Two weeks ago in this space, I argued that the so-called wealth tax proposed by Democratic hopefuls Senators Elizabeth Warren and Bernie Sanders would be a “giant invasion of privacy” – because it would require wealthy Americans to disclose everything they own, and the value thereof – something that has never before happened in this country.
Since I wrote that article, there has been increasing discussion on whether or not a wealth tax is even constitutional, in the first place. Evidence is stacking up that a wealth tax, at least as proposed, is not constitutional. This is a very important argument, and I’ll flesh it out for you today. Let’s jump in.
Democratic presidential hopeful Elizabeth Warren is vigorously promoting her proposed “wealth tax” aimed at the super-rich who she says don’t pay their fair share in taxes. Her wealth tax would impose a 2% annual levy on households with a net worth of $50 million, rising to 6% (yes, now 6%) for those families with a net worth of a billion dollars or more.
And unlike income taxes, this wealth tax would apply annually to every form of wealth and property owned, including assets held in the United States and abroad. It takes class warfare to a whole new – and probably illegal – level. Fellow candidate Bernie Sanders has his own, but slightly different, version of the wealth tax.
One of the primary drivers of a wealth tax is the idea that many wealthy Americans got that way, not because of their own efforts, but because they were able to accumulate their wealth by taking advantage of government loopholes and other advantages Uncle Sam creates. This, the proponents argue, means the government should restrict such high incomes by imposing very high taxes on them.
The question is: Is a wealth tax constitutional? Article 1 Section 9 of the Constitution forbids the government from laying a “capitation, or other direct, tax” unless in proportion to the census (population). Under this limitation, a wealth tax is unconstitutional.
In 1895, the Supreme Court ruled that income taxes were forbidden under this logic in Pollock v. Farmers’ Loan & Trust Co. Chief Justice Melville Fuller noted that “nothing can be clearer than that what the Constitution intended to guard against was the exercise by the general government of the power of directly taxing persons and property.”
This was the background for the 16th Amendment (income tax), which was proposed, passed and ratified in 1913 during William Howard Taft’s single term. It gave Congress the right to levy a form of taxation that was originally constitutionally suspect. But there is no provision in that amendment for a general federal property or wealth tax. And while the definition of “direct tax” can be debated, if Washington is able to tax everything you own, then it is either a “direct tax” or the term is meaningless.
A second objection is that the wealth tax proposal is functionally a bill of “attainder,” which is also forbidden under Article 1 Section 9, and denied to the states under Section 10. The ban was based on the abuse of this process by British governments seeking to punish political dissent. Hence bills of attainder, according to Chief Justice Earl Warren in the 1965 case United States v. Brown, were intended by the Founders to “bar legislative punishment, of any form or severity, of specifically designated persons or group.”
Under the test laid out in the 1946 case United States v. Lovett, bills of attainder identify specific groups (in this case “billionaires”) and impose punishment (taking wealth) without a trial. Laws denying employment to members of subversive organizations have been overturned by this standard; replace “communists” with “the wealthy” and you can see how the class warfare script has flipped.
The fact that this is bad economics should be obvious. The wealthy already bear a heavy tax burden: The top 1% of wage earners pay a greater share of federal income taxes than the bottom 90% combined. Why make the investment climate in the United States even worse?
If anything, we should be finding ways to attract wealth to the country, not punish it. An argument can also be made that the Warren wealth tax is offensive to the fundamental rights on which the Constitution is based. In short, it is a recipe for unlimited government. Do we really want a system in which Washington has the right to tax anything you have simply because you have it? If so, no property would ever be safe.
While I may have gotten a little off into the weeds with the constitutional discussion above, I think you get the point. The good news is, the wealth tax as proposed by Senators Warren and Sanders is very likely unconstitutional. And even if it were constitutional, I think it would be so controversial that there’s very little chance both houses of Congress would approve it.
Think of it this way: The wealth tax is simply political posturing. Let’s hope so anyway!
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