Pollock v. Farmers' Loan & Trust Company 1895

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Pollock v. Farmers' Loan & Trust Company 1895

Appellant: Charles Pollock

Appellee: Farmers' Loan & Trust Company

Appellant's Claim: That the Income Tax Act of 1894 violated the tax powers of Congress as provided in Article I of the U.S. Constitution.

Chief Lawyers for Appellant: William D. Guthrie, Clarence A. Seward, Joseph H. Choate

Chief Lawyers for Appellee: Herbert B. Turner, James C. Carter

Justices for the Court: David Josiah Brewer, Henry Billings Brown, Stephen Johnson Field, Chief Justice Melville Weston Fuller

Justices Dissenting: Horace Gray, John Marshall Harlan I, George Shiras, Jr., Edward Douglas White (Howell Edmunds Jackson did not participate)

Date of Decision: May 20 1895

Decision: Ruled in favor of Pollock by finding the general income tax provision of the act unconstitutional.

Significance: After striking down the income tax law, the income tax issue did not fade. Demand for a constitutional amendment grew to give Congress power to levy an income tax. Eighteen years later the Sixteenth Amendment was adopted authorizing Congress to impose income taxes without the taxing restrictions originally written in the Constitution.

During the latter decades of the nineteenth century, the U.S. economy was completing its transition to a more industrialized society. Big business, run by a few elite industrialist leaders, was gaining control of the nation's economy which had earlier been based largely on farming and agriculture earlier. An agrarian reform movement grew in the 1870s and 1880s for the purpose of defending the interests of farmers from the potential economic threats of big business. During the 1890s the agrarian (farming) movement gave way to a broader political reform movement called Populism. The movement included not only farmers, but workers, small business owners and anyone else subject to economic policies of big business.

A key goal of the Populists was passage of an income tax which would place a greater burden on the wealthy to finance government services. An income tax is a charge applied to the money made by individuals and corporations coming from business, investments, real estate earnings, and other sources. A national income tax had existed earlier, created in 1862 to raise revenue to pay expenses of the American Civil War (1861–1865). But, it was repealed in 1872.

With a national economic crisis in 1893 declining government revenues made adoption of an income tax system more attractive to a broader population. The following year, Congress passed the Income Tax (Wilson-Gorman Tariff) Act of 1894, establishing the first peacetime income tax. A two percent tax was placed on incomes over $4,000, which actually affected only about two percent of the wage earners in the nation. The tax was not well received by the wealthier citizens.

Charles Pollock

The Farmers' Loan & Trust Company was an investment bank that bought stocks and bonds and properties. Under the new law, it had to pay an income tax on its profits, including income gained from real estate and New York City bonds. In reaction to the newly passed income tax, Charles Pollock, a Massachusetts investor who owned shares in the company, devised a plan to legally challenge the tax act. With full cooperation of Farmers' Loan and on behalf of the other company stockholders, Pollock filed a lawsuit in a New York federal district court against the company to prevent it from paying the tax. Pollock charged the tax act violated the Tax and Spending Clause of Article I of the Constitution. Congress was exceeding its limited constitutional tax powers.

Though the district court ruled against him, it did allow Pollock to appeal the decision directly to the U.S. Supreme Court. In recognition of the importance of the issue concerning the constitutionality of a national income tax, the Supreme Court accepted the case but with two exceptions to normal Court procedures. First, the Court did not normally accept cases in which both parties were agreeable to the suit. Secondly, the Court allowed the U.S. attorney general to argue the case for Farmers' Loan even though the U.S. government was not named in the suit.

A Major Public Concern

With great public fanfare, case arguments began on March 7, 1895. Only eight justices were present with Justice Howell E. Jackson away ill with tuberculosis. The Court's gallery was overflowing with interested observers and major newspapers closely followed the proceedings. Pollock's lead attorney, Joseph Hodges Choate, had considerable flair and passion in presenting a convincing argument to the justices.

Choate presented three arguments to the Court. First, the income tax was applied to profits from state and municipal bonds. This, he claimed, intruded on constitutionally recognized state powers and their ability to raise revenues.

Secondly, Choate claimed tax on profits from real estate was a "direct tax." Direct taxes are taxes levied by government directly on property, including personal income. The amount of tax is determined by the financial worth of the property. In contrast, indirect taxes by government are applied to certain rights or privileges, such as sales taxes, customs duties, and license fees. They are usually set fees. According to the Tax and Spending Clause of Article I of Constitution, all revenue from direct taxes must be divided among the states in proportion to their populations. The more population a state has, the more federal tax revenue it receives to provide public services. The distribution of revenue from indirect taxes was less restricted. The tax system established by the act did not intend to distribute the revenue back to the states proportionally as directed in Article I.

