Horizontal and Vertical Equity in Taxation as Constitutional Principles: Germany and the United States Contrasted

Abstract

Germany's Basic Law assigns primary jurisdiction over constitutional issues to Germany's Constitutional Court and requires other courts to suspend their proceedings and refer constitutional issues that are critical to resolution of any pending case to the Constitutional Court. In the United States, the Supreme Court has broad appellate and, in some cases, original jurisdiction; and its authority to review legislative action for conflict  [*262]  with the Constitution became clear early in the Court's history. Unlike Germany, however, lower courts also have jurisdiction to decide constitutional issues, subject of course to eventual Supreme Court review.
While the U.S. Supreme Court has resolved many tax controversies, with taxpayers raising constitutional questions in a number of cases addressing questions of federal tax law, only infrequently has the Court found a federal taxing statute to violate a constitutionally protected right or privilege. Rarely has the Supreme Court looked to the Constitution and decided that a federal tax law violated the Constitution. Never has the Supreme Court held a federal tax law to conflict with the Bill of Rights. Many more decisions involve challenges to state tax statutes as in conflict with the U.S. Constitution. Often those state law cases combine claims under several provisions of the Constitution, including the Commerce Clause, Due Process, and Equal Protection. In reviewing state tax [*263]  statutes for compliance with constitutional standards, the Court consistently has applied its "rational basis test," its least intrusive standard of review. Under that test, a statute is valid so long as the legislature has a rational basis for its enactment. The decisions predominantly uphold the state taxing statute. Occasionally, the Court limits states' taxing power or their tax collection authority over non- residents.