Senator Elizabeth Warren unveiled a new wealth tax proposal last week that she says will raise — along with her previously announced wealth tax plan — $3.75 trillion over the next decade. Senator Bernie Sanders says his wealth tax will yield $4.35 trillion over the same period.
We fear these figures are vast overestimates. The likeliest outcome is that a wealth tax will raise exactly zero dollars. The problem, alas, is the Constitution. The Warren and Sanders plans run headlong into more than two centuries of precedent that cast doubt on the constitutionality of wealth taxation.
We are tax law professors who identify as liberal Democrats, donate to Democratic candidates, publicly opposed the Trump tax cuts and strongly support higher taxes on the affluent. We are heartened that prominent Democratic presidential candidates are taking the problem of wealth inequality very seriously. We are worried, though, that leading figures in our party are coalescing around an idea whose constitutionality is doubtful at best.
The constitutional objection to wealth taxation is based on two clauses that require any “direct tax” to be apportioned among the states based on population. So, since 12 percent of the population lives in California, Californians must pay 12 percent of any direct tax.
For the Warren and Sanders wealth taxes, that would be a deal breaker. To match revenue fractions to population percentages, as the Constitution’s direct tax clauses demand, we estimate that the wealth tax rate in West Virginia — the poorest state per capita — would need to be roughly 10 times the rate in more affluent California and more than 20 times the rate in prosperous Connecticut.
The Warren and Sanders wealth taxes would very likely be classified by courts as “direct taxes.” Alexander Hamilton explained in Federalist No. 36 that taxes on “houses and lands” were direct taxes. Supreme Court majorities have said on at least seven occasions that federal taxes on real property (land and buildings) are “direct taxes.” Congress enacted at least five federal property taxes in the 18th and 19th centuries and apportioned them based on state population each time.
The proposed wealth taxes would apply to real property, which would seem to make them “direct taxes.” Both plans would also tax personal property, which encompasses all assets other than land and buildings, like securities and art. Some wealth tax defenders argue that even if a tax on real property is “direct,” a tax on real plus personal property is not. The idea is that — by some feat of constitutional alchemy — combining the concededly unconstitutional tax on real property with the purportedly less problematic tax on personal property erases the flaw with the former.
Hamilton would not have agreed. In 1794, Congress passed a $16 tax on carriages, which was challenged in Hylton v. United States. Hamilton argued at the Supreme Court that the carriage tax was not a direct tax, and so did not require apportionment — and the court agreed. But in a legal brief he wrote in the case, he acknowledged that “general assessments … on the whole property of individuals” — in other words, wealth taxes — are direct taxes requiring apportionment. Hamilton’s concession is especially significant because of all the founders, he had perhaps the broadest view of Congress’s taxing power.
And again, it’s not just Hamilton who thought this. The future Chief Justice John Marshall, at the Virginia ratifying convention, said that direct taxes included not only taxes on land but at least some personal property taxes too. On at least three subsequent occasions, Supreme Court majorities have said that taxes on real and personal property are direct taxes. Chief Justice John Roberts echoed these precedents in his opinion upholding the Affordable Care Act in 2012.
A second argument made by wealth tax supporters is that the only direct taxes are taxes that can be apportioned among the states without too much hassle. They attribute this view to solo opinions by two justices in the Hylton case, Samuel Chase and James Iredell. But another member of the Hylton court, William Paterson, suggested that wealth taxes might be direct taxes too. And majorities of the court have since rejected the notion that the only direct taxes are those that can be apportioned easily. It would, in any event, be a peculiar sort of constitutional rule that applied only in cases where it had no bite.
Finally, wealth tax defenders point to the 16th Amendment, which authorizes Congress to tax “incomes, from whatever source derived, without apportionment.” The framers of the 16th Amendment thought about scrapping the direct tax clauses entirely, but they decided instead to limit the amendment to “incomes.” An income tax is a tax on wages and money received from property, while a wealth tax is a tax on the value of property itself. The amendment applies to taxes on income, not to taxes on wealth.
Wealth tax proponents might argue that progressives ought not trim their sails simply because they fear that hostile justices will strike down their policies. Certainly, it would have been bad advice to tell President Franklin Roosevelt not to pursue the New Deal because a conservative court would fight back. But this is not an instance of ideologically motivated jurists pulling a rabbit out of a hat. A good-faith reading of history and precedent would suggest that the Warren and Sanders wealth taxes are unconstitutional.
