U.S. 41 (1900)), transfers by gift (Bromley v. McCugh, 280 U.S. 124 (1929), the use of property (Hylton v. United States, 3 Dall. (U.S. 171 (1976), production of sugar with the tax measured by gross receipts (Spreckels Sugar Refining Co. v. McClain, 192 U.S. 397 (1904)) and a tax on the production of mines, measured by gross receipts (Stanton v. Baltic Mining, 240 U.S. 103 (1916)). E. CONSTRAINTS OF FEDERALISM Under Article 1, Section 9, Congress may not tax the exports from any States. In addition to this express constraint, the courts have found in the principles of federalism an implied doctrine of State immunity from Federal taxation. In its earliest form, this doctrine was applied broadly and was invoked to exclude from Federal taxation such items as the salaries of State officials (Collector v. Day, 11 Wall. (78 U.S. 113 (1871)). More recent decisions, however, have narrowed the scope of the doctrine so that it applies only to Federal taxes that directly effect a traditional State governmental activity or function. (Graves v. New York ex rel. O'Keefe, 306 U.S. 466 (1939), Ohio v. Helvering, 292 U.S. 360 (1934), South Carolina v. United States, 199 U.S. 437 (1905).) The most recent State challenge to the Federal taxing power was brought by South Carolina (joined by the National Governors' Association), against a provision in the Tax Equity and Fiscal Responsibility Act of 1982, under which a Federal tax exemption is not available for interest earned on State and local government bonds unless the bonds are issued in registered form (as opposed to bearer form). South Carolina challenged the provision as a violation of the Tenth Amendment to the United States Constitution and the doctrine of intergovernmental tax immunity. In South Carolina v. Baker, 108 S. Ct. 1355 (1988), the Supreme Court held that the registration requirement did not violate the Tenth Amendment or the Constitutional principles of federalism. F. RETROACTIVITY Retroactive changes in the tax law have on occasion been challenged as an unconstitutional deprivation of property without due process of law in violation of the due process clause of the fifth amendment. It is well settled that tax law changes that are retroactive within the same year of enactment do not violate constitutional guarantees of due process. See Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916). The courts have also generally rejected due process challenges to tax law changes that are retroactive to prior years where taxpayers might have reasonably expected the retroactive change. See, e.g., Sidney v. Commissioner, 273 F.2d 928 (2d Cir. 1960). There have been a few cases in the transfer tax areas (gift, estate and inheritance), where the Court has found that retroactive legislation violated due process. See, for example, Nichols v. Coolidge, 274 U.S. 531 (1927), holding that the estate tax imposed on transfers prior to the act's enactment was unconstitutional. See also Untermeyer v. Anderson, 276 U.S. 440 (1928), holding that a gift tax imposed on gifts made prior to the act was unconstitutional. Some authorities have suggested that the distinction between those stat utes which have been upheld and those rejected lies in the notice given the taxpayer as to potential changes in the tax law. If the taxpayer was or should have been aware of the possible modification, the law is likely to be upheld. On the other hand, if there is no way the taxpayer could have known that a particular activity might be taxed, retroactive taxation of that activity might be found to violate the taxpayer's right to due process. Section 2. Role of the Legislative Branch The vesting of "the power of the purse," or the control over public finance, in the hands of the elected representatives of the people lies at the very heart of the development of representative government in the Anglo-American tradition. The creation of the Committee on Ways and Means in the English House of Commons in 1641 was an important development in legislative efforts to restrain the financial prerogatives of the Crown. Later, the fact that the British were "imposing taxes on us, without our consent" was cited in the Declaration of Independence as one of the "repeated injuries and usurpations" which led the Colonies to declare themselves to be "Free and Independent States." Under the Articles of Confederation, Congress was empowered to borrow money, regulate coinage and emit bills of credit. However, Congress could only request that the States collect taxes and remit them to a common Treasury. Under this system, the fiscal situation of the Nation deteriorated. The first power granted to the Congress in Article I, Section 8 of the Constitution is the "Power To lay and collect Taxes, Duties, Imposts and Excises." A. REVENUE ORIGINATING PREROGATIVE OF THE HOUSE OF While the Constitutional Convention debated adopting the British model in which the House of Lords could not amend revenue legislation sent to it from the House of Commons, the Constitution proposed by the Convention and later ratified by the States provides that "All bills for raising revenue shall originate in the House of Representatives, but the Senate may propose or concur with amendments as on other bills." (Article I, Section 7, clause 1.) In order to pass constitutional scrutiny under this "origination clause," a tax bill must be passed first by the House of Representatives. After the House has completed action on a bill and approved it by a majority vote, the bill is transmitted to the Senate for formal action. The Senate may have already reviewed issues raised by the bill before its transmission. For example, the Senate Committee on Finance frequently holds hearings on tax legislative proposals before the legislation embodying those proposals is transmitted from the House of Representatives. On