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. Warren’s proposal is basically a personal property tax. These taxes are used all the time at the state and local level. I pay real estate tax on my house, and a tax on the value of my cars. Every year. Why is it so abhorrent to extend this to a federal tax?

    1. Because it is wholly gratuitous.

      Real property taxes are conventional and survive because the information base necessary to assess liability is readily accessible to local governments.

      The task of assessing the value of real property is challenging enough without insisting on annual assessments of people’s assets. If their assets are fairly liquid, you can do it, but that’s not always the case. Estate taxes are assessed on your property once per lifetime. It’s a comparatively labor intensive process, as are bankruptcy proceedings.

      You receive income, you consume your income or you save it. Your congealed income is bequeathed to others upon your death. The tax man has ample opportunity to take his cut.

  2. Warren’s proposal assumes that our problems stem from too little money when they stem from too much spending. Warren doesn’t want to address spending. She is looking to address Liberty and Individualism so that those things can viewed only through her eyes. To that I say “ The power to tax is the power to destroy” and that is what she is looking for, power.

    1. “Warren’s proposal assumes that our problems stem from too little money when they stem from too much spending.”
      That, as they say, is a matter of opinion. My opinion is the exact opposite.
      What spending would you curtail, and why?

      1. Jay S, just for clarification. Are you saying that you don’t think the government receives ENOUGH money? If so, how much would be enough, in your opinion?

      2. Jay S, you have to understand that money derived from citizens reduces the citizens means and at the same time reduces the productivity of the nation. The nation depends on such productivity so your question should be how much productivity and comfort of American citizens are you willing to give away?

        Some people get confused as to where the billionaires money exists in real time. It exists in exactly those corporations that lead to the taxes the government is able to garner. Thus in a theoretical sense remove 1 million dollars from Sam Walton and you might be removing a Walmart that employs many people and provides a lot less expensive pricing for people without a lot of money along with a lot of taxation that keeps the government running.

        I am not saying the rich or anyone else ought not be taxed rather how much taxation you need and what you are willing to pay for it in productivity and creature comforts. Venequela is a good example of what happens when your type of idea reaches an extreme.

        1. Jay S. you asked a pertinent question that deals with only one side of the coin. One has to think about the otherside that generates the money for the side you are worried about. That is why I asked “how much taxation you need and what you are willing to pay for it in productivity and creature comforts.”

          I Think that side of the coin is the determining factor as to how much money is available for spending. Therefore your question cannot be answered until you tell us how much productivity and creature comforts you are willing to lose. You are the one that turned the equation upside down [“My opinion is the exact opposite. What spending would you curtail, and why?] so in the interests of answering the question why don’t you tell us “how much productivity and creature comforts you are willing to lose.”?

  3. Taxes at reasonable levels are a good thing, you can’t have civilized society without them. If you include “hidden taxes” in the equation, the working poor pay higher rates than any other group. For example: if you go to the grocery store and buy a product, the manufacturer and distributor deduct 100% of expenses, including most tax expenses (except sales tax). A corporation’s income equals gross revenue minus expenses. So if a corporation has to spend money to comply with regulations or pay taxes, the consumer pays those taxes, buys the equipment, pays the employees, etc. The American consumers and (sole proprietorships) small businesses don’t get to write off 100% of their household expenses. Since the “Citizens United” Supreme Court ruling – where corporations claim to be “persons” like each of us – shouldn’t hidden-taxes be factored in under a 14th Amendment question?

    1. For example: if you go to the grocery store and buy a product, the manufacturer and distributor deduct 100% of expenses, including most tax expenses (except sales tax). A corporation’s income equals gross revenue minus expenses. So if a corporation has to spend money to comply with regulations or pay taxes, the consumer pays those taxes,

      Again, the economic impact of an excise is apportioned between vendor and consumer in accordance with the supply and demand schedules in that particular market. Very seldom is the entire cost born by the consumer. (IIRC, it is only thus when the supply of an article is completely inelastic).

  4. The Elizabeth Warren photo. Someone at our clubhouse at our country club put some toilet paper on the hangers which had photos of Elizabeth Warren printed thereon. The toilets all refused to flush.

  5. Is the Constitution & Bill of Rights easily dismissed by the congress or the President? I thought the fed was limited to those specific items detailed in the constitution and all other authority was assigned to the STATES! Education, Health Care and all the things the fed have taken control of I view as unconstitutional. Even Social Security is illegal for the fed! STATES have the responsibility to take care of these type of issues! The great society has opened the flood gates for social programs the STATES are responsible for!

    I am wrong on these limitations on the fed?

    1. “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.

    2. If Americans have the freedom of speech on the federal level, do they have the freedom of speech on the state level?

      Is double jeopardy being charged a second time for the same crime on the state level after being acquitted on the federal level? Of course, it is a second charge or double jeopardy.

      Rights and freedoms and privileges and immunities that apply to the United States on the federal level apply similarly on the state level.

      Congress has no authority to tax for individual welfare, merely general Welfare, and the states have no authority to tax for individual welfare, merely general Welfare. Citizens enjoy the privileges and immunities from punitive and confiscatory taxation for individual Welfare on both levels.

