Elizabeth Warren has touted her latest anti-capitalist proposal. In her last proposal, she introduced measures that would make corporations less investment-worthy in an effort to shift their priorities. Now she wants to impose a wealth tax on the richest of the rich, .1%. The wealth tax would be a new tax in the repertoire of Uncle Sam.
It must be stated that a wealth tax is not an income tax, its a federal tax on assets. Note: total assets and not net assets would be taxed according to the original report and subsequent reporting thus far. The proposal has seen a lot of praise from Democrats who are weighing their options of the proposal with AOC’s 70% income tax proposal.
Sen. Elizabeth Warren will propose a new "wealth tax" on Americans with more than $50 million in assets.
An economist familiar with the plan says it would raise $2.75 trillion over 10 years from 75,000 families — less than 0.1 percent of U.S. households. https://t.co/RrB0S1zZL2
— Chicago Tribune (@chicagotribune) January 24, 2019
Direct taxes and the Constitution
The wealth tax would most certainly be classified under a direct tax. An indirect tax would be one of consumption. An essay by the Heritage Foundation writes that “the Framers believed that ‘direct taxes’ needed to be cabined. The cumbersome apportionment rule, requiring that a direct tax be apportioned among the states on the basis of population (so that, for example, a state with twice the population of another state would have to pay twice the tax, even if the more populous state’s share of the national tax base were smaller), made the more dangerous taxes politically difficult for Congress to impose.”
Congress did, however, pass taxes such as a carriage tax which the Supreme Court ruled in Hylton v. United States (1796) counted as an excise tax. It seemed as though the confines of a direct tax would be restricted to a capitation tax, or a head tax, and land taxes. A head tax is specifically prohibited in Article 1 Section 9. This changed with the landmark ruling Pollock v. Farmers’ Loan & Trust Co. (1895). The Supreme Court held “that the Act violated the Constitution since it imposed taxes on personal income derived from real estate investments and personal property such as stocks and bonds; this was a direct taxation scheme, not apportioned properly among the states.”
The Progressives later passed the 16th Amendment allowing Congress to circumvent the apportionment clause with regards to income tax. We have been taxed ever since.
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
“From whatever source derived” may allow for the expansion into capital gains and even the death tax, but Elizabeth Warren’s wealth tax would be legal yoga, as the assets, chief among them, land, would be taxed. Without appropriation, a condition which is absent from Elizabeth Warren’s proposal, Elizabeth Warren’s wealth tax would most certainly be a direct tax scheme imposed by Congress. Though the 1895 decision was largely negated by the 16th Amendment, its commentary on direct and indirect taxation is definitive in spite of efforts of Congress to negate it in favor of the Hylton decision. The 16th Amendment has since undergone little visitation from the high court. Perhaps relevant to Elizabeth Warren’s wealth tax is the Eisner v. Macomber (1920) where the Supreme Court ruled that Congress could not tax stock dividends as they were not an income event.
“We are clear that not only does a stock dividend really take nothing from the property of the corporation and add nothing to that of the shareholder, but that the antecedent accumulation of profits evidenced thereby, while indicating that the shareholder is richer because of an increase of his capital, at the same time shows he has not realized or received any income in the transaction.”
The precedent set in the Macomber decision, which according to an additional essay by the Heritage Foundation, has been cited favorably numerous times by the Supreme Court as recently as 1991. The three Supreme Court cases combined show that a wealth tax would need apportionment which would defeat the intentions of the bill. A state with an at-large representative would only have to contribute 1/435th of the revenue. I guess we know where all the rich people are going, Wyoming… All the sudden the 3% wealth tax on billionaires is instantly reduced for those who move accordingly and the $2.75 trillion in 10 years is infeasible, at least with Elizabeth Warren’s .1% target. Furthermore a wealth tax could not function as Elizabeth Warren intends, further proof that she has no intentions of abiding by the Constitution. The Supreme Court notes in Pollock:
By the act of July 14, 1798, when a war with France was supposed to be impending, a direct tax of two millions of dollars was apportioned to the States respectively, in the manner prescribed, which tax was to be collected by officers of the United States and assessed upon “dwelling houses, lands, and slaves” according to the valuations and enumerations to be made pursuant to the act of July 9, 1798, entitled “An act to provide for the valuation of lands and dwelling houses and the enumeration of slaves within the United States.” 1 Stat. 597, c. 75; id., 580, c. 70. Under these acts, every dwelling house was assessed according to a prescribed value, and the sum of fifty cents upon every slave enumerated, and the residue of the sum apportioned was directed to be assessed upon the lands within each State according to the valuation made pursuant to the prior act and at such rate percentum as would be sufficient to produce said remainder.
So to summarize, the apportionment means that Congress has to demand a specific amount of money and divide that sum among each state according to their representation. The wealth tax has no intentions of doing such meaning it is not only outside of the protections of the 16th Amendment but also directly prohibited by Article 1 Section 9.
I hope this was a strong presentation for the wealth tax’s unconstitutional status. Although I am most certain the 9th Circuit Court or some District judge in Hawaii will rule otherwise if this comes to fruition.
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