United States v. Carlton, 512 U.S. 26 (1994), U.S. Reports (Library of Congress copy)

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The U.S. Reports text of United States v. Carlton, 512 U.S. 26 (1994), on certiorari to the United States Court of Appeals for the Ninth Circuit, argued February 28, 1994 and decided June 13, 1994. Jerry W. Carlton, the executor, bought MCI shares with estate funds on December 10, 1986, sold them to the MCI ESOP and claimed a §2057 estate tax deduction of $5,287,000, which the IRS disallowed after §2057 was amended with retroactive effect in December 1987. Justice Blackmun delivered the opinion of the Court, holding that the amendment's retroactive application does not violate the Due Process Clause of the Fifth Amendment because it is supported by a legitimate legislative purpose furthered by rational means. O'Connor and Scalia filed opinions concurring in the judgment.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

                         OCTOBER TERM, 1993

                                 Syllabus


                UNITED STATES v. CARLTON
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
                         THE NINTH CIRCUIT
    No. 92-1941.   Argued February 28, 1994-Decided June 13, 1994
As adopted in October 1986, 26 U. S. C. § 2057 granted an estate tax deduc-
  tion for half the proceeds of "any sale of employer securities by the
  executor of an estate" to "an employee stock ownership plan" (ESOP).
  In December 1986, respondent Carlton, acting as an executor, purchased
  shares in a corporation, sold them to that company's ESOP at a loss,
 and claimed a large §2057 deduction on his estate tax return. In De-
  cember 1987, § 2057 was amended to provide that, to qualify for the
  deduction, the securities sold to an ESOP must have been "directly
  owned" by the decedent "immediately before death." Because the
  amendment applied retroactively, as if it were incorporated in the origi-
  nal 1986 provision, the Internal Revenue Service (IRS) disallowed Carl-
 ton's § 2057 deduction. The District Court entered summary judgment
  against him in his ensuing refund action, rejecting his contention that
  the amendment's retroactive application to his transactions violated the
  Due Process Clause of the Fifth Amendment. The Court of Appeals
 reversed, holding that such application was rendered unduly harsh and
 oppressive, and therefore unconstitutional, by Carlton's lack of notice
  that §2057 would be retroactively amended and by his reasonable reli-
 ance to his detriment on preamendment law.
Held: The 1987 amendment's retroactive application to Carlton's 1986
  transactions does not violate due process. Under the applicable stand-
 ard, a tax statute's retroactive application must be supported by a legiti-
  mate legislative purpose furthered by rational means. See, e. g., Pen-
  sion Benefit Guaranty Corporationv. R. A. Gray & Co., 467 U. S. 717,
  729-730. Here, Congress' purpose in enacting the 1987 amendment was
  neither illegitimate nor arbitrary. Section 2057 was originally intended
  to create an incentive for stockholders to sell their companies to their
  employees, but the absence of a decedent-stock-ownership requirement
  resulted in the deduction's broad availability to virtually any estate, at
  an estimated loss to the Government of up to $7 billion in anticipated
  revenues. Thus, Congress undoubtedly intended the amendment to
  correct what it reasonably viewed as a mistake in the original provision.
  There is no plausible contention that it acted with an improper motive,
  and its decision to prevent the unanticipated revenue loss by denying
                           Cite as: 512 U. S. 26 (1994)

                              Opinion of the Court

  the deduction to those who made purely tax-motivated stock transfers
  was not unreasonable. Moreover, the amendment's retroactive applica-
  tion is rationally related to its legitimate purpose, since Congress acted
  promptly in proposing the amendment within a few months of §2057's
  original enactment and established a modest retroactivity period that
  extended only slightly longer than one year. The Court of Appeals'
  exclusive focus on the taxpayer's notice and reliance held §2057 to an
  unduly strict standard. Pp. 30-35.
972 F. 2d 1051, reversed.

  BLACKMUN, J., delivered the opinion of the Court, in which REHNQUIST,
C. J., and STEVENS, KENNEDY, SOUTER, and GINSBURG, JJ., joined.
O'CONNOR, J., fied an opinion concurring in the judgment, post, p. 35.
SCALIA, J., filed an opinion concurring in the judgment, in which THOMAS,
J., joined, post, p. 39.