  6. The last I heard, a direct tax is supposed to be any tax that cannot be avoided by shifting the burden of that tax to someone else. For instance, and in the most extreme example, if you had to pay a tax for breathing the air, then you could shift the burden for paying that tax to anyone else simply by holding your breath, because breathing is an involuntary, autonomic behavior. I have to wonder, then, on what planet, exactly, the possession and accumulation of wealth might be an involuntary, autonomic behavior that cannot be renounced without either ceasing to be or becoming a supernatural being who can renounce the possession and accumulation of wealth and keep on breathing the air while dancing without sweating, too?

      1. Vendors pass the tax burden along to consumers. I’m talking about avoiding the wealth-tax burden by renouncing one’s worldly possessions. It’s strictly voluntary, of course. And that’s the larger point. No one is obligated to possess wealth. Therefore, one would only be obligated to pay a wealth tax by dint of refusing to part company with one’s wealth. And that makes the wealth tax an indirect tax instead of a direct tax.

    1. L4B: “I have to wonder”

      more like wander

      How much does David Brock pay on his taxes for trolling for votes?
      Why is David Brock hiding income from the IRS?

      “David Brock’s Media Matters Allegedly Hid Income From IRS For Years”
      http://www.freerepublic.com/focus/f-news/3534632/posts

      In December 2016, a largely unnoticed report from The Citizen’s Audit revealed that David Brock’s Media Matter’s allegedly hid $1 million from the IRS spanning 2010 to 2014.

      Brock’s Media Matters owns a lease to the entire 6th floor of a building in Washington D.C. – also reported by The Citizen’s Audit – and subleases office space to thirteen other organizations. However, the city of Washington D.C. only recognizes one registered occupant on the 6th floor – Media Matters for America. If they all share the same floor space and pay rent to Brock, that’s something to tell the IRS.

      Pictured: 13 other organizations share the same address as Media Matters – some even detailing that they’re located on the 6th floor.

      Media Matters sharing floor space with 13 other organizations isn’t wrong. However, the fact that Media Matters failed to report their sublet rental income to the IRS definitely is. The Citizen’s Audit report delves deeper…

      According to their reporting, Media Matters claims two different figures to the IRS and in their financial statements. To the IRS, Media Matters reports $924,454 in total occupancy expenses and $0 of sublet rental income. In their financials, Media Matters reports $1,214,454 in total occupancy expenses, $290,000 of sublet rental income.

      Tax instructions state “Do not net any rental income received from leasing or subletting rented space against the amount reported on line 16 for occupancy expenses.”

      Media Matters’ 2014 financial statements, however, show that the reported occupancy expenses includes the net sublease income of $290,000.

      Plain as day, it seems Media Matters broke tax guidelines. With this, a huge discrepancy is uncovered:

      Media Matters claimed to the IRS in 2014 that their total occupancy expenses in 2014 were $924,454. Media Matters claimed in their 2014 financial statements that their total occupancy expenses were $1,214,454.

      Which one of these is true – what Media Matters reported to the IRS or what they reported in their financials? The better question is, where did the $290,000 in sublet rent income go? It wasn’t reported to the IRS in 2014. The IRS provides two options for reporting sublet rental income. Either report the rental income as a program-service revenue or report the rental income as gross rents… On their 2014 tax form, Media Matters did neither:

      Furthermore, General Services Administration, a government organization, signed a 10 year lease in 2009 for the entire 5th floor of the same building Media Matters is in.

      For the 5th floor, the lease is $942,021 per year; that includes operating expenses and real estate taxes. The lease also makes no reference of an escalation clause.

      In 2009, Media Matters signed a 10 year lease for the entire 6th floor of the building and claim to spend much more in rent than the General Services Administration. Interestingly enough, Media Matters specifies that this amount does not include operating expenses and real estate taxes:

      It seems Media Matters is truthful in reporting that its occupancy claims were $924,454. However, reporting they collected $0 in sublet rental income was a lie. Media Matters is indeed receiving payments for rent – in 2014, they took payment from American Bridge 21st Century for “office rent”.

      Allegedly, with this report, David Brock and his associates are likely pocketing the sublet rent income for personal use and hiding it from the IRS.

      Furthermore, compare Media Matters’ reported sublet rental income on their IRS form 990s and their financial statements found in Massachusetts non-profit document search database (search under “AG Account Number: 047309”). On their taxes, they report $0. On their financials, $1,052,500 is reported in sublet rental income spanning 2010 to 2014.

  7. What is interesting about Jonathan’s write up to me is that even though he is IMHO one of the best constitutional scholars in our Country, he has to use adjectives like “probably” and “presumptively” unconstitutional. I think that this is interesting because it shows us how much uncertainty there is in our rule of law today, where somebody as knowledgeable as Jonathan has a tough time telling us what is constitutional and what isn’t and even more importantly how our nine final arbiters will conclude. As an example, Brett Kavanaugh, if you didn’t know was one of the three Appellate Judges who denied the petition for Redress of Grievances under the 1st amendment from being answered by the IRS Department of the Treasury. The petition was issued by the group We The People and consisted of 62 questions relating to the Federal Individual Income Tax that the government had refused to answer on two occasions, so we sued the United states to have the Courts force them to answer the questions. I personally placed the 62 question in a FOIA request and they didn’t answer them either.

