Is The Warren Tax Unconstitutional?

Below is my column in the Washington Post on Elizabeth Warren’s signature wealth tax. As I noted in the column, the constitutionality of the Warren tax would likely be a close question. Yet, the issuance of such a “direct tax” based on wealth rather than income would be presumptively unconstitutional under the existing court precedent and, more importantly, the text of the Constitution.

Here is the column:

As she officially kicked off her presidential campaign last weekend, Sen. Elizabeth Warren rallied her supporters behind her signature proposal: a wealth tax on the rich. The Massachusetts Democrat wants an annual charge of 2 percent on the holdings of anyone with more than $50 million in assets. Billionaires would be subject to a 3 percent tax, to “make sure rich people start doing their part for the country.” Polls show that Warren’s “ultra-millionaire tax” is overwhelmingly popular, with 60 percent of voters favoring it, including a majority of Republicans.

It is also probably unconstitutional. A legal challenge against it would immediately rekindle a debate first argued by James Madison and Alexander Hamilton. Our founding document says the federal government can levy only a few, very specific kinds of taxes. Warren’s plan is outside the rules.

The Constitution has several provisions limiting federal tax authority. First, all but the enumerated powers are left to the states or the people. That meant very limited taxation powers, at least until the 16th Amendment permitted the income tax in 1913. Some scholars say the stringent original tax provisions were part of a deal struck with Southern states that allowed them to count a slave as three-fifths of a person. Others insist they are an anachronism reflecting how taxes were levied in the earliest days of the republic. It is also true that many framers wanted to constrain the federal government, and one of the best ways to do so was to limit its ability to tax and raise revenue.

Article I, Section 8 allows Congress to “lay and collect taxes, duties, imposts and excises.” But it also requires that these “be uniform throughout the United States.” The next section says that “no capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.” That means any tax must be paid on a per capita basis that is uniform among the states. A “capitation tax” is a “head tax,” based on population, creating a fixed, even burden, like a sales tax. It’s confusing enough that, during the Constitutional Convention, Rufus King of New York asked “what was the precise meaning of direct taxation.” The official record says, “No one answd.” Nevertheless, courts have generally understood a direct tax to be a levy on income or wealth, as opposed to a tax on purchases or services.

While new federal taxes have been implemented, they have not been directed at a person’s wealth per se. Even the inheritance tax was upheld in 1900 as covering transfers of wealth, rather than wealth itself, and the Supreme Court in 1911 said corporate taxes are permissible because they are an excise tax on doing business.

Warren’s plan is different from all of these (and from clearly constitutional proposals like the 70 percent income tax suggested by Rep. Alexandria Ocasio-Cortez). It seeks to collect 1 percent of the country’s annual gross domestic product from those people with a worth of $50 million or more – not their income but their wealth. Yet if it is treated as a direct tax under Article I (and not construed as an income tax under the 16th Amendment), it would have to be “apportioned” among the states according to their percentage of the national population. It is not clear how that would work. Clearly, it would make no sense to tax all Californians to collect 12 percent of the wealth taxes for the super-rich. But if the tax is applied to just the super-rich in a given state, other weird problems emerge, since Article I uses the percentage of the national population as a whole. Some states, such as Kansas or Mississippi, may have fewer deep pockets that would have to carry the whole tax for that state. The affluent people there could pay more than their rich counterparts in New York or California. Even states of similar size can have different numbers of highly wealthy individuals – leading to unequal burdens. A tax applied in this way could not be tied to each person’s actual wealth level, which is what Warren is seeking.

One way to avoid this is to declare that any tax – on wealth or income – is permissible because, over time, the meaning of “tax” has changed . Indiana University professor Dawn Johnsen and Duke professor Walter Dellinger maintain that there is now no “principled . . . interpretive methodology” that would treat a wealth tax differently from an income tax. The University of Chicago’s Daniel Hemel, meanwhile, believes that courts could be persuaded to treat personal property like income under the 16th Amendment, though he admits that, based on precedents, judges wouldn’t be likely to extend such a broad interpretation to buildings and land under the Warren plan.

But the text, history and precedent do not support such assurances. At best, it would be a close call for judges; those who believe in textual interpretations of the Congress, such as Justices Clarence ThomasSamuel AlitoNeil Gorsuch and Brett Kavanaugh, would probably frown on these claims.

This issue came up early in the republic’s history. Madison, the principal drafter of the Constitution, insisted that a proposed tax on carriages in 1794 was a direct tax and thus unconstitutional. To him, the carriage tax looked like any other tax on personal wealth. Conversely, Hamilton, then commerce secretary, argued that it was constitutional because the carriage levy was an “excise tax” on purchases. In 1796, in Hylton v. United States , the Supreme Court agreed with Hamilton, permitting the carriage tax. That result works in Warren’s favor, but on closer examination, Hamilton’s view was more complicated. His definition of a direct tax agreed with Madison that there could be no tax “on the whole property of individuals or on their whole real or personal estate.” In other words, a wealth tax. Warren’s tax.