  Kent L. Jones argued the cause for the United States.
With him on the brief were Solicitor General Days, Acting
Assistant Attorney General Paup,Deputy Solicitor General
Wallace, Gilbert S. Rothenberg, and Teresa E. McLaughlin.
  Russell G. Allen argued the cause and filed a brief for
respondent. With him on the brief was Phillip R. Kaplan.*
   JUSTICE BLACKMUN delivered the opinion of the Court.
   In 1987, Congress amended a provision of the federal
estate tax statute by limiting the availability of a recently
added deduction for the proceeds of sales of stock to em-
ployee stock-ownership plans (ESOP's). Congress provided
that the amendment would apply retroactively, as if incor-
porated in the original deduction provision, which had been
adopted in October 1986. The question presented by this
case is whether the retroactive application of the amendment
violates the Due Process Clause of the Fifth Amendment.
  *Briefs of amici curiae urging affirmance were filed for the Washington
Legal Foundation et al. by Joseph E. Schmitz, Charles A Shanor, Daniel
J Popeo, and Paul D. Kamenar; and for Anthony C. Morici, Jr., Executor
and Trustee of the estate of McNamee, by Charles C. Marson.
                    UNITED STATES v. CARLTON

                          Opinion of the Court

                                    I
   Congress effected major revisions of the Internal Revenue
Code in the Tax Reform Act of 1986, 100 Stat. 2085. One of
those revisions was the addition of a new estate tax provi-
sion applicable to any estate that filed a timely return after
the date of the Act, October 22, 1986. The new provision,
codified as 26 U. S. C. § 2057 (1982 ed., Supp. IV),1 granted a
deduction for half the proceeds of "any sale of employer secu-
rities by the executor of an estate" to "an employee stock
ownership plan." §2057(b). 2 In order to qualify for the de-
duction, the sale of securities had to be made "before the
date on which the [estate tax] return ...            [was] required to
be filed (including any extensions)." § 2057(c)(1).
   Respondent Jerry W. Carlton, the executor of the will of
Willametta K. Day, deceased, sought to utilize the § 2057 de-
duction. Day died on September 29, 1985. Her estate tax
return was due December 29, 1986 (after Carlton had ob-
tained a 6-month filing extension). On December 10, 1986,
Carlton used estate funds to purchase 1.5 million shares of
MCI Communications Corporation for $11,206,000, at an av-
erage price of $7.47 per share. Two days later, Carlton sold
the MCI stock to the MCI ESOP for $10,575,000, at an aver-
age price of $7.05 per share. The total sale price thus was
$631,000 less than the purchase price. When Carlton filed
the estate tax return on December 29, 1986, he claimed a
deduction under § 2057 of $5,287,000, for half the proceeds of
the sale of the stock to the MCI ESOP. The deduction re-
duced the estate tax by $2,501,161. The parties have stipu-

  I Section 2057 was repealed for estates of decedents who died after
December 19, 1989. See Omnibus Budget Reconciliation Act of 1989,
§7304(a), 103 Stat. 2352.
   2Section 2057(e) defined "employer securities" by reference to §409(l)
of the Code, which in turn defined the term generally as "common stock
issued by the employer (or by a corporation which is a member of the
same controlled group) which is readily tradable on an established securi-
ties market." 26 U. S. C. §409(l)(1) (1982 ed., Supp. IV).
                        Cite as: 512 U. S. 26 (1994)