    Why have a right to petition if King George isn’t required to answer it. It was only questions!!! George W. Bush just so happened to be President at the time we submitted the petition to the Commissioner of the IRS, The Secretary of the Treasury, George Bush and all 535 members of Congress. I guess nobody could answer the questions?

    1. Not presumptively with a (?), but presumptively with a (.).

      A firm statement, so to speak. All about the context.

      Move along HSkipRob.

      Hop on the jelly-much, gravy train to Saturn.

      Next stop Nitpicky Villa.

    2. Yeah. HSkipRib, has got to pre-phrase it with ‘IMHO,’ and then subsequently throw darts.

      You ain’t foolin’ nobody, bra.

      The only ‘tough time’ he is having is whether block your i.p. addy.

      Saturn is too nice.

      Send him to the D.U.M.B.s.

  8. I have yet to read a good definition or example of the general welfare. I think it could be said that general welfare could also be noted as “what is in the best interest of the majority or the common or public good” but that still doesn’t really tell us much.

    Is it in the general welfare to have a military so large, larger than the next 11 largest military budgets in the world, COMBINED, that it costs the taxpayers some $1 trillion annually if you include such budgeting as the Veterans Administration? Is it in the general welfare to have a government including local, states and the Federal Government that costs taxpayers $7.5 trillion annually. Is it in the best interest of the majority for the Federal Government to borrow on average $1 trillion annually over the last 10 years. Is it in the general welfare to have over 110 different taxes that Americans must pay directly or directly to fund the various levels of government. Is it in the public good to have a deep state with blackops programs that are so secretive that even many of our elected representatives are unaware of them. Is it in the public’s best interest to have a space agency that conducts scientific exploration rather than just helping commercial interest do those things that assist them in provides good and services such as GPS? Is public education really in the general welfare of the Citizens of the United States of America?

    If you answer yes to any of the above questions, Prove It.

  9. Lieawatha is still smarting over that Manhattan deal. A handful of trinkets for prime hunting grounds still sticks in her war bonnet. Getting back reparations from the pale faces is her reason for being now. However, I do appreciate her for prompting me to once again to play the best organ solo in rock history. Praise the Great Spirit: Paul Revere!

    https://youtu.be/XZev8fDpiOk

    1. LOL mespo! Is she still smarting from that Manhattan deal? And HOW!
      Oh yes..the Raiders’ recording is a masterpiece, and a fine addition to any collection of CDs found in tipis across the plains.

  10. I truly do not believe that Lieawatha spent as much time debating the efficacy of her tax plan as our host did in describing its constitutionality. She probably spent five minutes crafting the idea.

  11. Next she will want a tax on each item of liberal disdain that exists in the population. Tax the value of guns at 100% each year; Tax big trucks at 10% each year; Tax houses on lakefront property at 30% each year, (unless a politician lives there then no tax)

  12. Wealthy celebrity DNC donors that were planning on moving to Canada if Trump got elected, is back on the table again. All options are on the table!

  13. Was it Margaret Thatcher who said “The trouble with socialism is that you eventually run out of tippy-tops wampum?”

    1. Cindy

      Senator Warren is not a socialist – anymore than Trump and the GOP are Nazis…no matter how many people say so.

    1. “The Children” is properly capitalized. (And, if you want to be scrupulous about it, uttered in front of an icon of Marian Wright Edelman).

  14. “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;

    1. 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.

      1. I assume that you include corporate welfare such as subsidies, tax breaks, write-offs, non-payment of taxes altogether, and offshore accounts in your definition.

        1. I would like to write on behalf of George and say, that assumption would surely be correct to anyone who really understands what liberty is. Taxation is contrary to liberty as it takes property or money from those that justly earned it and thus it rightfully belongs to and gives it to those that didn’t, under the unprovable guise of general welfare. Our founding fathers, at least the majority of them, believed that government must be restrained from over-taxing the majority as this has been the downfall of every nation-state in history. We now have 100,000,000 people living at or near the poverty line in America when once, just 100 years ago, we had the most prosperous middle class the world had ever seen. Americans now pay over 110 different taxes either directly or indirectly to pay for the local, States and Federal Governments that now cost the taxpayers $7.5 trillion annually. I think it is pretty obvious the Constitution did not accomplish the intent of the majority of our founding fathers.

          My favorite thing to ask a socialist, is to provide a constitution and bill of rights that would provide the outcome they are seeking. You will get the proverbial “deer in the headlights” stare. Marx never provided a foundational rule of law in any of his writings either and only provided how to institute communism with his 10 platforms in The Communist Manifesto. Most countries have done a pretty good job adopting them and they are obviously paying the price as most of them are bankrupting their governments and middle classes. It’s always for the general welfare, right?

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