ABA Policy Point - A Wealth Tax Is Constitutional

[TidalWave46]

As most readers who follow the 2020 campaign proposals are aware, Elizabeth Warren has proposed an annual wealth tax of 2% for wealth greater than $50 million and 3% for wealth greater than $1 billion. Various pundits have said that the tax is “probably unconstitutional”1 and that the Supreme Court could “stop the wealth tax dead in its tracks.”2

Warren’s wealth tax is constitutional under the standards laid down by the Founders, as this article will demonstrate. Apportionment of a wealth or land tax by population would now require the injustice of substantially higher tax rates in poorer states: when that happens, under the Founders’ standards, the tax is not a direct tax for which apportionment is required. Apportionment was not written to protect wealth from assault, as proponents of its unconstitutionality now claim, but rather to reach wealth by what was thought to be the best then available measure of wealth.

The Constitution, Article I, section 9, clause 4, requires that a “direct tax” must be apportioned among the states by population.3 For the Founders, a necessary element to be a direct tax is that apportionment among the states by population must be reasonable and just. Thus import taxes (the impost), excise taxes, duties, carriage taxes and now real estate and wealth taxes have been expelled from the definition of direct tax, sometimes by the operation of ordinary language and sometimes by Supreme Court decision.

Real estate and wealth taxes were once considered direct taxes because they were the taxes that the states would use to satisfy a requisition and because real estate and wealth were presumed to be equal among the states. Today, however, apportionment of a wealth tax among the states by population is neither just nor reasonable. Wealth per capita in poor Mississippi is under half of the per capita wealth in relatively rich District of Columbia.4 Apportionment by population would mean that tax rates in Mississippi would have to be more than twice the rates in DC. The result would tax residents of poor states much more harshly than residents of wealthy states. That result has no justification in history or policy: it would simply arise by necessity from the fact that Mississippi has a smaller tax base over which to spread its quota. Thus, when it was recognized that wealth and real estate are not equally distributed per capita so that apportionment forced substantially higher tax rates in poorer states, the taxes on wealth and real estate could not be treated as direct taxes. Apportionment would not be just or reasonable.

American Bar Association

[blm]

1. K and R

[bluewater]

2. So Nate Silver, speaking as a pundit not a data journalist, was wrong. So wrong.

Nate: "I personally doubt that the proposed Wealth Tax is constitutional. The direct tax clause of the US constitution is clear and the 16th Amendment does not authorize this tax"

This is just the latest instance when Nate Silver tries to be a political pundit and fails. He's destroying his own credibility.



Call me crazy, but when it comes to an issue of Constitutional Law, I think I will go with the American Bar Association and not our favorite data guy, Nate Silver.

[crazytown]

3. I may be mistaken

but Nate is not a member of the bar, nor licensed to dispense legal advice.

[Gothmog]

5. Nate does a good job of summarizing the legal issues

Link to tweet

[bluewater]

7. Who to believe? The American Bar Association or a political journalist. Tuff call. ;)

Bill Scher
Verified account
@billscher
@POLITICOMag @RealClearNews @DMZShow @NewBooksPolitic "unique brand of bloodless, ideologically-inert liberalism" https://is.gd/aIozqa

[Gothmog]

11. You do realize that this article only reflects the opinion of two law professors

There was no formal ABA vote on this position (I am a member of the ABA). There are other tax professionals and lawyers who disagree

[Gothmog]

4. Constitutional Concerns Are a Major Risk for a Federal Wealth Tax

The ABA position is simply an opinion article that expresses the opinion of the authors but not of the ABA. This are good reasons why a wealth tax may be held unconstitutional. This issue is not clear

Link to tweet

“Any answer regarding the constitutionality of a wealth tax should come with the caveat that we have no idea what the Supreme Court would say,” Hemel wrote to me. “I think that rebates to states would satisfy the apportionment requirement but it’s conceivable that the Court would say apportionment applies to gross revenues rather than net revenues.”

The last Supreme Court case to deal with the direct tax issue at length was NFIB v. Sebelius, the case upholding the Affordable Care Act individual mandate as an exercise of Congress’s taxing power. Since the Court held the mandate was a tax, they had to address the question of whether it was a direct tax, and whether it must therefore be apportioned.

“Even when the Direct Tax Clause was written it was unclear what else, other than a capitation (also known as a ‘head tax’ or a ‘poll tax’), might be a direct tax,” Chief Justice Roberts wrote in the opinion of the court. He provided a tour of other things the Court had called direct taxes over the course of its history: land taxes, real-estate taxes more generally, and, in Pollock and Macomber, taxes on personal property. He then went on to note that the ACA mandate penalty was none of these things, and therefore was not a direct tax, and therefore was constitutional.