                           Opinion of the Court

lated that Carlton engaged in the MCI stock transactions
specifically to take advantage of the §2057 deduction.
   On January 5, 1987, the Internal Revenue Service (IRS)
announced that, "[p]ending the enactment of clarifying legis-
lation," it would treat the §2057 deduction as available only
to estates of decedents who owned the securities in question
immediately before death. See IRS Notice 87-13, 1987-1
Cum. Bull. 432, 442. A bill to enact such an amendment to
§ 2057 was introduced in each Chamber of Congress on Feb-
ruary 26, 1987. See 133 Cong. Rec. 4145 and 4293 (1987).
   On December 22, 1987, the amendment to § 2057 was
enacted. As amended, the statute provided that, to qualify
for the estate tax deduction, the securities sold to an ESOP
must have been "directly owned" by the decedent "immedi-
ately before death." Omnibus Budget Reconciliation Act of
1987, § 10411(a), 101 Stat. 1330-432.3 The 1987 amendment
was made effective as if it had been contained in the statute
as originally enacted in October 1986. § 10411(b).
   The IRS disallowed the deduction claimed by Carlton
under § 2057 on the ground that the MCI stock had not been
owned by his decedent "immediately before death." Carl-
ton paid the asserted estate tax deficiency, plus interest, filed
a claim for refund, and instituted a refund action in the
United States District Court for the Central District of Cali-
fornia. He conceded that the estate did not qualify for the
deduction under the 1987 amendment to §2057. He argued,
however, that retroactive application of the 1987 amendment
to the estate's 1986 transactions violated the Due Process
Clause of the Fifth Amendment. The District Court re-
jected his argument and entered summary judgment in favor
of the United States.
   A divided panel of the Court of Appeals for the Ninth Cir-
cuit reversed. 972 F. 2d 1051 (1992). The majority consid-
  'The amendment also required that employer securities qualifying for
the deduction must, after the sale, be allocated to participants or held for
future allocation in accordance with certain rules.
                 UNITED STATES v. CARLTON

                      Opinion of the Court

ered two factors paramount in determining whether retroac-
tive application of a tax violates due process: whether the
taxpayer had actual or constructive notice that the tax stat-
ute would be retroactively amended, and whether the tax-
payer reasonably relied to his detriment on preamendment
law. The court concluded that both factors rendered retro-
active application of the amendment in this case unduly
harsh and oppressive and therefore unconstitutional. Judge
Norris dissented. In his view, the 1987 amendment was
within the wide latitude of congressional authority to leg-
islate retroactively in regulating economic activity. We
granted certiorari, 510 U. S. 810 (1993).

                                II
   This Court repeatedly has upheld retroactive tax legis-
lation against a due process challenge. See, e. g., United
States v. Hemne, 476 U. S. 558 (1986); United States v. Da-
rusmont, 449 U. S.292 (1981); Welch v. Henry, 305 U. S.134
(1938); United States v. Hudson, 299 U. S. 498 (1937); Milli-
ken v. United States, 283 U. S. 15 (1931); Cooper v. United
States, 280 U. S. 409 (1930). Some of its decisions have
stated that the validity of a retroactive tax provision under
the Due Process Clause depends upon whether "retroactive
application is so harsh and oppressive as to transgress the
constitutional limitation." Welch v. Henry, 305 U. S., at 147,
quoted in United States v. Hemme, 476 U. S., at 568-569.
The "harsh and oppressive" formulation, however, "does not
differ from the prohibition against arbitrary and irrational
legislation" that applies generally to enactments in the
sphere of economic policy. Pension Benefit Guaranty Cor-
porationv. R. A. Gray & Co., 467 U. S.717, 733 (1984). The
due process standard to be applied to tax statutes with retro-
active effect, therefore, is the same as that generally applica-
ble to retroactive economic legislation:
     "Provided that the retroactive application of a statute is
     supported by a legitimate legislative purpose furthered
                    Cite as: 512 U. S. 26 (1994)