Thirdly, Article I required that direct taxes must be uniformly applied to all individuals and businesses and this tax was not. Choate claimed the tax was unfair and a threat to traditional American values by taxing people differently. Because the tax in effect would redistribute the nation's wealth by taxing the rich, Choate exclaimed the tax was " . . . communistic in it purposes and tendencies, and is defended here upon principles as communistic, socialistic — what I should call them — populistic as ever have been addressed to any political assembly in the world."

The Court agreed with Pollock and Choate that the tax indeed infringed on states by taxing state bonds. Also, the Court agreed that the tax on real estate earnings was direct. It was essentially a tax on the land itself. Therefore, it was subject to the Article I limitations. The eight justices were split, 4-4, however over the question of uniformity and whether a tax on income from personal property was direct or not. The Court ignored its earlier ruling in Springer v. United States (1881) that the income tax collected during the Civil War was indirect, hence not subject to the limitations in Article I. Because of the importance of the decision and lack of a decisive ruling by the Court, Chief Justice Melville W. Fuller requested a rehearing of the case.

Back to Court

Arguments were presented again on May 6, 1895. A decision resulted two weeks later. Chief Justice Fuller again presented the Courts opinion from a 5-4 decision. Fuller clearly expressed his economically conservative views in denouncing the tax as unconstitutional. He reaffirmed the previous decision regarding the tax on land as direct, and added that the tax on personal property was also a direct tax. Since taxes on land and personal property were the main taxes in the bill, he struck down the entire act. Fuller asserted that such a tax "would leave the burden of the tax to be borne by professions, trades, employment, or vocations; in that way . . . a tax on occupations and labor."

In reversing the earlier district court ruling, the Court ruled the tax act void and sent the case back to district court for final resolution.

The four justices objecting to the decision wrote separate dissenting opinions. The harshest came from Justice John Marshall Harlan. The New York Times reported that Harlan gestured wildly at Fuller with "thinly disguised sneers." Harlan aggressiveness, including pounding on the desk, shocked many of the lawyers present in the courtroom. Harlan emphasized that the Court's ruling placed most Americans at a disadvantage with the wealthy. Harlan stated that,

undue and disproportioned burdens are placed upon the many, while the few, safely entrenched behind the rule of [Article I] . . . are permitted to evade their share of the responsibility for the support of government ordained for the protection of the rights of all. I cannot assent to an interpretation of the Constitution that . . . cripples . . . the national government in the essential matter of taxation, and at the same time discriminates against the greater part of the people of our country.


J ohn Marshall Harlan, born on June 1, 1833 to a wealthy and prominent family in Boyle County, Kentucky, was named for the great chief justice of the U.S. Supreme Court, John Marshall (1801–1835). Harlan's father was a lawyer and politician, serving as U.S. congressman and state attorney general. Harlan received a college degree from Centre College in 1850 and studied law from 1851 to 1853 at Transylvania University. With solid family connections, Harlan quickly assumed governmental positions including county judge in Franklin County, Kentucky in 1858, and attorney general of Kentucky from 1863 to 1867.

An active member of the Republican Party, Harlan worked for Rutherford B. Hayes (1877–1881) in his successful bid for U.S. president in 1876. As a reward for his political efforts, Harlan was appointed by Hayes to the U.S. Supreme Court in October of 1877. Harlan became known as the Great Dissenter opposing several important decisions during his thirty-four years on the Court. Besides his emotional opposition to the decision in Pollock v. Farmers' Loan & Trust Company (1895), Harlan's eloquent dissent the following year in Plessy v. Ferguson (1896) as the only justice opposing the Court's decision supporting state required racial segregation was supported almost sixty years later in the landmark decision of Brown v. Board of Education . Harlan served until his death on October 14, 1911. His grandson, John Marshall Harlan II, also served on the Supreme Court, from 1955 to 1971.

An Unpopular Decision

The Court's ruling was not well received by the public. Some legal scholars disagreed with the decision. Taxation remained a controversial political issue, even becoming a topic for the next presidential race. Many recognized that the Constitution needed amending to permit a federal income tax without the requirement dividing revenue among the states proportionately to their individual populations. After eighteen more years of debate, the Sixteenth Amendment to the Constitution was adopted in 1913 giving Congress power to tax income without the distribution requirement to the states. The first revenue gained from income taxes came in 1916. The continued goal of the income tax continued to be a fair distribution of the tax burden among all citizens raising revenue for government.

Suggestions for further reading

Adams, Charles. Those Dirty Rotten Taxes: The Tax Revolts That Built America. New York: Free Press, 1998.

Bartlett, Donald L., and James B. Steele. America: Who Really Pays the Taxes? New York: Simon & Schuster, 1994.

Shlaes, Amity. The Greedy Hand: How Taxes Drive Americans Crazy and What To Do About It. New York: Random House, 1999.

Whitte, John F. The Politics and Development of the Federal Income Tax. Madison: University of Wisconsin Press, 1986.

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