DANIEL VAUGHAN: Is a wealth tax constitutional? Ask John Roberts

November 4, 2019

Elizabeth Warren and Bernie Sanders have both pitched Democratic voters on their ideas for paying for their massive socialist plans. Sanders, the more honest of the two, acknowledges that taxes will have to go up on middle and lower classes to pay for such programs.

Warren, on the other hand, is going all-in on the vagaries of a wealth tax — and cutting government waste.

The idea of a wealth tax originated in the more progressive countries across Europe. As a standalone idea, it’s an utter failure. National Public Radio (NPR) has even done a few stories now detailing how those European countries consider a wealth tax a failure and have repealed many of the laws establishing them.

In one story, NPR notes: “In 1990, [12] countries in Europe had a wealth tax. Today, there are only three: Norway, Spain, and Switzerland.”

Unlike an income tax, which targets the amount of income you earn at your job, a wealth tax evaluates all your total possessions and charges you based on your overall worth. European countries found that those wealthy enough to fall under such a tax just left the country — or made their estates so complicated as to make assessing a yearly tax nearly impossible.

The wealth tax is just another failed European idea that yet another stereotypical white liberal has picked up, dusted off, and started championing. The difference in America is that a federal wealth tax would have to face a constitutional challenge.

For her part, Elizabeth Warren realized this and trotted out a group of constitutional law scholars who all vouch for the idea. But it’s far from clear that they’re right — and if that challenge comes, it will run right into a very recent precedent: NFIB v. Sebelius, also known as the Obamacare decision.

When Supreme Court Chief Justice John Roberts authored the majority opinion ruling that Obamacare was constitutional, he did so by shoe-horning the individual mandate in as a form of Congress’ taxing power. The court was nearly unified in ruling that Obamacare was unconstitutional as a form of Congress’ use of the commerce clause — striking a large blow to that area of jurisprudence.

He also reigned in Congress’ spending power, saying that the states could not be forced to expand Medicare.

But most important for us, Roberts spent time talking about what constituted a direct tax. The reason for this is that the Constitution prohibits direct taxes unless they are apportioned among the states. Article I, Section 9 says:

No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.

For a while, an income tax was banned under the Constitution because it was correctly ruled as a direct tax on individuals by the federal government.

The Founders considered indirect taxes, things like tariffs and various forms of sales taxes on commercial activity, to be fine for the federal government to make uniform. Economics and the invisible hand prevents the government from taxing their retail sector too harshly, lest they start losing business.

But direct taxes are a different animal, which is why progressives have pushed to have the Constitution amended to include income taxes explicitly: to get around the prohibition on direct taxes.

That leaves us with the question of, what is a direct tax now? Roberts talked about it in his opinion; specifically, he looked at whether the individual mandate was a direct tax. He ultimately decided it was not. The key passage for us reads as follows:

In 1895, [The Supreme Court] expanded our interpretation [of direct taxes] to include taxes on personal property and income from personal property, in the course of striking down aspects of the federal income tax. That result was overturned by the Sixteenth Amendment, although we continued to consider taxes on personal property to be direct taxes.

A little later, when talking about the individual mandate, Roberts says, “The payment is also plainly not a tax on the ownership of land or personal property.”

This point, on personal property and real estate, is important for our purposes because Elizabeth Warren’s wealth tax specifically targets the value of those entities.

Oftentimes, the wealthy will put their wealth into various forms of property (such as art, collections, or even real estate) as a means of avoiding taxes. She is trying to target that wealth via the federal government.

But if taxing property is a direct tax and unconstitutional, the wealth tax is in trouble.

NFIB v. Seilebus is the last major case from the Supreme Court addressing this issue — and it doesn’t come up a lot these days since Congress isn’t doing a ton of legislating. But it’s far from clear, as Warren has had her experts assert, that a wealth tax would be upheld as constitutional.

In a special piece for the Federalist Society, J. Kennerly Davis agrees, arguing that the tax would be unconstitutional unless apportioned among the states:

The wealth tax proposed by Senator Warren would not levy on income. Nor would it levy on the transfer of wealth. Much like a land tax, it would levy directly on the incidence of wealth, the possession of wealth, the existence of wealth. For this reason, a strong argument can be made that the Senator’s proposed wealth tax would be unconstitutional unless apportioned.

Even if we had to deal with President Elizabeth Warren, it’s very likely that her key means of funding small parts of her legislative agenda would fail on constitutional grounds. And fellow candidates like Kamala Harris realize this.

At the end of the day, the Consitution will end up having the last laugh. A wealth tax brings us back to the Obamacare decision — and that could hurt socialist legislative ideas like Warren’s.

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Daniel Vaughan

Daniel Vaughan is a columnist for the Conservative Institute and lawyer in Nashville, Tennessee. He has degrees from Middle Tennessee State University and Regent University School of Law. His work can be found on the Conservative Institute's website, or you can receive his columns and free weekly newsletter at The Beltway Outsiders. Connect with him on Twitter at @dvaughanCI.