                       Opinion of the Court

    by rational means, judgments about the wisdom of such
    legislation remain within the exclusive province of the
    legislative and executive branches ....
       "To be sure,... retroactive legislation does have to
    meet a burden not faced by legislation that has only fu-
    ture effects .... 'The retroactive aspects of legislation,
    as well as the prospective aspects, must meet the test
    of due process, and the justifications for the latter may
    not suffice for the former' ....     But that burden is met
    simply by showing that the retroactive application of
    the legislation is itself justified by a rational legislative
    purpose." Id., at 729-730, quoting Usery v. Turner
    Elkhorn Mining Co., 428 U. S. 1, 16-17 (1976).
   There is little doubt that the 1987 amendment to §2057
was adopted as a curative measure. As enacted in October
1986, §2057 contained no requirement that the decedent have
owned the stock in question to qualify for the ESOP pro-
ceeds deduction. As a result, any estate could claim the de-
duction simply by buying stock in the market and immedi-
ately reselling it to an ESOP, thereby obtaining a potentially
dramatic reduction in (or even elimination of) the estate
tax obligation.
   It seems clear that Congress did not contemplate such
broad applicability of the deduction when it originally
adopted §2057. That provision was intended to create an
"incentive for stockholders to sell their companies to their
employees who helped them build the company rather than
liquidate, sell to outsiders or have the corporation redeem
their shares on behalf of existing shareholders." Joint Com-
mittee on Taxation, Tax Reform Proposals: Tax Treatment
of Employee Stock Ownership Plans (ESOPs), 99th Cong., 2d
Sess., 37 (Joint Comm. Print 1985); see also 132 Cong. Rec.
14507 (1986) (statement of Sen. Long) (§2057 "allow[s] ... an
executor to reduce taxes on an estate by one-half by selling
the decedent's company to an ESOP"). When Congress ini-
tially enacted § 2057, it estimated a revenue loss from the
                UNITED STATES v. CARLTON

                     Opinion of the Court

deduction of approximately $300 million over a 5-year period.
See 133 Cong. Rec. 4145 (1987) (statement of Rep. Rosten-
kowski); id., at 4293 (statement of Sen. Bentsen). It became
evident shortly after passage of the 1986 Act, however, that
the expected revenue loss under §2057 could be as much as
$7 billion-over 20 times greater than anticipated-because
the deduction was not limited to situations in which the dece-
dent owned the securities immediately before death. Ibid.
In introducing the amendment in February 1987, Senator
Bentsen observed: "Congress did not intend for estates to be
able to claim the deduction by virtue of purchasing stock in
the market and simply reselling the stock to an ESOP ...
and Congress certainly did not anticipate a $7 billion revenue
loss." Id., at 4294. Without the amendment, Senator Bent-
sen stated, "taxpayers could qualify for the deductions by
engaging in essentially sham transactions." Ibid.
   We conclude that the 1987 amendment's retroactive appli-
cation meets the requirements of due process. First, Con-
gress' purpose in enacting the amendment was neither ille-
gitimate nor arbitrary. Congress acted to correct what it
reasonably viewed as a mistake in the original 1986 provision
that would have created a significant and unanticipated reve-
nue loss. There is no plausible contention that Congress
acted with an improper motive, as by targeting estate repre-
sentatives such as Carlton after deliberately inducing them
to engage in ESOP transactions. Congress, of course, might
have chosen to make up the unanticipated revenue loss
through general prospective taxation, but that choice would
have burdened equally "innocent" taxpayers. Instead, it de-
cided to prevent the loss by denying the deduction to those
who had made purely tax-motivated stock transfers. We
cannot say that its decision was unreasonable.
   Second, Congress acted promptly and established only a
modest period of retroactivity. This Court noted in United
States v. Darusmont,449 U. S., at 296, that Congress "almost
without exception" has given general revenue statutes effec-
                    Cite as: 512 U. S. 26 (1994)

                       Opinion of the Court

tive dates prior to the dates of actual enactment. This "cus-
tomary congressional practice" generally has been "confined
to short and limited periods required by the practicalities of
producing national legislation." Id., at 296-297. In Welch
v. Henry, 305 U. S. 134 (1938), the Court upheld a Wisconsin
income tax adopted in 1935 on dividends received in 1933.
The Court stated that the "'recent transactions"' to which a
tax law may be retroactively applied "must be taken to in-
clude the receipt of income during the year of the legislative
session preceding that of its enactment." Id., at 150. Here,
the actual retroactive effect of the 1987 amendment ex-
tended for a period only slightly greater than one year. More-
over, the amendment was proposed by the IRS in January
 1987 and by Congress in February 1987, within a few months
of § 2057's original enactment.
   Respondent Carlton argues that the 1987 amendment vio-
lates due process because he specifically and detrimentally
relied on the preamendment version of § 2057 in engaging
in the MCI stock transactions in December 1986. Although
 Carlton's reliance is uncontested-and the reading of the
 original statute on which he relied appears to have been cor-
 rect-his reliance alone is insufficient to establish a consti-
 tutional violation. Tax legislation is not a promise, and a
 taxpayer has no vested right in the Internal Revenue Code.
Justice Stone explained in Welch v. Henry, 305 U. S., at
 146-147:
    "Taxation is neither a penalty imposed on the taxpayer
    nor a liability which he assumes by contract. It is but
    a way of apportioning the cost of government among
    those who in some measure are privileged to enjoy its
    benefits and must bear its burdens. Since no citizen en-
    joys immunity from that burden, its retroactive imposi-
    tion does not necessarily infringe due process ......
Moreover, the detrimental reliance principle is not limited to
retroactive legislation. An entirely prospective change in
                 UNITED STATES v. CARLTON

