D.C. Circuit Limits Federal Taxing Power
Yesterday, the D.C. Circuit in Murphy v. IRS held a federal tax to exceed Congress' authority under the Constitution. The tax, which applies to damage awards for non-physical injuries, was struck down on the theory that such awards are not "income" within the Sixteenth Amendment's declaration that "Congress shall have power to lay and collect taxes on incomes, from whatever source derived . . . ."
Professor Orin Kerr suggests that this result may be attributable to "a very favorable panel for this sort of claim." The panel included Chief Judge Douglas Ginsberg, who famously coined the term "Constitution in Exile" to describe his theory of narrow federal power, and controversial Bush appointee Janice Rogers Brown, who once advocated a revival of pre-New Deal limits on the federal government.
Kerr, a recent clerk for Supreme Court Justice Anthony Kennedy, predicts that if the government chooses to appeal this case, the Court will agree to hear it, and one commenter on his site suggests that this case "has unanimous reversal written all over it."
Professor Marty Lederman echoes this belief that the D.C. Circuit's reasoning will not withstand scrutiny. According to Lederman, the Sixteenth Amendment was ratified to put an end to a "confusing" distinction between "direct" taxes, which Congress could only enact subject to restrictions, and "indirect" taxes. Given this history, Lederman argues that the D.C. Circuit's opinion is, at the very least, incomplete:
[I]n order to invalidate the tax in the Murphy case, it is not enough to hold that the award is not "income." It would be necessary further to hold that the tax is a "direct" one, prohibited by Article I -- and to explain why it is not otherwise authorized by the Necessary and Proper Clause. The court of appeals did not peform these analyses, and thus its opinion is woefully incomplete.
Lederman concludes his commentary by wondering if the incompleteness he describes will lead to this opinion receiving the "same blogospheric slam-down that greeted Judge Taylor's craftwork in her recent opinion on the NSA surveillance question."