Does the Contracts Clause of Article I, Section 10 of the Constitution prohibit federal income taxation of "pure" trusts?
No. Sorry. It doesn't.
First of all taxation of the results of contracts has never been held to be a constitutional impairment to the right to contract. Any of you do-it-yourself common-law "lawyers" our there want to challenge this?
But its fun to pretend. So let's enter the land of legal make-believe and pretend the opposite. Let's make believe that there is definitive law that says that taxation may in fact be an impairment of the right to contract. We now need to look at how legislative contract-impairment is looked at under the Contracts Clause.
The Contracts Clause does not limit federal power, only state power. Let's look at what it says:
No State shall, without the consent of the Congress,...pass any...Law impairing the Obligation of Contracts.
In the parlance of the Pure Trust Theory, the Contracts Clause only limits the united States, not the United States. But let's pretend otherwise. Let's all make believe that the Contracts Clause limits the Congress' power to pass income-tax laws that impair contract rights. Are we out of the woods yet (with these two passes)? No. Sorry.
A few years after the Supreme Court decided Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518 (1819), it was faced with the effect of state law on contracts that arose after the passage of the state law. The Dartmouth College case decided that New Hampshire's action against the pre-exisitng contractual arrangement was unconstitutional. This probably explains why it is cited by the pure-trust crowd in their pop legal literature.
In 1827, the Supreme Court held that a contract incorporates within its terms the positive law of the time and the place where it is made. Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 257-62 (1827)(emphasis added). The Supreme Court, divided 4-3, rejected the dissenting position that contractual obligations derive not from positive law of time and place but from natural law prior to the social compact itself. (In 1827, it was an interesting idea, being that the Court was that closely divided on what boils down to be the Whig interetation of history. But now it is a dead issue. It pays to keep abreast of current legal developments).
Under Ogden v. Saunders, state legislation impairing contractual obligations is unconstitutional only if it impairs pre-existing contactual obligations.
If Ogden v. Saunders had gone the other way, it is doubtful whether States could have outlawed sales of heroin, for example, because it would be a governmental impairment of the right to enter into a specific contract to purchase and sell.
Some pure trust web sites even quote Ogden v. Saunders. Apparently they have never read this case, because it destroys the notion that you can enter into a contract based on your natural rights to contract and be immune to governmental interference.
LETS REHASH THIS FOR THE SLOW ONES: The the Supreme Court's (or "supreme Court's" -- if you will) decision in Ogden v. Saunders may be properly cited for the proposition that a legislative impairment of a contract you would like to enter into is just fine under the Constitution.
Now click here for an Einstein site that takes an opposing view. This is from an ourfit called "Innovative Financial Consultants." They are apparently so innovative that they have figured an angle around Ogden v. Saunders.
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