                       Opinion of the Court

the law may disturb the relied-upon expectations of individu-
als, but such a change would not be deemed therefore to be
violative of due process.
   Similarly, we do not consider respondent Carlton's lack of
notice regarding the 1987 amendment to be dispositive. In
 Welch v. Henry, the Court upheld the retroactive imposition
of a tax despite the absence of advance notice of the legisla-
tion. And in Milliken v. United States, the Court rejected
a similar notice argument, declaring that a taxpayer "should
be regarded as taking his chances of any increase in the tax
burden which might result from carrying out the established
policy of taxation." 283 U. S., at 23.
   In holding the 1987 amendment unconstitutional, the
Court of Appeals relied on this Court's decisions in Nichols
v. Coolidge, 274 U. S. 531 (1927), Blodgett v. Holden, 275 U. S.
 142 (1927), and Untermyer v. Anderson, 276 U. S. 440 (1928).
Those cases were decided during an era characterized by
exacting review of economic legislation under an approach
that "has long since been discarded." Ferguson v. Skrupa,
372 U. S. 726, 730 (1963). To the extent that their authority
survives, they do not control here. Blodgett and Unter-
myer, which involved the Nation's first gift tax, essentially
have been limited to situations involving "the creation of a
wholly new tax," and their "authority is of limited value in
assessing the constitutionality of subsequent amendments
that bring about certain changes in operation of the tax
laws." United States v. Hemme, 476 U. S., at 568. Nichols
involved a novel development in the estate tax which em-
braced a transfer that occurred 12 years earlier. The
amendment at issue here certainly is not properly character-
ized as a "wholly new tax," and its period of retroactive ef-
fect is limited. Nor do the above cases stand for the propo-
sition that retroactivity is permitted with respect to income
taxes, but prohibited with respect to gift and estate taxes.
In Hemme and Milliken, this Court upheld retroactive fea-
tures of gift and estate taxes.
                    Cite as: 512 U. S. 26 (1994)

               O'CONNOR, J., concurring in judgment

                                III
   In focusing exclusively on the taxpayer's notice and reli-
ance, the Court of Appeals held the congressional enactment
to an unduly strict standard. Because we conclude that
retroactive application of the 1987 amendment to §2057 is
rationally related to a legitimate legislative purpose, we
conclude that the amendment as applied to Carlton's 1986
transactions is consistent with the Due Process Clause.
   The judgment of the Court of Appeals is reversed.
                                                   It is so ordered.
  JUSTICE O'CONNOR, concurring in the judgment.
   The unamended 26 U. S. C. § 2057, which allowed taxpay-
ers to reduce the taxable estate by buying securities and
reselling them to employee stock ownership plans (ESOP's),
made it possible to avoid estate taxes by structuring transac-
tions in a certain way. But the tax laws contain many such
provisions. See, e. g., 26 U. S. C. §2055 (allowing deductions
from taxable estate for transfers to the government, chari-
ties, and religious organizations). And §2057 was only the
latest in a series of congressional efforts to promote ESOP's
by providing tax incentives. See, e. g., 26 U. S. C. § 133 (par-
tial income tax exclusion for interest paid to banks on ESOP
loans); 26 U. S. C. § 1042 (allowing certain taxpayers to defer
capital gains taxes on sale of securities to ESOP's).
   Thus, although respondent Carlton may have made a
"purely tax-motivated stock transfe[r]," ante, at 32, I do not
understand the Court to express any normative disapproval
of this course of action. As executor of Willametta Day's
estate, it was entirely appropriate for Carlton to seek to re-
duce the estate taxes. And like all taxpayers, Carlton was
entitled to structure the estate's affairs to comply with the
tax laws while minimizing tax liability. As Learned Hand
observed with characteristic acerbity:
                 UNITED STATES v. CARLTON

