MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
By the original action commenced in the United States District Court, Southern District of New York, Isaac Untermyer sought to recover of the U.S. Collector of Internal Revenue the tax exacted of him, under the Act of June 2, 1924, — §§ 319, et seq., — on account of a gift which he made May 23, 1924. After his death the cause was revived in the name of the executors — petitioners herein — and was then heard upon an agreed statement of facts. Both sides moved for a directed verdict. Judgment went for the Collector and was affirmed by the Circuit Court of Appeals.
The questions now presented for consideration are similar to those involved in Blodgett v. Holden, 275 U.S. 142.
The two causes differ in this: Blodgett's gifts were made during January, 1924, before the provisions for taxing such transfers were presented for the consideration of Congress; Untermyer made his gift May 23, 1924, some three months after those provisions were first presented and while the conference report upon the bill was pending. This report went to the Senate May 22, 1924, and three days thereafter the bill had finally passed both houses. The President approved it on June 2, 1924.
Unless the difference in circumstances stated is material, the same rule of law must govern both cases.
Two opinions were announced in Blodgett v. Holden. The one prepared by the present writer, expressed the views of four of the eight Justices who participated in the consideration of the cause. After quoting the pertinent provisions of the statute, etc., the opinion declared: "So far as the Revenue Act of 1924 undertakes to impose a tax because of the gifts made during January, 1924, it is arbitrary and invalid under the due process clause of the Fifth Amendment." We need not now further repeat what was there set out.
In the light of arguments advanced by counsel in the present cause, the matter has been considered by all members of the Court, and a majority of them are of opinion that the gift tax provisions of the Act of 1924 here challenged must be construed as applicable to gifts made during the entire calendar year 1924. And, further, that so far as applicable to bona fide gifts not made in anticipation of death and fully consummated prior to June 2, 1924, those provisions are arbitrary and invalid under the due process clause of the Fifth Amendment.
The mere fact that a gift was made while the bill containing the questioned provisions was in the last stage of progress through Congress we think is not enough to differentiate this cause from the former one and to relieve the legislation of the arbitrary character there ascribed to it. To accept the contrary view would produce insuperable difficulties touching interpretation and practical application of the statute, and render impossible proper understanding of the burden intended to be imposed. The taxpayer may justly demand to know when and how he becomes liable for taxes — he cannot foresee and ought not to be required to guess the outcome of pending measures. The future of every bill while before Congress is necessarily uncertain. The will of the lawmakers is not definitely expressed until final action thereon has been taken.
The judgment below must be reversed.
MR. JUSTICE SANFORD concurs in the result.
MR. JUSTICE HOLMES, dissenting.
As I think the construction of the Act of June 2, 1924, c. 234, § 319, adopted by four of us in Blodgett v. Holden, 275 U.S. 142, the proper one, I shall not go into the question of constitutionality beyond saying that I find it hard to state to myself articulately the ground for denying the power of Congress to lay the tax. We all know that we shall get a tax bill every year. I suppose that the taxing act may be passed in the middle as lawfully as at the beginning of the year. A tax may be levied for past privileges and protection as well as for those to come. Wagner v. Baltimore, 239 U.S. 207, 216. Billings v. United States, 232 U.S. 261, 282. Seattle v. Kelleher, 195 U.S. 351. Stockdale v. Atlantic Insurance Co., 20 Wall. 323. I do not imagine that the authority of Congress to tax the exercise of the legal power to make a gift will be doubted any more than its authority to tax a sale. Apart from its bearing upon construction and constitutionality I am not at liberty to consider the justice of the Act.
MR. JUSTICE BRANDEIS and MR. JUSTICE STONE agree with this opinion.
MR. JUSTICE BRANDEIS, with whom MR. JUSTICE HOLMES and MR. JUSTICE STONE concur.
To what MR. JUSTICE HOLMES has said, I add this. The Court construes the Act as applying to all gifts made during the calendar year. Then it holds the Act void as applied to a gift made during the ten-day period between the submission of the Conference Report to Congress and the approval of the Act by the President. It holds the Act void because the action of the law-making body is, in its opinion, unreasonable. Tested by the standard of reasonableness commonly adopted by man — use and wont — that action appears to be reasonable. Tested by a still higher standard to which all Americans must bow — long continued practice of Congress repeatedly sanctioned by this Court after full argument — its validity would have seemed unquestionable, but for views recently expressed. No other standard has been suggested.
