I recently wrote about the constitutional questions raised by the wealth tax proposed by Elizabeth Warren given countervailing constitutional dictates and standing precedent. One of the early advocates of such a tax has been Yale Professor Bruce Ackerman who assured Warren that such a tax would be constitutional. In a Slate column entitled “Constitutional Critiques of Elizabeth Warren’s Wealth Tax Proposal Are Absurd,” Ackerman dismisses any possible constitutional challenge as not “serious” and “absurd.” Putting the hyperbole aside, I wanted to respond to the substance of the column since it makes reference to my earlier Washington Post column. As I have previously said, there are good-faith arguments on both sides of this issue and the outcome is likely to be a close vote. However, Ackerman’s reduction of countervailing arguments to absurdity not only omits key arguments but creates an incomplete account of the case against such a wealth tax.
In my Sunday column, I said of the Warren wealth tax that “at best, it would be a close call for judges” and is “probably unconstitutional.” I suggested that it could come down to the vote of Chief Justice John Roberts. The “absurdity” of such a view is shared by a range of experts and law professors. Erik M. Jensen, the Coleman P. Burke Professor Emeritus of Law at Case Western Reserve University, analyzed the constitutionality of the proposal as concluded “at best, the wealth tax would be constitutional problematic.” Harvard Professor Noah Feldman concluded that it would be close question and would likely come down to Roberts’ vote. Chicago Law Professor Daniel Hemel also thought it would be close with a swing vote likely by Roberts. Michael Graetz, a professor of tax law at Columbia University, concluded “I think a constitutional challenge to an actual tax on wealth is inevitable.That it would fail does not seem to me to be obvious.” Brian Galle, a Georgetown professor at Georgetown Law, noted, as I did, that the absence of a transaction to tax would present a problem in a constitutional challenge. He added that, while he disagreed with earlier rulings of the Court like Pollock, “the Supreme Court doesn’t think that Pollock was wrong.” He added that Warren’s academic supporters did not reveal the full strength of arguments against such a tax under the Constitution.
Ackerman however dismisses the notion that a serious constitutional challenge could be mounted based on his analysis of Article I and prior case law. Ackerman’s analysis however is strikingly incomplete and does not address arguments raised by some of us under both the constitutional text and case law.
Any analysis should start with the text of Article I, Section 8 which permits Congress to “lay and collect taxes, duties, imposts and excises.” However, it 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.”
A wealth tax by any measure is a “direct tax.” As I noted in my column, there are various contributing factors for this language from the infamous “Three-Fourths compromise” to early forms of taxation to a desire to limit federal tax authority.
In fact, while Alexander Hamilton and James Madison disagreed on the constitutionality of the tax, they both agreed that a direct tax under the Constitution would include a wealth tax. Hamilton agreed with Madison that a direct tax could be a tax “on the whole property of individuals or on their whole real or personal estate.”
Ackerman moves quickly away from the language of Article I and highlights the “decisive precedent” of the Supreme Court’s 1796 decision in Hylton v. United States. I also addressed that case. The court reviewed a carriage tax that the Court deemed to be not a direct tax but an “indirect tax.” Thus, the Court recognized the restrictive and binding language. Justice Patterson noted “All taxes on expenses or consumption are indirect taxes. A tax on carriages is of this kind, and of course is not a direct tax. Indirect taxes are circuitous modes of reaching the revenue of individuals, who generally live according to their income.”
It is true that the Court found that an apportionment of such a tax would illogical. However, the decision itself was issued not as a single decision but seriatim opinions. The thrust of the Court was that this was not a direct tax at all. Chase, Paterson, and Iredell stressed this critical threshold point. One of the most interesting passages came in the opinion of Paterson. Paterson noted that “If Congress, for instance, should tax, in the aggregate or mass, things that generally pervade all the states in the Union, then perhaps the rule of apportionment would be the most proper, especially if an assessment was to intervene.” However, he said that this was not such a case. Instead, he said that this was tax on a “expenses or consumption.” Paterson then quoted Adam Smith on the proper taxing of “Consumable commodities.” Smith is quoted as saying:
“The consumable goods, which last a considerable time before they are consumed altogether, are most properly taxed in the one way, those of which the consumption is immediate or more speedy in the other; the coach tax and plate tax are examples of the former method of imposing; the greater part of the other duties of excise and customs of the latter.”
In other words, Paterson viewed this as a tax on a consumer item and not the “whole property of individuals.”
Ackerman moved past this “decisive precedent” to note that Congress passed taxes to pay for the Civil War and that no challenge was made. While the character of these taxes could be debated, the absence of a judicial review leaves the matter debatable and unhelpful for the purpose of constitutional interpretation.
Ackerman then gets to Pollock v. Farmers’ Loan and Trust Company, the justices reaffirmed the prohibition of other taxes, including an income tax. That case, which has never been overturned, directly supports the view of Madison and Hamilton and directly rejects the type of wealth tax viewed constitutional by Ackerman. It was also the impetus for the Sixteenth Amendment. Yet, Ackerman quickly moved to the 1900 decision in Knowlton v. United States, where Ackerman says “five conservative justices, executing a ‘switch in time,’ joined Harlan and the other dissenters in unanimously upholding Congress’ wealth tax.” However, this was an inheritance tax not a wealth tax. There is a difference. Indeed, while directly quoted in my column, Ackerman ignores the critical statement of the Court that an “inheritance tax is not one on property, but one on the succession.” It was viewed as a “death duty” charged on the transfer of wealth, not a wealth tax. Ackerman simply ignores the obvious distinction and the key language. The Court was reaffirming the distinction between a transaction tax and a wealth tax. Indeed, 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.” Ackerman also ignores that statement in insisting that the Court has completely abandoned the distinction.
What is particularly curious is the Ackerman’s statement that “Knowlton set the stage for Congress’ consideration of the 16th Amendment in 1909.” If Knowlton was the complete rejection of Pollock that Ackerman wrongly suggests, why would the 16th Amendment be needed. However, the problem for Ackerman is far more significant after the 16th Amendment. Ackerman says that these cases and the limitations of Pollock were central to the drafters of the Amendment. However, rather than simply allowing full tax authority, the amendment states a clear limitation:
“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.”
The prior cases showed ample appreciation for the range of duties, excise taxes, and income taxes. However, Congress only allowed for income to be taxed. Moreover, it made specific reference to the fact that a federal income tax would not have to be subject to “any census or enumeration” — a direct reference to the limitations under Article I. In other words, whatever the debate before 1900, the meaning was clearly established by the 16th Amendment itself that only an income tax would not be subject to the apportionment and census determinations. Ackerman again simply ignores that argument.
Ackerman concludes by saying that Congress should pass the wealth tax under the assurance that it is clearly and unassailably constitutional. Moreover, despite the views of academics across the political spectrum, Ackerman says that any other interpretation than the one he is presenting would, if accepted by the Supreme Court, “not only provoke a grave crisis but discredit their professions of fidelity to the originalist principles they claim to champion.”
Such a claim is difficult to address beyond noting the words of Supreme Court Justice Joseph Story who once marveled, “How easily men satisfy themselves that the Constitution is exactly what they wish it to be.”