Abstract

Excerpted From: Alex Zhang, The Other Taxation: Tribes, Territories, and Fiscal Autonomy, 126 Columbia Law Review 397 (April 2026) (589 Footnotes) (Full Document)

Fiscal autonomy forms the foundation of self-governance. The power to tax enables robust provision of public goods. Allocation of tax burdens effects the regime’s vision of distributive justice and is the primary tool of income redistribution in the United States. A key motivation of the 1787 *399 Constitution was Congress’s taxing power. The Articles of Confederation set up a federal government with no independent means of raising revenue, relying instead on the states’ generosity to implement federal policy. A generation of social mobilization fought for the possibility of a progressive income tax. Even today, lawmakers and scholars clash with the Supreme Court over Congress’s power to tax the ultrarich on their unrealized gains and wealth--a power critical to federal fiscal autonomy in an age of tax cuts, increased spending, and astonishing budget shortfalls.

Scholars have intensely debated the reach of the federal taxing power. They have also assessed state and local autonomy, often in the shadow of the Commerce Clause and the fiscal hegemony of Congress. But within the United States, two other subnational governments have distinctive powers to tax. First, Native tribes can tax as an inherent attribute *401 of sovereignty. This authority extends at least as far as nonmembers’ economic activities on trust lands. As the Supreme Court has explained, tribal taxing power fosters “self-government” by “defray[ing] the cost of providing governmental services.” Despite the rhetoric of autonomy, federal courts have shrunk this power and simultaneously expanded the states’ power to tax on Native land. As a result, commentators and Native communities have decried tax policy as modern instruments of wealth extraction that limit essential services on reservations. Their demand is simple but powerful: “You Can’t Tax Stolen Lands,” and Congress should put tribes on an equal fiscal footing as states.

Second, U.S. territories--American Samoa, Guam, Northern Mariana Islands (CNMI), Puerto Rico, and the Virgin Islands--can tax pursuant to *402 authorization by Congress. As in the context of federal Indian law, territorial taxing power has been grounded in fiscal autonomy and self-government. Unlike tribes, however, territories face little tax competition. They have no overlapping jurisdiction with states and fall outside of the Internal Revenue Code’s (the “Code”) definition of the “United States.” Bona fide residents of the territories--including U.S. citizens--are therefore exempt from federal taxation of territorially sourced income. Instead, they pay a local tax on such income to fulfill their fiscal obligations to both the territorial and the federal government. Congress has even empowered Puerto Rico and American Samoa to deviate from federal-income-tax rules: As a matter of formal statutory authorization, they can craft their own tax regimes to incentivize investment and effect territorial policy. By contrast, Guam, CNMI, and the Virgin Islands are “mirror-Code” jurisdictions and must use the federal income tax as the local, territorial tax regime. Puerto Rico has exercised this power and enacted *403 a host of tax incentives to attract the wealthy to relocate from the mainland. This has increased economic inequality and led to an influx of cryptocurrency tycoons and hedge fund managers. Locals have criticized these tax regimes as fueling a predatory “tsunami of gentrification.”

Both Native and territorial taxing powers are thus grounded in fiscal autonomy. But this concept cannot rest on taxing power alone. For Native tribes, diminished power to tax has impoverished their members. On the other hand, the robust taxing powers of territorial governments--even to replace the federal income tax--have brought neither prosperity nor self-governance. Missing from the scholarship is an account of what exactly fiscal autonomy entails in subfederal taxation. This involves a robust understanding of how federal tax law treats Native tribes and the territories and how fiscal self-governance works for communities living with the legacy of American imperialism.

This Article fills the gap. It analyzes the federal tax regime as applied to tribal and territorial communities, showing their diametrically opposite treatment under federal law. Based on this analysis, it argues that fiscal autonomy is a twofold concept. First-order structural autonomy concerns *404 taxing power as to the substance and receipt of funds. Subnational governments can tax to the exclusion of others with no formal tax competition or share funds acquired from the same tax base with other jurisdictions. This question goes to how much revenue is available to them within the confines of their tax base. Further, subnational governments can have substantial authority to design their own tax regimes or must tax in ways derivative of or shaped by the distributive preferences of the national community. This question goes to how they may raise revenue, which implicates key questions of fairness.

By contrast, second-order governance autonomy concerns democratic decisionmaking. Given the degree of structural, first-order autonomy enjoyed by subnational governments, to what extent can they tax in accordance with their citizens’ sense of distributive equity? Constraints on democratic and responsive fiscal governance can be internal to the subnational community-- for example, because the wealthy dominate internal distributive politics. They can also be external to the subnational community--for example, because its members lack representation in the national government. Further, these constraints can be formal, like institutional or process defects that fail to channel preferences into lawmaking, or functional, like outsized influence of wealth on preference formation itself.

