Would a Wealth Tax Pass Constitutional Muster?

Administrative Law & Regulation Practice Group Teleforum

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Always on the lookout for new sources of federal revenue, some lawmakers are now drawn to the prospect of taxing wealth.  In 2020, Sen. Sanders proposed a “Make Billionaires Pay Act,” described briefly here.  In her Presidential campaign, Sen. Warren also proposed a tax on wealth.  Now as a member of the Senate Finance Committee, Sen. Warren, along with Sen. Sanders and others, have proposed an “Ultra-Millionaire Tax.” 

Because Article I, Section 2, Clause 3 of the Constitution requires that “direct taxes shall be apportioned among the several States,” it took the 16th Amendment, passed by Congress in 1909 and ratified in 1913, to enable Congress to tax incomes. Does the Constitution permit Congress to tax wealth?  With co-author Prof. John R. Brooks, Prof. David Gamage wrote Why A Wealth Tax Is Definitely Constitutional.  In The Warren Wealth Tax: A Response To Professor Bruce Ackerman, Prof. Jonathan Turley lays out some of the arguments to the contrary. 

In this virtual discussion, Profs. Turley and Gamage will discuss the constitutional issues wealth tax proposals present.

Prof. Jonathan R. Turley, J.B. and Maurice C. Shapiro Professor of Public Interest Law, The George Washington University Law School
Prof. David Gamage, Professor of Law, Maurer School of Law 
Interlocutor: Robert Carney, Senior Counsel, Caplin & Drysdale 
Moderator: Hon. Eileen J. O'Connor, Law Office of Eileen J. O'Connor, PLLC 
This Zoom event is open to public registration. See the link above. 

Event Transcript



Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society's Practice Groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group teleforum calls, become a Federalist Society member today at fedsoc.org.



Nick Marr:  Welcome, everyone, to this Federalist Society virtual event as this afternoon, Friday, April 16, 2021, we're having a great discussion entitled “Would a Wealth Tax Pass Constitutional Muster?” I’m Nick Marr, Assistant Director of Practice Groups here at The Federalist Society.


      As always, please note that expressions of opinion on our call today, and there will be many, are those of our experts. And we’re very pleased to be joined by a great group here. I’m just going to introduce our moderator, and she will take it from there.


      We’re very pleased to be joined by the Honorable Eileen J. O’Connor. She served as Assistant Attorney General for the Tax Division of the U.S. Department of Justice for about six years, and now she’s in private practice running her own firm. So I’ll give the floor over to Lee now, and thank you very much for being with us.


Hon. Eileen O’Connor:  Great. Thank you, Nick. Welcome to all who have joined us today to hear and participate in a discussion of whether the United States Constitution permits the government to impose a tax on wealth. I thank The Federalist Society for sponsoring this event and today’s speakers for being with us, and for the preparation that I know went into what they will share with us today.


      Links to our speakers’ bios are in the email and on the website description of this program, so I’ll just briefly introduce them. Professor Jonathan Turley is the J.B. and Maurice Shapiro Professor of Public Interest Law at the George Washington University Law School. Professor Turley not only teaches and writes and testifies about law, but is also a practicing lawyer, and frequently plays one on television. Somehow, he also manages to write and publish what seems like a thrice daily sanity-saving essay on issues of the day, never avoiding even the most contentious issues. I receive him by email and look for more on his website, jonathanturley.org.


      Professor Gamage is a Professor of Law at Indiana University’s School of Law. During the Obama administration, Professor Gamage served as Special Counsel in the Treasury Department’s Office of Tax Policy as it drafted the regulations implementing Obamacare’s tax provisions as well as other guidance. He comes highly recommended by his colleague, Professor Leandra Lederman, who has published, among other things, a law review article about valuation issues in tax cases, an issue which would infest the implementation of a wealth tax but which we will not address today. As you will hear, Professor Gamage is uniquely qualified to discuss the current federal wealth tax proposals. And federal proposals are all we are concerned with today.


      Our interlocutor is Robert Carney. He is presently Senior Counsel at the well-respected Washington, D.C. law firm Caplin & Drysdale. In previous chapters of his life, Bob has been a civil trial attorney in the Tax Division of the U.S. Justice Department, a law firm partner, and an in-house corporate counsel.


      I’m your moderator, Eileen, also known as Lee, O’Connor. Each of our two panelists will speak for about 15 minutes to provide some background and lay out his views on the issue, then they will address each other’s points and engage with each other with our interlocutor. While all this is going on, please use the chat function to ask your questions. Toward the end of the program, we will address as many of them as we can.


