Elizabeth Warren's Unconstitutional Wealth Tax

As she seeks the 2020 presidential nomination of the Democratic party, Sen. Elizabeth Warren is giving voters fair warning that she does not accept the Constitution’s limits on federal power. On Thursday the former Harvard law professor unveiled a plan to extract wealth from the country’s wealthiest citizens. According to a press release from her Senate office:

United States Senator Elizabeth Warren (D-Mass.) today unveiled the Ultra-Millionaire Tax, a bold proposal to tax the wealth of the richest 0.1% of Americans. The legislation, which applies only to households with a net worth of $50 million or more, is estimated by leading economists to raise $2.75 trillion in tax revenue over a ten-year period.

For decades, a small group of families has raked in a massive amount of the wealth American workers have produced, while America’s middle class has been hollowed out. The result is an extreme concentration of wealth not seen in any other leading economy.

The “leading economists” cited by Team Warren are Emmanuel Saez and Gabriel Zucman from the University of California-Berkeley. Readers may recognize Mr. Saez as the sometime research partner of Thomas Piketty. Economists on both the right and the left have lately been poking holes in the Saez/Piketty research which purported to show a dramatic increase in levels of income inequality.

No doubt many economists will also explain in the days to come why the Warren tax would not raise as much as Messrs. Saez and Zucman expect and how it would distort investment and encourage capital flight from the United States. Ms. Warren implicitly acknowledges this last problem. Her plan includes “a significant increase in the IRS enforcement budget” and “a 40% ‘exit tax’ on the net worth above $50 million of any U.S. citizen who renounces their citizenship.”

For now, Ms. Warren is saying she will only confiscate a small percentage of wealth from the very richest Americans:

2% annual tax on household net worth between $50 million and $1 billion

1% annual Billionaire Surtax (3% tax overall) on household net worth above $1 billion

There are excellent economic arguments against this new tax plan. But today this column would like to focus on the illegality of the Warren scheme. Ms. Warren seems to understand this problem as well. Typically lawmakers announcing new legislation don’t feel the need to simultaneously try to rebut anticipated claims that the bill is unconstitutional. But the Warren press release links to two letters on the subject, each signed by various law professors at famous universities.

No matter how many academics she persuades to sign on to this ideological project, the plain fact is that the founders specifically prohibited such a tax. A well-informed reader notes:

The 16th Amendment authorizes Congress to tax “incomes, from whatever source derived.” It does not give Congress the power to tax balance sheets as well.

At the Constitutional Convention, Gouverneur Morris explained in plain English what every delegate understood “direct taxation” to be: it is when the federal government attempts to “stretch its hand directly into the pockets of the people,” rather than acting through the intermediary of a state. Direct taxes, the delegates decided, would be authorized only if each state paid the same per capita amount – i.e., only if the taxes were apportioned to population. Warren’s proposal to stretch her hand directly into the pockets of the people would not be apportioned and so it would violate both the 16th Amendment (failing as an income tax) and Article I, Section 9, Clause 4 (failing because it is an unapportioned direct tax).

In NFIB v. Sebelius, Chief Justice Roberts got this point wrong and held that the Obamacare tax is not a direct tax… Notwithstanding Roberts’s obviously hasty and slipshod analysis (it’s all of a page), the facts of that case are unique (he claimed the tax was not on people or property but rather “it is triggered by specific circumstances.”) Warren’s tax is quite obviously a tax on property, which the courts have repeatedly held constitutes a direct tax.

Warren might want to characterize her wealth tax as an “excise tax,” since such taxes were held constitutional before the adoption of the 16th Amendment. But an excise tax is levied on a specific transaction or a specific activity (e.g., gambling; using a truck on a highway). Will she claim the excise tax is for the privilege of living in America as a rich person?

Perhaps the plan is for President Warren to take to twitter and cyberbully John Roberts into signing off on another unconstitutional tax claim. If so, she’s not even giving him a pretext to pretend this is legal. As for the pro-Warren law professors, one letter offers nothing but an appeal to the authority of their own interpretation and belief. It reads in part:

Constitutional text and history demonstrate that “direct” tax is best interpreted as a narrow category that would not include a net worth tax. Because your proposal falls squarely within Congress’ broad taxing power and does not require apportionment, we believe it is constitutional.

The other group of famous law profs appeals to the authority of a 1900 precedent, Knowlton v. Moore. The Warrenistas write:

Knowlton confronted an inheritance tax that directly hit the property itself. Like your proposal, this wealth tax was progressive, increasing the rate from .75% to 3% as inherited property increased in value from $10,000 to $1 million. Nevertheless, the Court unanimously held that the tax was “indirect.” With only one dissent, it upheld its progressive formula against the claim that its increasing tax on the rich was a violation of the requirement of national “uniformity” imposed by Article one.

The lefty profs can cheer about “progressive” tax policies, but the Knowlton decision recognized that death taxes, generally known as “death duties” back then, were taxes on a specific event or transaction, and therefore not the same as a direct tax on a person’s wealth:

That death duties, generally, have been from the beginning in all countries considered as different from taxes levied on property, real or personal, directly on account of the ownership and possession thereof, is demonstrated by the review which we have previously made. It has also been established by what we have heretofore said, that such taxes, almost from the beginning of our national life, have been treated as duties, and not as direct taxes.

Voters can choose to believe that Ms. Warren’s wealth tax would only hit those with enormous wealth. But given the damage she intends to wreak on constitutional limited government, why should they?


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Mr. Freeman is the co-author of “Borrowed Time,” now available in English from HarperBusiness and coming soon in Chinese.


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