The Administration has indicated that it will pursue fundamental tax reform; leaders on the Hill have also indicated interest in doing so. Therefore, it might happen this time. Given the dispute over the constitutionality of the health insurance tax, potential constitutional issues in tax reform perhaps should be viewed as having slightly more importance than is usually considered for tax legislation.
The parts of the Constitution of the United States that might be relevant to fundamental tax reform include:
The origination clause: Bills for raising revenue shall originate in the House of Representatives. This requirement can be skirted by many congressional techniques, but that has not kept persons who don’t want to pay a particular tax from attacking it on account of an alleged procedural foot-fault.
Duties, imposts and excises: Given the amount of interest in forms of taxation other than the income tax, it is possible that Congress might consider an excise tax or some other non-income tax. The original corporate income tax was an excise tax (may still be). Congress still imposes excise taxes on alcohol and various transactions. A sales tax would be an excise tax. While excise taxes are obviously constitutional, their status under the direct tax clause (discussed below) is less well-examined than is the income tax, which is protected from that clause by the Sixteenth Amendment.
Necessary and proper clause: Sometimes it is overlooked that taxes can be imposed as necessary and proper to another enumerated power, such as Congress’ power over interstate commerce. Such taxes need not conform to the Sixteenth Amendment or be authorized by the taxing clause.
Direct tax clause: The requirement that direct taxes be apportioned to the states by population was welllitigated in the health insurance tax case. As mentioned above, different issues might be in play if non-income taxes were to be imposed.
No tax on exports: Congress mostly has tried not to tax exports because of the general desire to promote them. However, taxes can be found to indirectly fall on exports.
The treaty clause: A substantial change in the methods of taxing foreign income or international transactions could run into conflicting treaty obligations, though the general rule is that a later statute trumps a treaty.
First Amendment: Free speech and freedom of religion issues are always important, but have become even more freely raised in recent years in connection with various tax benefits, such as the charitable deduction, exemptions for churches, taxation of campaign and lobbying expenditures, and the like.
Fourth, Fifth, Sixth and Eighth Amendments: Enforcement of the tax laws, including particularly criminal penalties, are subject to these specific Amendments. While aggressive federal tax enforcement has not seemed to be a priority of Congress in recent years (except for the economic substance doctrine and civil penalties), that might change.
Sixteenth Amendment: If Congress were to consider a VAT or some other type of consumption tax that is computed on a return like an income tax, questions could arise as to whether or not the tax was within the Sixteenth Amendment—and if not, what was its authority (presumably the taxing clause generally). The health insurance tax case presented such an issue, since the tax had a relatively weak relationship to the income tax as normally applied.
There are more federal tax constitutional issues than meet the eye. The Supreme Court has decided about 1,100 such cases over the history of the country. While there have not been many lately, the big one—the health insurance tax decision of 2012—was of critical importance. A constitutional violation can bring a tax down in a way that is otherwise essentially impossible.