In my recently published book, The Supreme Court, Federal Taxation and the Constitution, I review several constitutional issues that could impact the coming consideration of broad scale tax reform in Congress. It is likely that Congress will be more attentive to possible constitutional issues than it was when it enacted the health care tax provisions in 2010. The failure to clearly label that tax as a tax fueled multiple lawsuits against the tax that ultimately had to be decided by the Supreme Court in a surprising split decision in which Chief Justice Roberts wound up siding with the supporters of the tax.

This time it should be obvious that tax provisions that are enacted but are disliked by some group can be subject to attack on even the remotest ground. The potentially applicable constitutional provisions include:

  • The Origination Clause: Bills to raise revenue must originate in the House of Representatives. This would apply to even a tax reform bill that is designed not to raise net revenue but to eliminate loopholes and reduce rates and maybe even reduce some taxpayers’ net taxes. The House needs to be very careful how it uses its key to the door of tax legislation. Once the House passes a taxing bill, the Senate can gut it and totally replace the contents of the bill and pass it, leaving to a conference the ultimate acceptance of the bill by the House. However, by passing its bill first, the House will have opened the way for the Senate bill.
  • Direct Taxes: The objection that a tax is a direct tax on property and so must be apportioned among the states based on population is the most basic constitutional objection that can be made to a federal tax. It is the objection that killed the income tax in 1895, and necessitated the adoption of the 16th Amendment. However, Chief Justice Roberts’ opinion in the health care tax case gave short shrift to the direct tax objection and it is not likely to be a real problem. If Congress makes any fundamental change in taxation, it is more likely to be away from a tax that looks anything like a tax on property and toward sales and excise taxes—at the extreme, a value added tax.
  • First Amendment: Deductions may come under attack in tax reform and one large deduction is the charitable deduction. Charities already stand to lose their ability to receive deductible contributions if they are involved in political campaigns. This is an extremely sensitive issue and it is likely that not only will the charitable tax benefits be retained but charities may sue to obtain greater rights to both campaign and receive deductible contributions.
  • Treaties: The power of the Senate to confirm treaties, including tax treaties, relates to the possibility of international tax reform. This could be one of the most important aspects of any major tax changes.