The Claim of 'All Taxes Were Direct Until Apportionment'

This article is part of the wealth tax series.

The Bernie Sanders’ website links to an American Bar Association article where the authors attempt to convince us that before the U.S. Constitution, all state taxes were considered federal direct taxes. Then, once apportionment became associated with direct taxes in the new Constitution, those taxes that couldn’t be easily apportioned were no longer considered direct. They became indirect.

They want the reader to draw the conclusion a wealth tax, since it isn’t easily apportionable, should be considered an indirect tax just like the evolution of most other taxes that came before it.

Before we discuss their nonsense, let’s first define the actual meaning of direct and indirect taxation. Direct means any tax imposed directly to the taxpayer such as a head tax or a wealth tax. This should have been the definition used from the beginning.

Indirect taxes, on the other hand, were paid within a product’s price. It was considered indirect because the actual payer of the tax didn’t pay it directly to the government, but through a third party such as a merchant. A good example today is the gasoline tax we pay at the pump.

As Jean Baptiste Say wrote in his Treatise on Political Economy (1803): “Indirect taxation; for the demand is not made on any person in particular, but attaches upon the product or article taxed.”

These commonsense definitions may not be acceptable to those who want new sources of government revenue. It doesn’t mean, though, the rest of us must accept their redefinitions without a vigorous push back.

Before Alexander Hamilton became the father of big government, he was a son of liberty. Back in the day, he taught the meaning between indirect and direct. Indirect taxes were on objects of consumption while direct taxes were on storehouses of wealth. In Federalist 21, while still under the Articles of Confederation, Hamilton writes to the State of New York:

If duties (taxes) are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great… This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment (emphasis mine).

Hamilton clearly understood the meaning of the two terms. Consumption taxes on articles were classed as indirect taxes. The natural check on government to not overtax with such taxes was Hamilton’s main point. Those taxes on people’s wealth such as the land or buildings they owned were direct.

He said that direct taxes “principally relate to land and buildings.” Real estate was where the storehouses of wealth were at that time. He wasn’t defining all the possible objects of direct taxation, just principally (for the most part) or practically speaking at that time. Did you see how he mentions the rule of apportionment? This was the check on Congress’s power with regard to direct taxes and not just a mechanism to loot the citizenry.

Hamilton changed his tune, though, in 1795 regarding the Carriage Tax. As the former Secretary of the Treasury, he probably came to covet new sources of revenue. He argued the Hylton v. United States on behalf of the government before the Supreme Court contending the tax was a consumption tax. Congressman James Madison disagreed with Hamilton believing the carriage tax to be direct.

Hamilton’s speech before the Supreme Court included:1

"What is the distinction between direct and indirect taxes? It is a matter of regret that terms so uncertain and vague in so important a point are to be found in the Constitution. We shall seek in vain for any antecedent settled legal meaning to the respective terms—there is none."

Because the Constitution doesn’t define the terms and there wasn’t a legal definition that already existed, Hamilton decides he wants to change what the common understanding was for taxing convenience sake. He couldn’t conceive of letting luxury taxes be left to the States.

The funny thing is, even Alexander Hamilton believed a wealth tax should be a direct tax requiring apportionment. He also said during that same speech:2

The following are presumed to be the only direct taxes.

  1. Capitation or poll taxes.

  2. Taxes on lands and buildings.

  3. General assessments, whether on the whole property of individuals, or on their whole real or personal estate;

all else must of necessity be considered as indirect taxes.

A general assessment is the total value of one’s real and personal property. I wonder why the socialists leave this out of their praise for Hamilton.

Despite those like Hamilton who were looking to redefine the terms to expand taxation, the terms direct and indirect taxes had an understood meaning throughout America, France and Great Britain.

Origin of Direct Taxes (According to the ABA Article)

The ABA article says, “The term direct tax first appeared in America in reference to requisitions—that is, taxes directly on the states—under a pre-Constitution 1783 proposal to reform the Articles of Confederation.”

They are claiming that direct tax was a new term in 1783 made to describe the requisition system during the Confederation. This isn’t true, however.

The term direct tax was used in the Wealth of Nations by Adam Smith published in 1776, seven years earlier than what these writers claim the people of America had used it. Many people of the Founding Era, of course, were very familiar with this work. Do you think they didn’t understand the terminology? Here are the only four different objects of taxes that Smith labels as direct taxes that have nothing to do with a requisition system. Notice how none of them are indirect taxes?

  • He used direct tax when comparing taxing someone’s total money stock (cash) to taxing the value of their land.3

  • He used direct tax when describing taxing labor income.4

  • He used direct tax when describing capitation (head) taxes.5

Two years earlier than Smith’s book, Benjamin Franklin used the term in 1774, nine years before the article says the term even existed.6 After the repeal of the Stamp Act, Britain instituted a new act which levied the colonies’ exporting manufactures. It was another way to institute direct taxation. Franklin writes, “…it was in the power of Britain to burthen them (Colonists) as much as by any direct tax… (Emphasis mine)”

From The Collected Political Writings of James Otis published in the Boston Gazette in 1765 (eighteen years before the ABA article claims direct tax existed),7 “…they (Colonists) complain of direct taxes that really exceed their ability, and which have been imposed not only without their consent and grant, but against their will (emphasis mine).”