      As a student of tax policy and a practitioner of tax administration and enforcement, I look at five features of every tax. What is taxed? How is it measured? When is it measured? Who pays it? When is it due? For any new tax, another question must be answered. Does the Constitution permit it?


      During and after the Civil War, the United States government sought to raise the revenues necessary to support the war effort, and later, to pay the costs of Reconstruction. Thus began a debate that raged in Congress and through the courts until the 1909 congressional passage and the 1913 ratification of the Sixteenth Amendment on the cusp of the First World War. Only after the states had ratified the Sixteenth Amendment was Congress permitted to impose a tax on incomes.


      A book called The Great Tax Wars by Stephen R. Weisman describes these debates. It is subtitled Lincoln to Wilson -- The Fierce Battles over Money and Power That Transformed the Nation. So as originally written, the Constitution did not permit the U.S. government to impose an income tax. Today, our topic is whether our Constitution in its current form permits the imposition of a wealth tax.


      Wealth taxes have been suggested before, but today’s realities make them appear more attractive in some quarters. Even before COVID shut down the economy and caused millions of Americans to, at least temporarily, lose their jobs and businesses, the U.S. government was spending far more than it was taking in. COVID relief legislation has added trillions more to the overspending.


      An unanticipated consequence of the changes COVID wreaked on the economy was the enormous spike in the wealth of people whose businesses benefitted from the shutdowns. So whereas in prior years, we might have been able to shrug off threats of a wealth tax, this time around, we need to consider carefully all the potential ramifications, including the threshold question, are they permissible under our Constitution?


      To get us started on this careful consideration, we begin with Professor Gamage. Professor, unmute your microphone.


Prof. David Gamage:  Thank you. Hello, everyone, and thank you for having me here today. It’s a real pleasure. So as noted, wealth tax proposals are currently being considered all around the world. Switzerland, of course, has had a wealth tax for around a century now that works quite well and raises a substantial portion of their revenues. Norway and Spain have wealth taxes currently with lower rates raising less revenues.


      But the focus today is on the U.S. federal level. At the U.S. federal level, proposals for wealth taxes have exploded in prominence in recent years, largely after and following Senator Warren making a wealth tax proposal a centerpiece of her presidential campaign. One surprising to a scholar like myself, who has studied wealth taxes and taxes for long before that, is that since Senator Warren introduced that rough tax proposal in her campaign, poll after poll has shown that wealth tax proposals are enormously, overwhelmingly popular among the American people, even enjoying majority support in most polls among Republicans, but overwhelming support among Democrats and centrists.


      This was not something that was known in the scholarly literature before Warren introduced her wealth tax proposal and has led to an explosion in popularity and prominence in wealth tax proposals. Senator Warren recently introduced legislation for a version of her campaign wealth tax. That legislation is a tax on net worth with a 2 percent tax rate on net worth above $50 million, rising to 3 percent tax rate on net worth above $1 billion. For disclosure, I advised both on Senator Warren’s campaign wealth tax proposal and the legislative proposal, and I have co-drafted or advised wealth tax proposals for a number of state governments.


      So our question today, is a federal wealth tax constitutional? I’ll note, Professor Turley may or may not spend some time in his introductory remarks on why he thinks the wealth tax is a bad idea. If so, I’ll explain why I strongly support the Warren version of a federal wealth tax in a rebuttal remarks. But in my opening remarks, I will focus just on the constitutional question.


      Again, is a federal wealth tax constitutional? I want to emphasize that the question asked in this way in my view is misleading, although this is a common way the question is asked. First, as an aside, any federal issues about a wealth tax’s constitutionality don’t apply to state level wealth taxes, which aren’t our topic today, but I think that’s important to emphasize.


      Second, the constitutional questions about a federal wealth tax are not about whether Congress has the power to design and implement a wealth tax. It has been crystal clear from the beginning that Congress has that power. The question is what form a constitutionally permissible wealth tax might take. Specifically, does a federal wealth tax -- can it be uniform, or must it be apportioned amongst the states by population? So the question again is, is a federal wealth tax an excise tax or an indirect tax or an income tax, all of which can be uniform, or is it a direct tax instead, which must be apportioned amongst the states by population?