Nearly a century later, in Pollock v. Farmers’ Loan and Trust Company , the justices reaffirmed the prohibition of other taxes, including an income tax, resulting in the passage of the 16th Amendment. But this update did not simply give Congress the same taxing authority as the states. It allowed only for an income tax, blocking any other kind of national tax that Washington might want to impose. Since then, the Supreme Court has defended this line between taxes on wealth and taxes on sales or income. In Knowlton v. Moore in 1900, it stressed that the “inheritance tax is not one on property, but one on the succession,” meaning it could be imposed because it was a “death duty” charged on the transfer of wealth, not a wealth tax. As recently as 2012, in his landmark ruling upholding Obamacare’s individual insurance mandate, Chief Justice John Roberts felt it was necessary to point out that the court “continued to consider taxes on personal property to be direct taxes.”

Warren’s proposal would constitute a radical expansion of federal taxing authority. While Congress currently imposes a wide variety of open and hidden taxes and tariffs (including taxes on property transfers, payroll, inheritance, capital gains, dividends and corporate profits), this would be something new: forcing individuals to account for their assets and annually pay for having such wealth. It’s always possible that a future President Warren could pick a Supreme Court majority to uphold her wealth tax. But that would still require a transformative change to our reading of the Constitution.

Warren’s proposal is popular, since the only people affected would be what she describes as the “tippy-top 0.1%.” The closest most of us will get to this type of wealth is a Monopoly game; currently, less than 1 percent of the country seems to own virtually all the property on the board. Inequality is a serious matter.

Yet constitutional integrity also matters. There are legal ways to address inequality, such as an income tax or even a constitutional amendment for taxing authority. How we do things is as important as what we do. The framers sought to bar the “tyranny of the majority” against the minority – even if they are at the “tippy-top.”

Twitter: @JonathanTurley

Jonathan Turley is the Shapiro professor of public interest law at George Washington University.

71 thoughts on “Is The Warren Tax Unconstitutional?”

  1. Addressing the point of language: The proper use would reflect the meaning of the words at the time they were written, not as someone in the future should decide to apply them. Another example of this would be the word, “militia.” When it was written in the 2nd Amendment, the militia was defined as all able-bodied men within the country. However, the term has morphed over the years to where it is usually only applied to a state-sanctioned armed force operating under the direction of the governor. The courts have (properly) held that the original intent and meaning of the word applies whenever someone dreams up a new challenge to the amendment.

    So I would think the same legal reasoning would apply to the interpretations of the 16th Amendment, which allowed the exception to taxes being proportional across the states when income taxes are assessed, as it was written such in the amendment itself.

    If Sen. Warren wants her proposal enacted into law, it would seem that it could only be done by Constitutional amendment, not by simple legislation.

  2. KEY PASSAGE FROM TURLEY’S COLUMN ABOVE:

    “Polls show that Warren’s “ultra-millionaire tax” is overwhelmingly popular, with 60 percent of voters favoring it, including a majority of Republicans”.
    ……………………………………………………………………………………………………………………………….

    Lawyers like the professor can go round and round arguing about the constitutionality of such a tax. But as the professor notes, there is currently strong public sentiment for making the rich pay more in taxes. Even a “majority of Republicans” are on board with this idea.

    Now of course one our conservative commenters is likely to respond with a report saying the rich ‘already pay the majority of taxes in this country’. But those reports are actually ‘symptoms’ of the problem. The rich are paying the largest share of Income Tax only because they make the largest share of income. That’s the problem in a nutshell.

    The lower bracket taxpayers are earning far too little. For that reason the working poor are dependent on Food Stamps. It shouldn’t be that way. Those Food Stamps are essentially subsidies the Federal government grants fast food outlets and big box retailers. Subsidies that allow those businesses to pay rock-bottom wages.

    The Federal Minimum Wage is only $7.25 per hour. That wage hasn’t risen since July 2009. And even ‘then’ that Minimum Wage was totally inadequate for almost all Americans. There are few cities in this country where a single adult can actually live on $7.25 per hour based on a 40 hour workweek. Yet most jobs paying that wage offer only part time hours.

    At the age of 20, I was able to make a living on the Minimum Wage. I actually had a clean, respectable apartment and saved a little every month. Adjusted for inflation, the Minimum Wage was at an all-time high during that period. The economics of my situation then would be impossible today. And that illustrates where we have come.

    But regarding Elizabeth Warren, I don’t see her as a major player in next year’s campaign.