I’m sure there’s much more evidence that the term direct tax was used before 1783 in America and that the people of that period knew its meaning. It’s just a matter of access to available research. If you know of any, please forward it.

All Federal Taxes, i.e., Requisitions

The ABA article has this true sentence:

“All federal taxes allowed before the Constitution was adopted were direct taxes because the Congress had only the power to raise revenue by requisitions, that is, taxes directly on the states.”

This is a true statement because the Confederate Congress could only send a tax bill due (requisition) directly to each state. The Congress couldn’t tax people or commerce within each state to raise revenue so they had to rely on the requisition system.

It was then up to the States to tax its citizens to raise revenue to satisfy the requisition. This would mostly be consumption taxes and some capitation taxes.

The question is why did these writers say “all federal taxes” when there was only one, requisitions? Do they want the reader to think many?

The Evolution of the Term (According to ABA Writers)

The ABA article declares that “the term direct tax came to refer to (as)… taxes imposed by the states.”

In other words, they are saying the state consumption taxes became known by society as direct taxes because they satisfied a direct tax (requisition) from the government.

The writers then makes this statement, “A tax that could not reasonably be allocated among the states was not a direct tax, so direct tax and impost were opposites.”

What they are saying is that since imposts couldn’t be attributable to any one state, no state could then use the revenue from imposts to satisfy its requisition. So imposts weren’t direct taxes and everything else used to satisfy requisitions were.

Are you following? Now get this, under the new Constitution, once apportionment became the rule for federal direct taxes, the writers say all those taxes that the States used to previously collect, which couldn’t be reasonably allocated by the new federal government, became indirect just like imposts.

Voilà, just like that, all taxes that couldn’t be reasonably allocated ceased from being classified as direct. So then going forward, easily apportionable became the standard on whether a tax was direct or not. But is this narrative true?

The True Meaning of Direct and Indirect

It is very clear from the historical record that the people of the Founding Era knew exactly the meaning of direct taxes and that which were indirect. No mode of taxation changed from being direct to indirect. Let me inject some more truth into their propaganda!

During the Constitutional Convention, before the Constitution was ratified and while still under the Articles of Confederation, Mr. Gouverneur Morris famously proposed restraining House representation to that of direct taxation. He then says, “With regard to indirect taxes on exports and imports, and on consumption, the rule would be inapplicable (emphasis mine).”8

Mr. Morris and those who favored the apportionment rule weren’t clueless as to what indirect taxes were. They certainly didn’t consider them to be direct as this article falsely maintains. Rather, they called them what they were, indirect taxes.

If the spin from the ABA writers were true, then Morris would have used different language such as: With regard to taxes on exports and imports, and on consumption, those taxes will no longer be considered direct, but indirect and the rule would be inapplicable. But nowhere within the debate of the Constitution does anyone discuss changing the labeling of any tax from direct to indirect.

Alexander Hamilton writing in Federalist 12 to the State of New York:

No person, acquainted with what happens in other countries, will be surprised at this circumstance. In so opulent a nation as that of Britain, where direct taxes from superior wealth, must be much more tolerable, and from the vigor of the government, much more practicable, than in America, far the greatest part of the national revenue is derived from taxes of the indirect kind; from imposts and from excises. Duties on imported articles form a large branch of this latter description (emphasis mine).

Hamilton referred to the actual meaning of direct taxation pointing out that Britain taxes the wealthy, but America uses indirect taxation on consumption. Alexander Hamilton didn’t tell the people of New York, don’t worry all your direct taxes will become indirect. The earlier quote in this post from Hamilton in Federalist 21 shows the same understanding of what the terms meant.

The idea all taxes were considered direct until the Constitution is simply a false one. I have much more proof which makes the ABA article's claims laughable within my book, Organic Wealth. Learn how James Madison classifies any payment made directly to government as a direct tax. Also, see how those who opposed the Constitution were fearful of the power of the government to directly tax its citizens and much more!


Alexander Hamilton, The Works of Alexander Hamilton, ed. Henry Cabot Lodge (Federal Edition) (New York: G.P. Putnam’s Sons, 1904). In 12 vols. Vol. 8. 9/18/2020.


Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, edited with an Introduction, Notes, Marginal Summary and an Enlarged Index by Edwin Cannan (London: Methuen, 1904). Vol. 2. 9/18/2020.


Benjamin Franklin, The Works of Benjamin Franklin, including the Private as well as the Official and Scientific Correspondence, together with the Unmutilated and Correct Version of the Autobiography, compiled and edited by John Bigelow (New York: G.P. Putnam’s Sons, 1904). The Federal Edition in 12 volumes. Vol. VI (Letters and Misc. Writings 1772-1775). DLXIII: On the Rise and Progress of the Differences between Great Britain and Her American Colonies.


James Otis, The Collected Political Writings of James Otis. Edited and with an Introduction by Richard Samuelson (Indianapolis: Liberty Fund, 2015). 9/18/2020.


The Debates on the Adoption of the Federal Constitution in the Convention held at Philadelphia in 1787, with a Diary of the Debates of the Congress of the Confederation as reported by James Madison, revised and newly arranged by Jonathan Elliot. Complete in One Volume. Vol. V. Supplement to Elliot’s Debates (Philadelphia, 1836).