For more than half a century, it has been settled that a law of Congress imposing a tax may be retroactive in its operation. Stockdale v. Insurance Companies, 20 Wall. 323, 331; Railroad Co. v. Rose, 95 U.S. 78, 80; Railroad Co. v. United States, 101 U.S. 543, 549; Flint v. Stone Tracy Co., 220 U.S. 107; Billings v. United States, 232 U.S. 261, 282; Brushaber v. Union Pacific R.R. Co., 240 U.S. 1, 20; Lynch v. Hornby, 247 U.S. 339, 343; Hecht v. Malley, 265 U.S. 144, 164. Each of the fifteen income tax acts adopted from time to time during the last sixty-seven years has been retroactive, in that it applied to income earned, prior to the passage of the act, during the calendar year.1 The Act of October 3, 1913, c. 16, 38 Stat. 114, 166, which taxed all incomes received after March 1, 1913, was specifically upheld in Brushaber v. Union Pacific R.R. Co., 240 U.S. 1, 20, and in Lynch v. Hornby, 247 U.S. 339, 343. Some of the acts have taxed income earned in an earlier year. The Joint Resolution of July 4, 1864, No. 77, 13 Stat. 417, imposed an additional tax on incomes earned during the calendar year 1863, this additional tax being imposed after the taxes for the year had been paid. In Stockdale v. Insurance Companies, 20 Wall. 323, 331, Mr. Justice Miller said: "No one doubted the validity of the tax or attempted to resist it." The Act of February 24, 1919, c. 18, Title II, 40 Stat. 1057, 1058-1088, which taxed incomes for the calendar year 1918, was applied, without question as to its constitutionality, in United States v. Robbins, 269 U.S. 315, and numerous other cases.
The Corporation Tax Act of August 5, 1909, c. 6, § 38, 36 Stat. 11, 112, applying to all net income for the calendar year, was sustained in Flint v. Stone Tracy Co., 220 U.S. 107. The Acts of March 3, 1917, c. 159, 39 Stat. 1000, and of October 3, 1917, c. 63, 40 Stat. 300, 302, imposing excess profits taxes on the profits earned during the calendar year, were so applied in LaBelle Iron Works v. United States, 256 U.S. 377, in Greenport Basin & Construction Co. v. United States, 260 U.S. 512, and in other cases. The validity of the Act of February 24, 1919, c. 18, Title III, 40 Stat. 1057, 1088, taxing excess profits earned during the calendar year 1918, has never been questioned. Compare Willcuts v. Milton Dairy Co., 275 U.S. 215; Blair v. Oesterlein Machinery Co., 275 U.S. 220; Porto Rico Coal Co. v. Edwards, 275 Fed. 104; National Paper & Type Co. v. Edwards, 292 Fed. 633. The Munition Manufacturer's Tax, imposed by the Act of September 8, 1916, c. 463, Title III, 39 Stat. 756, 780, applied to the twelve months ending December 31, 1916. Compare Carbon Steel Co. v. Lewellyn, 251 U.S. 501; United States v. Anderson, 269 U.S. 422, 435. The Act of February 24, 1919, c. 18, 40 Stat. 1057, 1126, which materially increased the capital stock tax, made the increase retroactive to July 1, 1918. In Hecht v. Malley, 265 U.S. 144, 164, these retroactive provisions were held to validate taxes erroneously assessed under an earlier act and paid before the passage of the Act of 1919.
Except for the peculiar tax involved in Nichols v. Coolidge, 274 U.S. 531, no federal revenue measure has ever been held invalid on the score of retroactivity. The need of the Government for revenue has hitherto been deemed a sufficient justification for making a tax measure retroactive whenever the imposition seemed consonant with justice and the conditions were not such as would ordinarily involve hardship. On this broad ground rest the cases in which a special assessment upon real estate has been upheld although the benefit resulting from the improvement had been enjoyed and the cost thereof had been paid prior to any legislation attempting to authorize the assessment, Wagner v. Baltimore, 239 U.S. 207; also the cases in which special assessments upon real estate have been upheld although the benefit had been conferred and the cost thereof had been paid before there was a valid authorization either of the improvement or of the assessment. Compare Charlotte Harbor & Northern Ry. Co. v. Welles, 260 U.S. 8. Such retroactive legislation has been sustained, although the validating statute was not enacted until after the property benefited had passed to a bona fide purchaser without notice of any claim that it had been, or might be, assessed for a benefit. Seattle v. Kelleher, 195 U.S. 351. Compare Citizens National Bank v. Kentucky, 217 U.S. 443, 454. The right of the Philippine Government to retain import and export duties laid and collected without authority, was sustained where thereafter Congress by retroactive legislation confirmed the unlawful action in collecting the duties. United States v. Heinszen & Co., 206 U.S. 370; Rafferty v. Smith, Bell & Co., 257 U.S. 226. Liability for taxes under retroactive legislation has been "one of the notorious incidents of social life." Seattle v. Kelleher, 195 U.S. 351, 360. Recently this Court recognized broadly that "a tax may be imposed in respect of past benefits." Forbes Boat Line v. Board of Commissioners, 258 U.S. 338, 339.