This does not address the question of which of the kinds of taxes the court has called direct taxes in the past it would still call direct taxes today.

A matter that should worry advocates of a wealth tax is that judges, faced with truly ambiguous questions like what’s a direct tax, can have a way of resolving those questions in the direction of their policy preferences — and this is a conservative court. I am not a judicial nihilist: Sometimes, the meaning of the Constitution is clear, and that clarity forces judges of differing ideologies toward the same legal outcomes. The direct tax clause is not one of those instances of clarity.

[bluewater]

6. Who to believe? The American Bar Association or a High School History teacher. Tuff call. ;)

John
@johnlk_80
European history PhD, high school teacher,

[Gothmog]

12. Wealth Tax - That Pesky Constitution Might Get In The Way

This was an article that reflects the opinion of two law professors and does not represent the formal opinion of the ABA. Other tax professionals disagree https://www.forbes.com/sites/peterjreilly/2019/06/25/wealth-tax-that-pesky-constitution-might-get-in-the-way/#1ea357a0779c

I reached out to Louis Vlahos of Farrel Fritz for some thoughts on the constitutionality of a wealth tax. After a pretty good history lesson, he wrote:

Which brings me to the wealth tax. It is clearly a direct tax – period – which means that it has to satisfy the apportionment requirement . Given the geographic concentration of wealth (NYC, Miami, LA, etc.), how can such a tax ever be “apportioned” among the States according to their populations, in the commonly-accepted sense of that word? Or do we need to reconsider what we mean by apportionment or the relevant population?

We will hear legal arguments from every side of the debate. Unfortunately, much of it will be a question of semantics and wordplay. Much of it will be politically-motivated, in the worst sense of that phrase.

Moreover, if any legislation were enacted, the lawyers would be the primary beneficiaries of interpreting and planning for the new rules. (Just witness what has followed the TCJA.)

I am not going to comment on the impetus for such a tax, or on the need for it, or on the wisdom of imposing it. Nor am I going to comment on providing more funds to a dysfunctional Washington via a new tax rather than through an existing tax – the consequences will be the same.

[TidalWave46]

8. The issue is clear.

Anything can be written to make it unconstitutional. Nate is really pulling a scam on this one. He should stick to his area of expertise.

Additionally, the article I brought here directly deals with the “might be” tweet and article you have in your post. I don’t get the obvious smoke screen.

[Gothmog]

13. Unclear if Warren's Wealth Tax Proposal is Constitutional

The law is not clear here. https://taxfoundation.org/warren-wealth-tax-constitutionality/

Another issue is that a wealth tax may violate the U.S. Constitution, though legal opinions thus far are mixed. Our report did not analyze whether a wealth tax would be constitutional, and the short answer is that it’s unclear.

The Constitution prohibits federal direct taxes that are not apportioned by population, except for the income tax which is specifically permitted by the Sixteenth Amendment. I think every expert would agree on those points.

So the question is, what is and is not a direct tax? In one of the first U.S. Supreme Court cases, the Hylton case of 1796, they observed that a capitation, or head tax (flat rate on each person), would be a direct tax and thus unconstitutional if not apportioned. In the Pollock case of 1895, they came to a similar conclusion. That’s why the Sixteenth Amendment was adopted, to allow income taxes to be constitutional. An attempt to tax unrealized capital gains was struck down in the Macomber case of 1920.

This tax may be upheld but it would take years of litigation

[Blue_true]

15. The ABA pointed out that if the Supreme Court rules a wealth tax

unconstitutional, it would by default rule a number of taxes that states depend on unconstitutional, like real estate taxes and excise taxes. Heck, in Florida, it could even be argued that lodging taxes applied at hotels are unconstitutional since they target a certain type of person.

[Gothmog]

16. This was not the formal position of the ABA but an article written by two law professors

I am a member of the ABA and there has been no vote. this article is simply the opinion of two law professors. In the real world this is called secondary authority and is not binding on a court.

[redqueen]

9. Let's assume the authors of this opinion piece are correct.

This still leaves several other major issues with the proposed tax.

This debate is very informative.

[LAS14]

10. Would that institutions such as the ABA still counted for something.

Their opinion doesn't matter when it comes to which people are qualified to be federal judges.

[Gothmog]

14. This is the opinion of two law professors and not the ABA

This is an article from two law professors and is not the formal opinion of the ABA. The opinion of two law professors is what is called secondary authority and is not binding on the courts https://www.law.cornell.edu/wex/secondary_authority

Secondary authority

Statements about the law that come from unofficial commendators without authority to set legal rules in the relevant jurisdiction. Common examples include law-review articles and treatises. Although secondary authority may be persuasive, it is never mandatory.

If such a tax was adopted, it would be tied up in litigation for a very long time