Several wealth tax advocates have argued that constitutional concerns can be addressed by enacting a “fallback” provision that would put in place other taxes on the rich if a wealth tax is struck down. Pushing one major tax change through Congress will be hard enough; passing two plans — a wealth tax plus a fallback — will be a herculean challenge. Legislators, moreover, have an independent obligation not to enact unconstitutional laws. Members of Congress would be abdicating that duty if they enacted a wealth tax they thought was constitutionally flawed.
Fortunately, there is much that Congress — in cooperation with a progressive president — could do to combat wealth inequality without running afoul of constitutional limitations. By closing loopholes and hiking rates on top earners, Congress could reduce inequality and raise trillions of dollars without a constitutional hiccup.
But a wealth tax that is struck down by the justices will do nothing to close the wealth gap. It will raise no money to pay for universal health care and child care, greater investments in education or ambitious efforts to halt global warming. It will, instead, mire the country and the courts in yearslong litigation. And it will most likely lead to a Supreme Court ruling that sends us back to square one in our fight to fix a tax system that all too often favors the rich.
Explain yourself, please.
Does anyone even care or is the whole point just to stick it to the rich?
Ed: Do we agree Bloomberg (or for that matter, Steyer) offers a nice punching bag for Warren and Sanders?
Eric: He’s a better punching bag than Steyer, who at least has ostensibly progressive politics. Bloomberg’s made a prolonged public case for the necessity of having the police systematically harass young black men, and against the idea that the financial industry bore any responsibility for the 2008 crisis (which he blamed on Congress forcing banks to loan to poor people). Also, for cutting Social Security.
Ed: Yep. Yep. And Yep.
Eric: Ideal foil for Bernard and Elizabeth.
Ed: Believe I said this yesterday as well, but Bloomberg (and Steyer, and all the others of their class talking about it) running for president has given me new respect for Bernie’s position that billionaires should not exist.
[Warren] appears to be unraveling.
A majority of Democratic voters in key states for the 2020 presidential election prefer a moderate candidate who would work with Republican lawmakers instead of a candidate who would fight for a “bold progressive agenda,” according to a new poll.
Democratic primary voters in Michigan, Wisconsin, Pennsylvania, North Carolina, Arizona and Florida largely said they want a more moderate presidential nominee, the New York Times–Siena College poll found.
More than 6 in 10 primary voters across the states, 62 percent, said they would prefer a candidate who would promise to find common ground with Republicans, as opposed to one who would fight for a progressive agenda.
A majority of respondents, 55 percent, said they would rather the 2020 nominee be more moderate than most Democrats, while 39 percent argued the nominee should be more liberal.
Voters were more split on how the nominee should impact the nation’s capital, with 49 percent saying the candidate should promise to bring politics in Washington "back to normal" and 45 percent saying they should bring “fundamental, systematic change to American society.”
Former Vice President Joe Biden led in five of the six battleground states included in the survey.
Sens. Elizabeth Warren (D-Mass) and Bernie Sanders (I-Vt.) were also among the front-runners, with Warren holding a slight lead over Biden and Sanders in Wisconsin, though her advantage was within the margin of error.
South Bend, Ind., Mayor Pete Buttigieg (D) received 5 percent support in several states, though no other 2020 Democratic candidate received more than 3 percent support in any of the six states.
Trump carried all six of the states in the 2016 presidential election.
Voters were nearly dead-split in how they described their own ideology, with 49 percent saying they are moderate or conservative Democrats, while 48 percent said they are very liberal or somewhat liberal.
For months, Biden, the current front-runner among all of the 2020 Democratic candidates, has sought to cast himself as the more moderate leader over Warren and Sanders, who have advocated more progressive platforms.
The Times noted that while more moderate voters preferred Biden in the survey released Friday, the more progressive respondents were almost evenly divided between Warren and Sanders.
The survey was also affected by race and age. Older Democratic voters of color and those without college degrees supported Biden. Younger Democrats of all racial backgrounds preferred Warren and Sanders. Those with college degrees also preferred Warren, according to the poll.
Among black voters in the six states, Biden remained the overwhelming favorite with 42 percent support, compared to 13 percent for Warren and 10 percent for Sanders.
The Times–Siena poll surveyed 1,568 Democratic primary voters in the six states from Oct. 13 to 26. It has a margin of sampling error of plus or minus 2.8 percentage points.