    1. If you do not like that the poor are living on Food Stamps, there is NOTHING preventing you from donating significant amounts of your own income/wealth to the public coffers other than your own reticence.

      Have the courage of your convictions. Lead by example.

  3. She just stuck it to Pelosi, Feinstein and few others of her former colleagues and friends and since most of the billlionaires are registered Democrats to her own party. Look for the special exemptions on this one. Poke A Haunt Us is about to be an ex committee member much less chair mommy. Either that or moving money offshore will be the result of her efforts and the efforts oif Comrade Ocasio (naly) a citizen Castro.

    No chance for this one when her own party gets through with here it will be dog food time with Warren as the chief ingredient.

    1. Is it Constitutional? How long has it been since the Socialist Party aka falsely known as democrats ever given a tinkers damn about Our Constitution? 1909?

      Noi way it Is Constitutional this is just a revenge move on Lizzie Borden Warrens part.

      As for how it’s apportioned the definition is any monies in excess of immediate need and usually refers to and includes future uses and needs Since that party has never NOT raised a tax once it’s passed the middle class can once again plan on being the target on this latest version of the Cycle of Economic Repression just like always.

      Like AOC Comrade is play pretending it has an education but has yet shown now evidence of same …. especially in the areas of finance and economics.

  4. Turley cited Article I, Section 8 as follows, “But it also requires that these “be uniform throughout the United States.” The next section says that “no capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.”

    From that Turley presumably deduces that “it [the wealth tax] would have to be “apportioned” among the states according to their percentage of the national population. It is not clear how that would work.”

    Surely Turley is infatuated with antinomy. The wealth tax has to be uniform throughout the United States and the wealth tax has to be proportionate to the census. Given that the wealth, itself, is neither proportionate to the census nor uniform throughout the United States, it supposedly follows that the wealth tax cannot be constitutionally permissible. Unless, of course, the wealth tax is not a direct tax. Or unless the wealth tax does not have to be “apportioned” in the same way that, say, Congressional Districts, for instance, are “apportioned.”

    Turley suggests that just because California has 12% of the US population doesn’t mean that California collectively possesses 12% of the national wealth. Notice that curious phrase “collectively possesses 12% of the national wealth.” The question might arise, exactly how much wealth do the very wealthiest Californians possess? The follow through question might also arise, what is the percentage of the very wealthiest Californians relative to the census population of California?

    If the very wealthiest Californians are not “apportioned” in the same way that California’s Congressional Districts are “apportioned,” then why would Turley imagine that the wealth tax would have to be apportioned in the same way that any State’s Congressional Districts are apportioned? Well, Turley seems to be convinced that the wealth tax is a direct tax. But the facts on the ground clearly show that “wealth” just doesn’t “apportion” itself the way that people do. Maybe the wealth tax is not a direct tax. Remember: Madison’s notes show that nobody answered Rufus King’s question: “What is meant by direct taxation.”

      1. This is Major Jon to Ground Control
        I’m stepping through the door
        And I’m floating
        in a most peculiar way
        And the stars look very different today

        For here
        Am I sitting in a tin can
        Far above the world
        Planet Earth is blue
        And there’s nothing I can do

      2. Tabby, this ‘joke’ of yours was old 3 weeks ago.

        You never heard the saying, “It’s only funny once”..??

        Obviously you don’t like Diane. But her comments are certainly more intelligent than many of your conservative allies here.

        There are conservatives on this thread posting paranoid, ridiculous nonsense several times per day. Yet you don’t harass them with this now very hackneyed ‘joke’. Which goes to show where your level is at.

  5. “Congress shall have Power To lay and collect Taxes,…to…provide for the…general Welfare of the United States…”

    deliberately omitting and, thereby, excluding any power to lay and collect taxes for individual Welfare.

    Any and all forms of redistribution of wealth are unconstitutional.
    __________________________________________________

    Article 1, Section 8

    The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
    ________________________________________________________________________________________________________

    The entire communistic American welfare state is unconstitutional. Karl Marx wrote the Communist Manifesto 59 years after the adoption of the Constitution because none of the principles of the Communist Manifesto were in the Constitution. Had the principles of the Communist Manifesto been in the Constitution, Karl Marx would have had no reason to write the Communist Manifesto. The principles of the Communist Manifesto were not in the Constitution then and the principles of the Communist Manifesto are not in the Constitution now.
    ___________________________________________________________________________________________________________

    The government the Founders established exists solely to facilitate freedom and free enterprise through “general Welfare,” which means “ALL well proceed,” as in roads, post office, water, sewer, electricity, natural gas, telecom, etc.

    Individual Welfare is charity as industry conducted in the free markets of the private sector wherein citizens may voluntarily contribute.

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