Q&A – Is “Wealth Tax” Constitutional?

Today’s entry - The other day you mentioned Warren’s wealth tax and I have been wondering if it is even allowed per our constitution. I feel that it would be a form of double taxation since I would already have paid property taxes to Palm Beach county. Also, how the heck would one value an investment portfolio for tax purposes? The value changes every minute. It’s crazy. So, I was wondering as to its constitutionality.

Bottom Line: You raise several good points that I can address and have a mix of answers and one big, looming, question mark. For those who aren’t familiar with a “wealth tax” concept or proposal, a la Warren, is the idea that even after paying federal incomes tax on earnings, those above the stated threshold would continue to pay taxes on the“excess wealth” obtained. The clearest answer is to how “taxed wealth” would be assessed. The answer would almost certainly be whatever one’s recorded net worth is at the conclusion of December 31st. Just as income tax is currently determined. 

The property tax example is a good one because it fits a similar mold. In Florida, and throughout most states, we’re forced to pay annual property taxes based on the assessed value of our property or risk having it seized by the government. There’s no tax, I believe to be more regressive or devoid of freedom and morality than property taxes. I think it’s quite literally anti-American to tax people out of their homes and yet we do it daily. What’s more, is that commonly majorities of South Floridians approve additional property taxes for things like additional teacher pay and special building projects for local governments. What the clever marketing campaigns for these assessments never show is how higher property taxes are directly linked with less affordability for all residents, lower home values and at worst people who’re forced to sell their homes due to the inability to afford higher property taxes. Yet, we have them legally enforced, correct? The constitutional question of taxation is found in Article 1, Section 9 of the U.S. Constitution in clauses 4-7. 

They say: 

Clause 4: No Capitation or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.

Clause 5: No Tax or Duty shall be laid on Articles exported from any State.

Clause 6: No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another.

Clause 7: No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

The first thing that might jump out at you is that a federal income tax, as it’s currently instituted, wasn’t constitutional because any taxation had to be based on population, equitably. Not based on total earnings. That’s why there wasn’t a permanent federal income tax until 1913 with the ratification of the 16th Amendment. Clearly the principle of limited taxation was at the heart of the founding of this country. After all, remember the American Revolution began over the perception of punitive taxation. So, is the concept of a wealth tax which would tax one’s net worth beyond a determined threshold double taxation? Is it constitutional?

Certain attempts at double taxation have been legally challenged and found to be unconstitutional. The most recent pertained to businesses in a Supreme Court ruling in 2015, Comptroller of the Treasury of Maryland v. Wynne. That example also holds the key to the answer to your question. We can read the constitution and infer what we want from it, however, there’s nothing that prevents congress and the president to enact a law that’s potentially unconstitutional. Instead, if a wealth tax were to become law, it’d be up to a legal challenge that’d likely lead to a determination in the US Supreme Court. Until that's determined it’s all speculation. And remember, even being on the right side of the constitutional arguments in matters of taxation can lead to unexpected outcomes. Those of us who thought the Affordable Care Act was unconstitutional were correct. The Supreme Court ruled as much. But instead of striking the entire law down, the law was altered by the high court to make it constitutional. In other words, there are no guarantees, except death and taxes, right? It’s a reminder that elections have consequences and we can never take our liberty for granted. We’re always only one election away from it potentially being imperiled. 

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Email: brianmudd@iheartmedia.com

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