The interaction between first- and second-order autonomy is dynamic: The degree to which subnational governments deserve the former rests on its capacity for the latter. That is, robust taxing powers demand adherence to the citizens’ vision of distributive justice in fashioning tax policy. Any claims to autonomy thus entail an assessment of not only tribal and territorial authorities to tax but also their potential for fiscal self-governance--both of which have inevitably been influenced by extractive and paternalist federal policies, past and present. Thus framed, the concept of fiscal autonomy captures the element of sovereignty that relates to self-governance in taxation but is not co-extensive with the traditional or *405 doctrinal concept of sovereignty. Overall, this Article’s normative framework suggests that judicial limits on tribal taxing power are misguided. By contrast, the territories’ wide latitude in designing revenue streams merits further scrutiny.

This analysis is functionalist: It focuses on tribal and territorial governments’ capacity in designing tax policy that is responsive to the will of the people they govern. Formal mechanisms of democracy (e.g., written constitutionalism, procedural safeguards in legislation, or numeric representation) may provide strong but non-exclusive evidence for such capacity. This is an important point for Native governance because a significant number of tribes do not have written constitutions or might not be democracies in the strictest sense. It is not the argument of this Article that these tribes must adopt canonical documents establishing the basic machinery of government--whether grounded in separation of powers or another articulated structure of popular sovereignty--to gain the privilege to tax. Instead, robust operations of implicit tribal norms or the reciprocal obligations to tribal members--both in collecting revenue and distributing the proceeds--may be enough. On the flipside, democratic fiscal governance in the territories (or its suboptimal presence) often results not from local resistance. Instead, federal control over and neglect of territorial constitutionalism, coupled with Congress’s distaste for direct spending in the islands, have necessitated the development of tax incentive regimes that further increased inequality. The continuation of such neglect and distaste makes certain forms of territorial taxing power incoherent with *406 second-order autonomy. It also puts the burden on Congress to remedy both the democratic deficit and the persistent impoverishment.

The Article thus aims to integrate Native and territorial issues into the mainstream discourse about taxation. It makes three main contributions. First, it evaluates the doctrinal and statutory regimes that govern the taxing powers of Native tribes and U.S. territories. It is therefore the first Article to offer a systematic analysis of the law of subfederal taxation beyond states and localities. Second, the Article deconstructs the concept of fiscal autonomy. It propels both scholarly and policy discussions beyond their current focus on a generalized concept of taxing power. Third, the conceptual framework yields insights for reform. A uniform federal income-tax credit for tribal and territorial taxes paid coheres more with Congress’s promise of fiscal autonomy than the existing regime.

The remainder of this Article proceeds as follows. The Article first provides a comparative analysis of existing law. Part I addresses Native tribes, covering federal tax treatment, tribal taxing power, and interactions between tribal and state tax regimes. It shows (1) how divergent interpretive principles and collision of executive agencies, specialty tribunals, and general jurisdiction courts have led to narrowing federal tax exemption; (2) how the battle between dependent-sovereign and strict-autonomy theories has contracted tribal fiscal capacity; and (3) how the failure of preemption by delegation has forced tribes to engage in intense tax competition with the states. Part II examines territorial tax systems, including the territories’ general federal tax exemption and Puerto Rico’s tax-incentive regime. It shows how the territorial government’s exercise of delegated tax discretion has invited criticism of tax shelter and imperialism.

Part III builds a framework of fiscal autonomy. It assesses the scholarship about Native taxation, territorial tax policy, autonomy in other forms of subnational taxation, and the constitution of American imperialism. Part III then contends that fiscal autonomy is a twofold concept, incorporating first-order taxing power and second-order governance. It ends with policy and doctrinal reform proposals, including the design of a nonrefundable federal income-tax credit for tribal and territorial taxes paid.

[ . . . ]

This Article studies the distinctive taxing powers of Native tribes and the U.S. territories. It shows that the same vow of autonomy and federal plenary power has produced complex, divergent tax treatment. The Article provides the missing account of fiscal autonomy for these subnational jurisdictions. It proposes policy reforms that bring the federal government closer to fulfilling its promise of self-governance for jurisdictions long afflicted by the legacy of American imperialism.

Indeed, such calls for fiscal autonomy echo the constitutional values that underpin the federal government’s own authority to tax. In 1787, Alexander Hamilton argued passionately for Congress’s taxing power:

Money is, with propriety, considered as the vital principle of the body politic; as that which sustains its life and motion and enables it to perform its most essential functions. A complete power, therefore, to procure a regular and adequate supply of revenue, as far as the resources of the community will permit, may be regarded as an indispensable ingredient in every constitution. From a deficiency in this particular, one of two evils must ensue: either the people must be subjected to continual plunder, as a substitute for a more eligible mode of supplying the public wants, or the government must sink into a fatal atrophy, and, in a short course of time, perish.

Hamilton’s vision resonates with this Article’s discussion of fiscal autonomy. Effective government requires revenue--“the vital principle of the body politic”--and the power to tax. Democratic governance--what constitutes the state and “propriety”--constrains its exercise. Despite a century of promise of fiscal self-governance, tribes and territories have long been overlooked. It is time to integrate them into the scholarly discourse and public debate about taxation.

  Associate Professor of Law, Emory University.