      I want to elaborate with two overarching points in my introductory remarks. First, why I think a federal wealth tax proposal should be -- and consistent with most Supreme Court precedent, should be viewed as an excise tax that could be uniform. My second overarching remark is why I think that first question doesn’t actually matter that much because today with modern tools of fiscal federalism, it’s not all that hard to apportion a federal wealth tax amongst the states by population, and it can be done as a fallback measure in case a court rules otherwise.


      I’ll focus on each of those remarks, starting with the reasons why I think the Supreme Court would and should, consistent with most relevant precedents, although I acknowledge some uncertainty on this, should and would hold that a federal wealth tax proposal like the Warren legislation is an excise tax that could be uniform and would not need to be apportioned.


      Excise taxes are listed in the federal Constitution, along with duties, imposts, and indirect taxes, as specific forms of taxation that can be assessed on a uniform basis rather than direct taxes which must be apportioned. There’s a long line of Supreme Court cases that hold that taxes on activities, including the activity of earning income from wealth stored in the corporate forum, for instance, the corporate income tax, taxes on activities, the Supreme Court has consistently held are excise taxes that can be uniform.


      What is the difference between a direct tax and a tax on an activity? Congress has on multiple occasions prior to the Civil War levied direct taxes. All of these direct taxes were on forms of property itself, similar to existing state and local property taxes. Under an existing state and local property tax, property tax is owed regardless of who owns the property. It’s owed because of the existence of the property itself within a state and the nature of that property within a state.


      The direct tax acts of the 1700s and 1800s worked the same way. This was Congress’s view— and not just Congress’s view, but Congress that had the founders still in it—view on what a direct tax was. These early direct taxes were on a mixture of things, but primarily land, improvements to land—they thought of these as separate categories back in the day—and enslaved persons and other capitations, capitations being taxes on people, including, at the time, enslaved persons. These were all taxes on the property itself, not on characteristics of the owner.


      Following that distinction, and again, a long line of Supreme Court cases that in the interest of time I won’t dig into, Congress has consistently held that taxes on activities are different. What is a tax on activity? Well, the Warren proposal is not a tax on wealth itself. It matters a lot who the owner of the wealth is and the characteristics of the owner and the activity of the owner. Most wealth would not be subject to taxation under the Warren extreme wealth tax proposal. Instead, it’s the activity of accumulating and maintaining extreme levels of wealth and benefitting from the protections and services offered to citizens of the United States while doing so that triggers tax under the Warren proposal.


      Along with prior Supreme Court cases blessing the corporate income tax as an excise tax, the estate and gift tax as a corporate income tax -- or the estate and gift tax as an excise tax and many others, I think the most natural application of prior Supreme Court doctrine is to hold that a structure like the Warren wealth tax, that only is triggered by the activity of accumulating and maintaining extreme levels of wealth and is not a tax on the wealth itself, should be an excise tax and can be uniform.


      I’m happy to go back and forth with Professor Turley on that, but I want to move to my second overarching point, which is ultimately the point, I think, is the more important of the two. Let’s say the Supreme Court disagrees with me. There’s also other theories that other law professors have suggested as to why a federal wealth tax like the Warren proposal should be upheld as constitutional. And I don’t mean to disagree with those theories. They involve more completely overturning the case of Pollock and some other precedents.


      But I offer my theory as the most consistent interpretation of what I view prior Supreme Court opinion being and my prediction as to what the Supreme Court would actually do. But the Supreme Court could disagree. There’s uncertainties. If the Supreme Court were to hold that a proposal like the Warren proposal was a direct tax that must be apportioned amongst the states by population, I suggest to you that that’s not very difficult to accomplish with modern tools of fiscal federalism.


      Let’s consider how Congress implemented the prior direct tax acts of the 1700s and 1800s. The direct tax of 1798, for instance, was a tax on enslaved persons, land, and buildings. Only the tax on land had an apportionment component. Everyone agreed at the time that taxes on enslaved persons and buildings were direct taxes at the time that needed to be apportioned by population, and yet the direct tax act of 1798 inputted uniform across the states tax rates on enslaved persons and buildings.


      How did that work? It’s because the tax on land was a residual tax. Congress used the residual tax to make the apportionment formulas work amongst the various states, effectively first calculating what amount each state should owe under the apportionment formulas, then calculating the estimated tax revenue from the uniform rates, and finally, using the tax on land as a residual tax.