               O'CONNOR, J., concurring in judgment

    "[A] transaction, otherwise within an exception of the
    tax law, does not lose its immunity, because it is actuated
    by a desire to avoid, or, if one choose, to evade, taxation.
    Any one may so arrange his affairs that his taxes shall
    be as low as possible; he is not bound to choose that
    pattern which will best pay the Treasury; there is not
    even a patriotic duty to increase one's taxes. There-
    fore, if what was done here, was what was intended by
    [the statute], it is of no consequence that it was all an
    elaborate scheme to get rid of [estate] taxes, as it cer-
    tainly was." Helvering v. Gregory, 69 F. 2d 809, 810
    (CA2 1934) (citations omitted), aff'd, 293 U. S. 465 (1935).
To say that Carlton did nothing wrong in claiming the deduc-
tion does not, of course, answer the question whether Con-
gress deprived him of due process by amending §2057. As
we have noted, "the retroactive aspects of economic legisla-
tion, as well as the prospective aspects, must meet the test
of due process: a legitimate legislative purpose furthered by
rational means." General Motors Corp. v. Romein, 503
U. S. 181, 191 (1992) (internal quotation marks omitted).
   The Court finds it relevant that, according to prominent
members of the tax-writing committees of each House, the
statute as originally enacted would have cost the Govern-
ment too much money and would have allowed taxpayers to
avoid tax by engaging in sham transactions. See ante, at
31-32. Thus, the Court reasons that the amendment to
§ 2057 served the legislative purpose of "correct[ing]" a "mis-
take" Congress made the first time. Ante, at 32. But this
mode of analysis proves too much. Every law touching on
an area in which Congress has previously legislated can be
said to serve the legislative purpose of fixing a perceived
problem with the prior state of affairs-there is no reason to
pass a new law, after all, if the legislators are satisfied with
the old one. Moreover, the subjective motivation of Mem-
bers of Congress in passing a statute-to the extent it can
                    Cite as: 512 U. S. 26 (1994)

               O'CONNOR, J., concurring in judgment

even be known-is irrelevant in this context: It is sufficient
for due process analysis if there exists some legitimate pur-
pose underlying the retroactivity provision. Cf. FCC v.
Beach Communications, Inc., 508 U. S. 307, 313-315 (1993).
   Retroactive application of revenue measures is ration-
ally related to the legitimate governmental purpose of rais-
ing revenue. In enacting revenue measures, retroactivity
allows "the legislative body, in the revision of tax laws, to
distribute increased costs of government among its taxpay-
ers in the light of present need for revenue and with knowl-
edge of the sources and amounts of the various classes of
taxable income during the taxable period preceding revi-
sion." Welch v. Henry, 305 U. S. 134, 149 (1938). For this
reason,
    "[i]n enacting general revenue statutes, Congress almost
    without exception has given each such statute an effec-
    tive date prior to the date of actual enactment.... Usu-
    ally the 'retroactive' feature has application only to that
    portion of the current calendar year preceding the date
    of enactment, but [some statutes have been] applicable
    to an entire calendar year that had expired preceding
    enactment. This 'retroactive' application apparently
    has been confined to short and limited periods required
    by the practicalities of producing national legislation.
    We may safely say that it is a customary congressional
    practice." United States v. Darusmont, 449 U. S. 292,
    296-297 (1981) (per curiam).
   But "the Court has never intimated that Congress pos-
sesses unlimited power to 'readjust rights and burdens ...
and upset otherwise settled expectations."' Connolly v.
Pension Benefit Guaranty Corporation,475 U. S. 211, 229
(1986) (O'CONNOR, J., concurring) (brackets omitted), quoting
Usery v. Turner Elkhorn Mining Co., 428 U. S. 1, 16 (1976).
The governmental interest in revising the tax laws must at
some point give way to the taxpayer's interest in finality and
                 UNITED STATES v. CARLTON