The Act with which we are here concerned had, however, a special justification for retroactive features. The gift tax was imposed largely to prevent evasion of the estate tax by gifts inter vivos, and evasion of the income tax by the splitting up of fortunes and the consequent diminution of surtaxes. If, as is thought by the Court, Congress intended the gift tax to apply to all gifts during the calendar year, its purpose may well have been to prevent evasion of the gift tax itself, by the making of gifts after its introduction and prior to its passage. Is Congress powerless to prevent such evasion by the vigilant and ingenious? This Court has often recognized that a measure may be valid as a necessary adjunct to a matter that lies within legislative power, even though, standing alone, its constitutionality might have been subject to doubt. Purity Extract Co. v. Lynch, 226 U.S. 192; Ruppert v. Caffey, 251 U.S. 264, 289; Everard's Breweries v. Day, 265 U.S. 545, 560. If the legislature may prohibit the sale of confessedly innocent articles in order to insure the effective prohibition of others, I see no reason why it may not spread a tax over a period in advance of its enactment sufficiently long to insure that the tax will not be evaded by anticipating the passage of the act. Compare United States v. Doremus, 249 U.S. 86, 94. In taxation, as well as in other matters, "the law allows a penumbra to be embraced that goes beyond the outline of its object in order that the object may be secured." See Mr. Justice Holmes, in Schlesinger v. Wisconsin, 270 U.S. 230, 241. Under the rule now applied, even a measure framed to prevent evasion of a tax from a date when it is practically certain that the act will become law, is deemed unreasonable and arbitrary.
The problem of preventing loss of revenue by transactions intervening between the date when legislation is introduced and its final enactment, is not a new one; nor is it one peculiar to the gift tax. Other nations have met it by a method similar to that which the Court holds to be denied to Congress. England long ago adopted the practice of making customs and excise duties retroactive to the beginning of the fiscal year or to the date when the government's resolutions were agreed to by the House of Commons sitting as a Committee of Ways and Means.2 A similar practice prevails in Ireland,3 in all the self-governing Dominions,4 and to some extent in France and Italy.5 In the United States, retroactive operation of the tariff has been repeatedly recommended by the Tariff Commission and by the Secretary of Commerce.6 Legislation to that end was reported by the Committee on Ways and Means of the House of Representatives.7 No suggestion seems to have been made that such legislation would by its retroactive feature violate the due process clause.8
For nearly a century after the adoption of the Constitution, this Court approached with great reluctance the exercise of its high prerogative of declaring invalid an act of Congress. In Ogden v. Saunders, 12 Wheat. 213, 270, it said with respect to a state statute: "It is but a decent respect due to the wisdom, the integrity, and the patriotism of the legislative body, by which any law is passed, to presume in favor of its validity, until its violation of the constitution is proved beyond all reasonable doubt." In the Sinking Fund Cases, 99 U.S. 700, 718, this Court said with respect to an act of Congress: "Every possible presumption is in favor of the validity of a statute, and this continues until the contrary is shown beyond a rational doubt. One branch of the government cannot encroach on the domain of another without danger. The safety of our institutions depends in no small degree on a strict observance of this salutary rule." The presumption in favor of the validity of an act of Congress, often adverted to, has been acted upon as recently as The Assigned Car Cases, 274 U.S. 564; and Hampton, Jr., & Co. v. United States, ante, p. 394. The presumption should be particularly strong where, as here, the objection to an act arises not from a specific limitation or prohibition on Congressional power but only out of the "vague contours of the Fifth Amendment, prohibiting the depriving any person of liberty or property without due process of law," MR. JUSTICE HOLMES, in Adkins v. Children's Hospital, 261 U.S. 525, 568. I find no reason for thinking that the presumption has been overcome.