      We could do something very similar today. In fact, I’m currently in the process of drafting legislative text for a proposal that would have a fallback clause for an apportionment mechanism for a wealth tax or similar reform, meaning the clause would only go into effect if the Supreme Court holds, or eventually held, that the tax or portions of the tax were a direct tax. It would implement in the first instance a residual tax.


      There’s lots of ways to draft this, but my version, the version I’m working on currently, at least, the residual tax would be on real property as assessed by state and local property taxes where we already have valuation amounts rather than just limiting it to land. But there’s other ways to do it, again. So in the first instance, we can use a residual tax to make the apportionment formulas work.


      Astute observers are probably thinking, well, okay, maybe that works. Or at least there’s no reason to think it wouldn’t work. There’s no Supreme Court precedent, nothing in the Constitution, no one has argued it doesn’t work, and it was done in multiple prior direct tax acts with no one raising any objections, at least constitutional objections. Obviously, there were some opponents to these measures.


      But it’s been often argued that this is, if not quite impossible, it’s impractical to do something like I suggest because it would create interstate inequities. We’d effectively be collecting more tax from the residual tax from poorer states than from richer states. And back in the 1700s and 1800s, that’s a true statement. And it’s still true if we don’t do anything further.


      But modern tools of fiscal federalism give Congress many more options. Most federal nations other than the U.S., especially Canada and Australia, have quite elaborate fiscal equalization regimes where the federal government effectively takes extra revenues from provinces or states with lower revenue raising capacity and uses grants to award revenues to states or provinces with higher revenue raising capacity.


      We’ve done similar things in the U.S., although on a more limited scale. We currently do something along those lines in Medicaid. Prior to 1972, we had a more limited form of fiscal equalization system in the U.S. and the proposals for more elaborate fiscal equalization systems in the U.S. To my knowledge, no one has argued that there are any constitutional issues in the U.S. with these fiscal equalization systems, apart with the actual litigation over the details of how the Medicaid expansion was done, but that doesn’t concern creating a brand new fiscal equalization system.


      Thus, if we combine the 1798 direct tax approach of a residual tax to make the apportionment formulas work and a fiscal equalization system, which all it would do would be to use the revenues from that residual tax to fund grants to state governments, with those grants designed to address any possible interstate inequities, and then the state governments could, if they want, refund tax payers for the residual tax if the state governments wanted to do so. That would be up to the state government as to whether or not they wanted to use the revenues for those purposes or other purposes. But Congress could facilitate that.


      There’s more I could say about mechanisms used in the early direct tax acts which are quite interesting, but more in the line of details and how you would want to design an apportionment regime, not about the possibility of an apportionment regime.


      Again, the overall point here, my second overarching point, is if the Supreme Court ultimately holds that something like the Warren proposal is a direct tax that needs to be apportioned, that’s not that difficult to do today with modern tools of fiscal federalism. It can be done as a fallback clause. There’s some debate about the best way to do it. I have my views. Others may have different proposals. But that it can be done is not something that should be debatable because it’s been clear in every debate, every historical account, every commentary from the beginning, that Congress has the power to enact a wealth tax.


      The question, again, is, one, can Congress enact a wealth tax as a uniform tax? I argue yes, and Supreme Court precedent suggests something like the Warren proposal should be upheld as an excise tax. That’s my first overarching point. But second, if not, there’s no question that a wealth tax can be done as a direct tax. We’ve done that multiple times before with taxes on partial forms of wealth. The only question is how best to design it, and I argue that it’s not that difficult to do today with modern tools of fiscal federalism. So thank you. I will await Mr. Turley’s remarks.


Hon. Eileen O’Connor:  Thank you, Professor. Professor Turley?


Prof. Jonathan Turley:  Thank you very much, Lee. I thank you, Robert, for helping out today. And particularly, thank you, David, for joining me in this debate. I thought your comments were really quite fascinating.


      For those who have been -- are taking a break from burying valuable objects in their backyards, I bring you hope. You may have a friend in Article I, Section 9, although I will note that of the people on this call, it’s Lee, I think, that Warren should visit first. She says that’s the Morgan Library behind her, but I’m not entirely sure. So if that is her library, she’s the first to go.


      Now, we’ve all been hearing about the wealth tax, which is heavily imbued with political, economic, and, of course, legal issues. Elizabeth Warren thrilled audiences for years by saying that she was coming for the rich. She, in her debate, looked in the camera and told imagined rich people that, quote, “I’m coming for your Rembrandts, your stock portfolio, your diamonds, and your yachts.”


