I see that the professional punditry is catching up to where I was last week on the subject of a wealth tax. In his Wall Street Journal column James Freeman echoes the points I made last week:
There are excellent economic arguments against this new tax plan. But today this column would like to focus on the illegality of the Warren scheme. Ms. Warren seems to understand this problem as well. Typically lawmakers announcing new legislation don’t feel the need to simultaneously try to rebut anticipated claims that the bill is unconstitutional. But the Warren press release links to two letters on the subject, each signed by various law professors at famous universities.
No matter how many academics she persuades to sign on to this ideological project, the plain fact is that the founders specifically prohibited such a tax. A well-informed reader notes:
The 16th Amendment authorizes Congress to tax “incomes, from whatever source derived.†It does not give Congress the power to tax balance sheets as well.
At the Constitutional Convention, Gouverneur Morris explained in plain English what every delegate understood “direct taxation†to be: it is when the federal government attempts to “stretch its hand directly into the pockets of the people,†rather than acting through the intermediary of a state. Direct taxes, the delegates decided, would be authorized only if each state paid the same per capita amount – i.e., only if the taxes were apportioned to population. Warren’s proposal to stretch her hand directly into the pockets of the people would not be apportioned and so it would violate both the 16th Amendment (failing as an income tax) and Article I, Section 9, Clause 4 (failing because it is an unapportioned direct tax).
In NFIB v. Sebelius, Chief Justice Roberts got this point wrong and held that the Obamacare tax is not a direct tax… Notwithstanding Roberts’s obviously hasty and slipshod analysis (it’s all of a page), the facts of that case are unique (he claimed the tax was not on people or property but rather “it is triggered by specific circumstances.â€) Warren’s tax is quite obviously a tax on property, which the courts have repeatedly held constitutes a direct tax.
Warren might want to characterize her wealth tax as an “excise tax,†since such taxes were held constitutional before the adoption of the 16th Amendment. But an excise tax is levied on a specific transaction or a specific activity (e.g., gambling; using a truck on a highway). Will she claim the excise tax is for the privilege of living in America as a rich person?
Whether or not you agree with the effectiveness or necessity of a wealth tax, it is vital that we follow the proper processes and above all that means following the law. It is not enough to point to a need or our own good intentions. Backing constitutionality out of your preferred policies because they’re you’re preferred policies is not helpful.
“…it is vital that we follow the proper processes and above all that means following the law.”
Ah, the law. Equal treatment under the law. Yes. Well that doesn’t seem to be top of mind these days, does it Mr. Comey, does it Mr. Mueller? Mueller? Mueller?
I hear you are going to have some brisk weather this week.
That’s what they tell me. Most of the people at work are working from home today. I’m one of the hardy six who are here (me and one of my guys, the CFO and two people who work for her, and the CEO). The CEO has already given people permission to work from home on Wednesday when it’s supposed to be ultra-cold.
It may actually get cold enough that my dogs will prefer inside to outside. 😉
I have not read the legal opinions, but the elephant in the room is that in the first case in which the SCOTUS reviewed a federal law (predating Madison v. Marbury), the Court upheld a personal property tax on carriages. The Constitutionality of that law was argued by the legislature (with Madison arguing it unconstitutional), and signed by Washington and affirmed by the SCOTUS in Hylton v. U.S. (1796). The 1864 federal income tax was upheld by the SCOTUS in 1881.
Hylton was overturned by the SCOTUS in a 5-4 ruling in Pollock v. Farmers’ Loan & Trust (1895) which found that taxes on income derived property (interest, dividends, rents) were direct taxes.
by prohibited taxing income derived from property.
I don’t have a personal view other than the direct/indirect taxation distinction does not appear to have been clear to everyone involved in ratifying the Constitution. Chief Justice Roberts cited Hylton in the Obamacare case.
Has any state passed a wealth tax?
Does property tax count?
All 50 states have property taxes (Illinois’s are among the highest). Some states have personal property taxes as well. To the best of my knowledge no state has a wealth tax other than those.
Reminds me that Washington state has a car tab renewal fee that is based on the value of the vehicle – a personal property tax.
Now the federal government does have a tax deduction for property tax; if they can lower your tax based on an asset; can they increase your tax based on it as well?
I heard -60 wind chills. We are going to have the same number…………but on the positive side. And people are practically wearing parkas.
It is quite possible that it has never been tested. Who that has standing would test it?
It should be pointed out that neither Article I or the 16th Amendment forbid a wealth tax. But this is why Republicans have been fixated on stacking the judiciary. They’ve been aware for some time their coalition is weakening by the day and their hold on legislative power is quickly attenuating.
