distinction between direct and indirect taxation was well understood by the framers of the constitution and those who adopted it; (2) that, under the state system of taxation, all taxes on  real estate or personal property or the rents or income thereof were regarded as direct taxes;” Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 574 (1895)


“... A tax upon one's whole income is a tax upon the annual receipts from his whole property, and as such falls within the same class as a tax upon that property, and is a direct tax, in the meaning of the Constitution....

“We are of opinion that the law in question, so far as it levies a tax on the rents or income of real estate, is in violation of the constitution, and is invalid.” Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 583 (1895)



“...We have unanimously held in this case that, so far as this law operates on the receipts from municipal bonds , it cannot be sustained, because it is a tax on the powers of the States, and on their instrumentalities to borrow money, and consequently repugnant to the Constitution. ...it follows that, if the revenue from municipal bonds cannot be taxed because the source cannot be, the same rule applies to revenue from any other source not subject to the tax; and the lack of power to levy any but an apportioned tax on real and personal property equally exists as to the revenue therefrom. Admitting that this act taxes the income of property irrespective of its source, still we cannot doubt that such a tax is necessarily a direct tax in the meaning of the Constitution. In England, we do not understand that an income tax has ever been regarded as other than a direct tax. In Dowell's History of Taxation and Taxes in England, given, and an income tax is invariably classified as a direct tax. Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 586 (1895)

and, from the supporting opinion of Justice Fields in this case:


I am of opinion that the whole law of 1894 should be declared void, and without any binding force,-that part which relates to the tax on the rents, profits, or income from real estate, that is, so much as constitutes part of the direct tax, because not imposed by the rule of apportionment according to the representation of the states, as prescribed by the constitution; and that part which imposes a tax upon the bonds and securities of the several states, and upon the bonds and securities of their municipal bodies, and upon on the salaries of judges of the courts of the United States, as being beyond the power of congress; and that part which lays duties, imposts, and excises, as void in not providing for the uniformity required by the constitution in such cases”  Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 607 (1895)

But wait, he’s not done yet:

“The income tax law under consideration is marked by discriminating features which affect the whole law. It discriminates between those who receive an income of $4,000 and those who do not. It thus vitiates, in my judgment, by this arbitrary discrimination, the whole legislation. Hamilton says in one of his papers (the Continentalist): 'The genius of liberty reprobates everything arbitrary or discretionary in taxation. It exacts that every man, by a definite and general rule, should know what proportion of his property the state demands; whatever liberty we may boast of in theory, it cannot exist in fact while [arbitrary] assessments continue.'” 1 Hamilton's Works (Ed. 1885) 270.   Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 596 (1895)


            His words ring as truly prophetic, as we are certainly now confronted today with all of the same aspects of the income tax that he confronted      and rejected in his day.  Justice Fields further pursues this issue,


“The legislation, in the discrimination it makes, is class legislation. Whenever a distinction is made in the burdens a law imposes or in the benefits it confers on any citizens by reason of their birth, or wealth, or religion, it is class legislation, and leads inevitably to oppression and abuses, and to general unrest and disturbance in society.  It was hoped and believed that the great amendments to the constitution which followed the late Civil War had rendered such legislation impossible for all future time. But the objectionable legislation reappears in the act under consideration.” Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 596 (1895)


            And, in recognition of the long since forgotten constitutional limitations on the federal power to tax,


“There is no such thing in the theory of our national government as unlimited power of taxation in congress. There are limitations, as he justly observes, of its powers arising out of the essential nature of all free governments; there are reservations of individual rights, without which society could not exist, and which are respected by every government. The right of taxation is subject to these limitations. Citizens' Savings Loan Ass'n v. Topeka, 20 Wall. 655, and Parkersburg v. Brown, 106 U.S. 487, 1 Sup. Ct. 442.”   Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 599 (1895)


“The inherent and fundamental nature and character of a tax is that of a contribution to the support of the government, levied upon the principle of equal and uniform apportionment among the persons taxed, and any other exaction does not come within the legal definition of a 'tax.'Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 599 (1895)


            And finally from Justice Fields


“Here I close my opinion. I could not say less in view of questions of such gravity that go down to the very foundation of the government. If the provisions of the constitution can be set aside by an act of congress, where is the course of usurpation to end? The present assault upon capital is but the beginning. It will be but the stepping-stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich,-a war constantly growing in intensity and bitterness. 'If the court sanctions the power of discriminating taxation, and nullifies the uniformity mandate of the constitution,' as said by one who has been all his life a student of our institutions, 'it will mark the hour when the sure decadence of our present government will commence.' If the purely arbitrary limitation of four thousand dollars in the present law can be sustained, none having less than that amount of income being assessed or taxed for the support of the government, the limitation of future congresses may be fixed at a much larger sum, at five or ten or twenty thousand dollars, parties possessing an income of that amount alone being bound to bear the burdens of government; or the limitation may be designated at such an amount as a board of 'walking delegates' may deem necessary. There is no safety in allowing the limitation to be adjusted except in strict compliance with the mandates of the constitution, which require its taxation, if imposed by direct taxes, to be apportioned among the states according to their representation, and, if imposed by indirect taxes, to be uniform in operation and, so far as practicable, in proportion to their property, equal upon all citizens. Unless the rule of the constitution governs, a majority may fix the limitation at such rate as will not include any of their own number.”  Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 429, 607 (1895 (emphasis added)


and, even in dissent:

“...that personal property, contracts, obligations, and the like, have never been regarded by Congress as proper subjects of direct tax. The United States Constitution provides Congress the power to lay and collect taxes directly only as long as it is apportioned with regard to the census or enumeration."  Pollock v. Farmers Loan & Trust Co., 157 US 429 (1896)
(Entire text of ruling)


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