               O'CONNOR, J., concurring in judgment

repose. For example, a "wholly new tax" cannot be imposed
retroactively, United States v. Hemme, 476 U. S. 558, 568
 (1986), even though such a tax would surely serve to raise
money. Because the tax consequences of commercial trans-
actions are a relevant, and sometimes dispositive, consider-
ation in a taxpayer's decisions regarding the use of his capi-
tal, it is arbitrary to tax transactions that were not subject
to taxation at the time the taxpayer entered into them. See
 Welch v. Henry, supra, at 147.
   Although there is also an element of arbitrariness in retro-
actively changing the rate of tax to which the transaction is
subject, or the availability of a deduction for engaging in that
transaction, our cases have recognized that Congress must
be able to make such adjustments in an attempt to equalize
actual revenue and projected budgetary requirements. In
every case in which we have upheld a retroactive federal
tax statute against due process challenge, however, the law
applied retroactively for only a relatively short period prior
to enactment. See United States v. Hemme, supra, at 562
(1 month); United States v. Darusmont, supra, at 294-295
(10 months); United States v. Hudson, 299 U. S. 498, 501
(1937) (1 month). In Welch v. Henry, supra, the tax was
enacted in 1935 to reach transactions completed in 1933; but
we emphasized that the state legislature met only biannually
and it made the revision "at the first opportunity after the
tax year in which the income was received." 305 U. S., at
151. A period of retroactivity longer than the year preced-
ing the legislative session in which the law was enacted
would raise, in my view, serious constitutional questions.
But in keeping with Congress' practice of limiting the retro-
active effect of revenue measures (a practice that may reflect
Congress' sensitivity to the due process problems that would
be raised by overreaching), the December 1987 amendment
to §2057 was made retroactive only to October 1986. Given
our precedents and the limited period of retroactivity, I con-
                    Cite as: 512 U. S. 26 (1994)

                SCALIA, J., concurring in judgment

cur in the judgment of the Court that applying the amended
statute to respondent Carlton did not violate due process.
  JUSTICE SCALIA, with whom JUSTICE THOMAS joins,
concurring in the judgment.
   If I thought that "substantive due process" were a con-
stitutional right rather than an oxymoron, I would think it
violated by bait-and-switch taxation. Although there is
not much precision in the concept "'harsh and oppressive,"'
which is what the Court has adopted as its test of substan-
tive due process unconstitutionality in the field of retroactive
tax legislation, see, e. g., United States v. Hemme, 476 U. S.
558, 568-569 (1986), quoting Welch v. Henry, 305 U. S. 134,
147 (1938), surely it would cover a retroactive amendment
that cost a taxpayer who relied on the original statute's clear
meaning over $600,000. Unlike the tax at issue in Hemme,
here the amendment "without notice,... gives a different
and more oppressive legal effect to conduct undertaken be-
fore enactment of the statute." 476 U. S., at 569.
   The Court attempts to minimize the amendment's harsh-
ness by characterizing it as "a curative measure," quoting
some post-legislation legislative history (another oxymoron)
to show that, despite the uncontested plain meaning of the
statute, Congress never meant it to apply to stock that was
not owned by the decedent at the time of death. See ante,
at 31-32. I am not sure that whether Congress has treated
a citizen oppressively should turn upon whether the oppres-
sion was, after all, only Congress' "curing" of its own mis-
take. Even if it should, however, what was done to respond-
ent here went beyond a "cure." The retroactivity not only
hit him with the tax that Congress "meant" to impose origi-
nally, but it caused his expenditures incurred in invited reli-
ance upon the earlier law to become worthless. That could
have been avoided, of course, by providing a tax credit for
such expenditures. Retroactively disallowing the tax bene-
                 UNITED STATES v. CARLTON