There is ample precedent to suggest that they do. It is the reason that the 16th Amendment was ratified to begin with. If a federal wealth tax is enacted, it will undoubtedly be tested.
There are plenty of ways to even the playing field that are unquestionably constitutional. Why not try those rather than trying dramatic steps of dubious legality?
Courts can put whatever spin they like on the Constitution, but there’s no way to read it and say a wealth tax is prohibited by the language actually in the document.
Any argument against it is going to be from consulting external writings and guessing at intent, which is why the Republicans are so intent on getting Federalist Society ideologues into the courts.
We have a common law system, Ben, not a civil code system. The decisions that support the view I have explained were issued over the course of a century, not just over the course of the last 30 years.
And claiming that judges do anything they care to is ignorant. It’s like saying that physicians practice medicine based on whimsy. There are certain rules in place that must be followed. Because judges (or physicians) are human they sometimes do not follow the rules but that’s a very tiny fraction of cases and it’s why we have appeals courts and the Supreme Court.
I accept that you belive this, but I didn’t consent to give a group of judicial hooligans authority to determine for me what’s in the Constitution or any other document. I’ve read it, and if precedent says the language forbids a wealth tax, that’s their opinion, and an unsupported one at that.
It’s no different than a Muslim relying on hadith to tell them what the Prophet said rather than reading the words of the actual Prophet.
Our system of government does not require your personal consent. Nor mine.
“Give a group of judicial hooligans authority to determine” is a description of a common law system. Most of the world’s liberal democracies have a civil code system but we, the Brits, Canadians, Austrlians, and a few others don’t.
In at least two places in the Constitution, the federal government is prohibited from imposing a direct tax. The issue is not made out of whole cloth.
I agree. But any notion that the issue is cut and dried in the opposite direction is flawed as well. If enacted into law, the legality of a wealth tax will inevitably be decided in the courts.
I also think there’s a basic flaw in the notion that justices who rule in favor of a wealth tax are selfless, noble jurists deciding solely based on the law while those would rule against are evil tools of the rich.
“I also think there’s a basic flaw in the notion that justices who rule in favor of a wealth tax are selfless, noble jurists deciding solely based on the law while those would rule against are evil tools of the rich.”
The opposite is also true. Those opposing the wealth tax are not the true conservators of the Constitution and those supporting it are not communists looking to do away with the constitution. While most things on which the court rules dont invoke ideological bias (look at their actually decisions and you will not have heard of most of them, PD excepted), but when there is a major decision that involves ideology, that will be the determining factor, not the law. Anything that gets to SCOTUS isn’t cut and dried so the court can do whatever it wants.
Steve
I think that’s either an exaggeration or, possibly, circular, i.e. when justices vote based on ideology rather than the law it’s a major decision. As noted Supreme Court justices are human and have preferences, politics, ideologies, and agendas. IMO the degree to which justices will bend the law to suit their preferences, politics, etc. varies not only from issue to issue but from justice to justice.
As Yogi Berra noticed; it all depends on the implementation.
I cannot support a wealth tax that does not do what it’s promoters promise; reduce inequality.
A wealth tax that does not tax the Harvard Corporation, Open Society, the Koch Foundation fails to reduce inequality.
A wealth tax that does not value Ivy League degree as an asset worth 10x (the difference in tuition) that of a State College degree fails to reduce inequality.
A wealth tax that fails to value belonging to professions protected by moats (like Dentistry, or Law) fails to reduce inequality.
A wealth tax that fails to value power – a Congressional Seat should be valued by the amount spent by all campaigns (inside and outside) to win that seat – fails to reduce inequality.
If a wealth tax taxes all these things; I support it. If not; we know what it’s really about.
Thumbs up for that comment.
Curious wins with that comment.
The Constitutional issues may not be black-and-white; they may require some things to be exempted or for the tax to be administered in an indirect fashion. Any actual legislation might try to anticipate the uncertain terrain by drafting it in ways that would not otherwise be based on policy.
The SCOTUS never held that the federal government couldn’t tax income; it held that certain types of income were exempt: interest, dividends, and rents. Because the ruling appeared to allow taxation of wage-earners, but not the rentier class, federal income taxation was politically untenable until the 16th Amendment passed (allowing “taxes on incomes, from whatever source derived).
It may be that a wealth tax cannot include taxation of real estate given past precedents (as opposed to income from real estate).
Thank you for the clarification, PD. Everyone should take note that a wealth tax may have undesired run-on effects, particularly if real estate is excluded.