occasion, the Senate will consider a revenue bill in the form of a Senate or "S." bill, and then await passage of a revenue ("H.R.") bill from the House, to which it then will add or substitute provisions of the "S." bill as an amendment to the "H.R." bill and send the "H.R." bill back to the House of Representatives for its concurrence or conference on the differing provisions. B. HOUSE EXERCISE OF ITS CONSTITUTIONAL PREROGATIVE: "BLUE SLIPPING" When a Senate bill or amendment to a House bill infringes on the constitutional prerogative of the House to originate revenue measures, that infringement may be raised in the House as a matter of privilege. That privilege has also been asserted on a Senate amendment to a House amendment to a Senate bill (see 96th Congress, 1st Session, November 8, 1979, Congressional Record p. H10425). Note that the House in its sole discretion may determine that legislation passed by the Senate infringes on its prerogative to originate revenue legislation. In the absence of such determination by the House, the Federal courts are occasionally asked to rule a certain revenue measure to be unconstitutional as not having originated in the House. (See most recently, U.S. v. Munoz-Flores. Doc. No. 88-1932 (May 21, 1990).) Senate bills or amendments to nonrevenue bills infringe on the House's prerogative even if they do not raise or reduce revenue. Such infringements are referred to as "revenue affecting." Thus, any import ban which could result in lost customs revenue must originate in the House (100th Congress, 1st Session, July 30, 1987; 100th Congress, 2d Session, June 16, 1988, Congressional Record p. H4356). Offending bills and amendments are returned to the Senate through the passage in the House of a House Resolution which states that the Senate provision: "in the opinion of the House, contravenes the first clause of the seventh section of the first article of the Constitution of the United States and is an infringement of the privilege of the House and that such bill be respectfully returned to the Senate with a message communicating this resolution" (e.g., 100th Congress, 1st Session, July 30, 1987, Congressional Record p. H6808). In other cases, the Committee of the Whole House has passed a similar or identical House bill in lieu of a Senate bill or amendment (e.g., 91st Congress, 2d Congress, May 11, 1970, Congressional Record pp. H14951-14960). The Committee on Ways and Means has also reported bills to the House which were approved and sent to the Senate in lieu of Senate bills (e.g., 93d Congress, 1st Session, November 6, 1973, Congressional Record pp. 36006-36008). In other cases, the Senate has substituted a House bill or delayed action on its own legislation to await a proper revenue affecting bill or amendment from the House (see 95th Congress, 2d Session, September 22, 1978, Congressional Record p. H30960; January 22, 1980, Congressional Record p. S107). A House Resolution seeking to invoke Article I, Section 7 has been tabled on just one occasion. Citing significant economic problems facing the nation during the height of the Vietnam War, a divided House tabled an objection to the Senate's infringement on House prerogatives (90th Congress, 2d Session, June 20, 1968, Congressional Record pp. H17977-17979). BLUE SLIP RESOLUTIONS-97TH CONGRESS THROUGH 101ST CONGRESS [Resolutions passed by the House returning to the Senate bills passed in violation of the origination clause of the United States Constitution (Clause 1, Section 7 of Article 1)] H. Res., sponsor, and date of House passage 101st Congress H. Res. 287 H. Res. 177 Mr. Rostenkowski 100th Congress H. Res. 235 H. Res. 474 Mr. Rostenkowski June 16, 1988 (see also H.R. 3391). H. Res. 479 Mr. Rostenkowski H. Res. 544 Description of Senate action (and related House action, if any) On August 4, 1989, the Senate passed S. 686, the Oil Pollution Liability and Compensation Act of 1989. This legislation contained a provision which would have allowed a credit against the oil spill liability tax for amounts transferred from the TransAlaska Pipeline Trust Fund to the Oil Spill Liability Trust Fund. On Apr. 19, 1989, the Senate passed S. 774, the Financial Institution Reform, Recovery and Enforcement Act of 1989. This legislation would create two corporations to administer the financial assistance under the bill: the Resolution Trust Corporation and the Resolution Financing Corporation. S. 774 would have conferred tax-exempt status to these two corporations. Without these two tax provisions, these two corporations would be taxable entities under the Federal income tax. On Mar. 30, 1987, the Senate passed S. 829, legislation which would authorize appropriations for the U.S. International Trade Commission, the U.S. Customs Service, and the Office of the U.S. Trade Representative for fiscal year 1988, and for other purposes. In addition, the bill contained a provision relating to imports from the Soviet Union which amends provisions of the Tariff Act of 1930. On Oct. 6, 1987, the Senate passed S. 1748, legislation which would prohibit the importation into the United States of all products from Iran. (The House passed H.R. 3391, which included similar provisions, on Oct. 6, 1987.) On May 13, 1987, the Senate passed S. 727, legislation which would clarify Indian treaties and Executive orders with respect to fishing rights. This legislation dealt with the tax treatment of income derived from the exercise of Indian treaty fishing rights. (The House passed H.R. 2792, which included similar provisions, on June 20, 1988, under suspension of the rules and was enacted into law as part of Public Law 100-647, H.R. 4333.) On Sept. 9, 1988, the Senate passed S. 2662, the Textile and Apparel Trade Act of 1988. This legislation would impose global import quotas on textiles and footwear products. |