Hey, Elizabeth Warren: Your wealth tax plan? It's unconstitutional.
Not every tax is created equal; Not in effectiveness or legality. Hopefully, the senator from Massachusetts will learn that lesson.
Pity the poor billionaires. Democratic presidential hopeful Elizabeth Warren is vigorously promoting her proposed wealth tax aimed at the super rich whom she says don’t pay their fair share. It isn’t really a “billionaire tax” — the levies kick in at 2% annually on households with a net worth of $50 million, rising to 6% for those with a net worth of a billion dollars or more. And unlike income taxes, this covers every form of wealth and property, even “yachts, jewelry and fine art,” held in the United States or abroad. It takes class warfare to a whole new — and probably illegal — level. Fellow candidate Bernie Sanders has his own version of the tax.
Soak the rich proposals are nothing new. President Franklin D. Roosevelt introduced a “wealth tax” in the Revenue Act of 1935, stating, “People know that vast personal incomes come not only through the effort or ability or luck of those who receive them, but also because of the opportunities for advantage which government itself contributes. Therefore, the duty rests upon the government to restrict such incomes by very high taxes.”
The idea that the wealthy at some level owe their riches to society is the same, but Roosevelt’s wealth tax was a steeply graduated income tax. This is fundamentally different from Warren’s proposal, which is a national property tax on wealth and possessions. This has never been done before in America for a simple reason: It is unconstitutional.
Not what the Founders wanted
Article 1 Section 9 of the Constitution forbids the government from laying a “capitation, or other direct, tax” unless in proportion to the census.
Alexander Hamilton, in a brief supporting a national carriage tax, explained that a direct tax comprises, among other things, “taxes on lands and buildings. General assessments, whether on the whole property of individuals, or on their whole real or personal estate.”
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.”
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This was the background to the 16th (or income tax) Amendment, which was proposed, passed and ratified 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 “direct” 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 Framers 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.
Overtly bad fiscal policy
The fact that this is bad economics seems intuitive. 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 worse?
If anything, we should be finding ways to attract wealth to the country, not punish it. And it should be equally clear that the super rich have enough clout to either have the loopholes they will need to escape the worst of the wealth tax written into the legislation, or find other ways to avoid it. In response, Sen. Warren has advocated a juiced-up IRS with “super duper enforcement” powers, but most Americans would see that more as a threat than a promise.
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. The introductory bottom tax line of $50 million would drop to $10 million, then lower. A government that can take the property and possessions of billionaires can as easily do the same to millionaires.
And who is a millionaire anyway? Recall President Bill Clinton’s 1993 “millionaire’s surtax” proposal that would have applied to households earning a million dollars over four years.
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Government is a black hole of spending, and establishing this mechanism for extracting wealth from citizens would open new avenues for politicians and bureaucrats to invent ever more intrusive ways to transfer your money to their purposes. We would wind up with what Chief Justice Fuller warned of in the Pollock case, in which “the rule of protection could be frittered away” and with it “one of the bulwarks of private rights and private property.” Of course, to Sen. Warren’s progressive supporters that is probably the objective.
James S. Robbins, a member of USA TODAY's Board of Contributors and author of "Erasing America: Losing Our Future by Destroying Our Past," has taught at the National Defense University and the Marine Corps University and served as a special assistant in the office of the secretary of defense in the George W. Bush administration. Follow him on Twitter: @James_Robbins