                SCALIA, J., concurring in judgment

 fit that the earlier law offered, without compensating those
who incurred expenses in accepting that offer, seems to me
harsh and oppressive by any normal measure.
    The Court seeks to distinguish our precedents invalidating
retroactive taxes by pointing out that they involved the im-
position of new taxes rather than a change in tax rates. See
ante, at 34. But eliminating the specifically promised re-
ward for costly action after the action has been taken, and
refusing to reimburse the cost, is even more harsh and op-
pressive, it seems to me, than merely imposing a new tax on
past actions. The Court also attempts to soften the impact
of the amendment by noting that it involved only "a modest
period of retroactivity." Ante, at 32. But in the case of a
tax-incentive provision, as opposed to a tax on a continuous
activity (like the earning of income), the critical event is the
taxpayer's reliance on the incentive, and the key timing issue
is whether the change occurs after the reliance; that it occurs
immediately after rather than long after renders it no less
harsh.
    The reasoning the Court applies to uphold the statute in
this case guarantees that all retroactive tax laws will hence-
forth be valid. To pass constitutional muster the retroac-
tive aspects of the statute need only be "rationally related
to a legitimate legislative purpose." Ante, at 35. Revenue
raising is certainly a legitimate legislative purpose, see U. S.
Const., Art. I, § 8, cl. 1, and any law that retroactively adds
a tax, removes a deduction, or increases a rate rationally
furthers that goal. I welcome this recognition that the Due
Process Clause does not prevent retroactive taxes, since I
believe that the Due Process Clause guarantees no substan-
tive rights, but only (as it says) process, see TXO Production
Corp. v. Alliance Resources Corp., 509 U. S. 443, 470-471
(1993) (SCALIA, J., concurring in judgment).
    I cannot avoid observing, however, two stark discrepancies
between today's due process reasoning and the due process
reasoning the Court applies to its identification of new so-
                    Cite as: 512 U. S. 26 (1994)

                SCALIA, J., concurring in judgment

called fundamental rights, such as the right to structure fam-
ily living arrangements, see Moore v. East Cleveland, 431
U. S. 494 (1977) (plurality opinion), and the right to an abor-
tion, see Roe v. Wade, 410 U. S. 113 (1973). First and most
obviously, where respondent's claimed right to hold onto his
property is at issue, the Court upholds the tax amendment
because it rationally furthers a legitimate interest; whereas
when other claimed rights that the Court deems fundamental
are at issue, the Court strikes down laws that concededly
promote legitimate interests, id., at 150, 162. Secondly,
when it is pointed out that the Court's retroactive-tax ruling
today is inconsistent with earlier decisions, see, e. g., Nichols
v. Coolidge, 274 U. S. 531 (1927); Blodgett v. Holden, 275 U. S.
 142 (1927); Untermyer v. Anderson, 276 U. S. 440 (1928), the
Court dismisses those cases as having been "decided during
an era characterized by exacting review of economic legisla-
tion under an approach that 'has long since been discarded."'
Ante, at 34, quoting Ferguson v. Skrupa, 372 U. S. 726, 730
 (1963). But economic legislation was not the only legisla-
tion subjected to "exacting review" in those bad old days,
 and one wonders what principled reason justifies "discard-
 ing" that bad old approach only as to that category. For
 the Court continues to rely upon "exacting review" cases of
 the Nichols-Blodgett-Untermyer vintage for its due process
 "fundamental rights" jurisprudence. See, e. g., Roe, supra,
 at 152-153, 159 (citing Meyer v. Nebraska, 262 U. S. 390, 399
 (1923), and Pierce v. Society of Sisters, 268 U. S. 510, 535
 (1925)); see also Griswold v. Connecticut, 381 U. S. 479, 483
 (1965) ("[W]e reaffirm the principle of the Pierce and the
 Meyer cases").
   The picking and choosing among various rights to be ac-
 corded "substantive due process" protection is alone enough
 to arouse suspicion; but the categorical and inexplicable ex-
 clusion of so-called "economic rights" (even though the Due
 Process Clause explicitly applies to "property") unquestion-
 ably involves policymaking rather than neutral legal analy-
42              UNITED STATES v. CARLTON

               SCALIA, J., concurring in judgment

sis. I would follow the text of the Constitution, which sets
forth certain substantive rights that cannot be taken away,
and adds, beyond that, a right to due process when life,
liberty, or property is to be taken away.


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