      It’s a very interesting quote because it really reflects the range of her interests in terms of wealth. During that debate, by the way, Warren also responded to the fact that one of her primary opponents, John Delaney, was a self-made millionaire worth $65 million. She rubbed her hands together gleefully to say that she was going to come for that wealth as well.


      And that started a debate, a rather intense one among academics as to whether this is indeed possible. Elizabeth Warren says that she can raise about $3 trillion from this. That’s been actually contested by even a Biden economist, but I’m not really here or capable of evaluating that.


      What’s interesting is that the app, which was explained by David quite ably, also includes an exit tax because the practical problem is that rich people are mobile. And so in states like France when they impose wealth taxes, they were losing 12,000 millionaires per year, and they ultimately had to reverse course to bring them back. One of the solutions is what I call a captivity tax, that if you want to leave the country, you would be forced to pay a 40 percent tax on your net worth above $50 million, so you have to leave that here if you want to get out.


      So the question is, really, is this constitutional? And I comment, David and I do have some good faith disagreements, particularly as to the case law. We all are, I think, familiar with the language of the Constitution. That language was there by the framers because they wanted to limit taxation power. They wanted to limit a lot of powers of the federal government, but taxation was one of them.


      That history is laid out nicely by Erik Jensen in his Columbia Law Review, “The Apportionment of ‘Direct Taxes.’” And it includes discussion of how the use of direct versus indirect taxes came up with the framers, and they were quite familiar with this concept. Many of those arguing for wealth taxes cite Hamilton, who indeed did look for a broader, more plenary notion of taxation. But he lost. He didn’t get his way in the Constitution, and he admitted that, essentially, in Federalist 36. Hamilton and Madison, however, agreed on one thing, and that is that Hamilton said that a direct tax would be a tax on, quote, “the whole property of individuals or on their whole or real or personal estate.”


      Now, the cases are a mess. The first case that is often cited is the Hylton case, which itself is a mess. It probably should not have been heard by the Supreme Court for some rather interesting historical reasons. But in the Hylton case, you had Alexander Hamilton, who wanted to impose a tax on carriages. And this was challenged by Daniel Hylton, who I think exaggerated the number of carriages he had to get jurisdiction. But it ultimately was ruled upon that the tax was valid. The decision itself is a myriad of different rationales. And Justice Patterson viewed this as a tax on a consumer item and not, quote, “the whole property of individuals.” That was the emphasis that he made.


      After Hylton, we have a series of other cases. One of them is Springer, which is often cited, which was an exception using an excise or duty to justify a Civil War tax. But the Court emphasized in that opinion that this was not a tax, quote, “on the whole or personal estate of the individual.”


      Then you have the Pollock decision that David admits would essentially have to be overturned in order for the advocates of the wealth tax to have a clear shot at sustaining this. In Pollock, the Court was very, very clear as to the limitations on direct taxes. In fact, it was the impetus for the Sixteenth Amendment.


      And other cases cited show less of that crystal clarity than David was suggesting. In the Knowlton v. Moore case in 1900, the Court said very clearly, I think at least three times, that a tax imposed upon real or personal property solely by reason of ownership is a direct tax. In Eisner, the Court said the same thing. In Bromley, the Court said that direct taxes include, quote, “taxes levied upon or collected from persons because of their general ownership of property.” That is a mantra in these cases that advocates often ignore. And ultimately, of course, the Sixteenth Amendment was passed allowing for income taxes, but notably did not include other forms of taxes.


      Now, what I think you could take from those cases is that the Court has made a mess of the area, but the Court has continued to return to this distinction. And indeed, in 2012, Chief Justice Roberts raised this issue in the National Federation of Independent Businesses v. Sebelius and stressed that the Court continues, quote, “to consider taxes on personal property to be direct taxes.” That was in 2012.


      So really, the cases after Hylton, which was obviously in the very early stages, and David’s right, when many of the framers were still walking the land, has not been good. In some cases, the arguments raised by proponents are a bit odd. For example, Bruce Ackerman says that Knowlton was a complete rejection of Pollock. But if that was the case, why did we need the Sixteenth Amendment? More importantly, Congress often did make this distinction. David points out that when it comes to land values, for example, they would often require apportionment.


      So the question then is where does that leave us in terms of constitutionality? I’ve always said that this is a good faith debate. It’s a close question. There are cases going both ways. I think the text of the Constitution really strongly favors the idea that this is a direct tax. And if it is a direct tax, then it triggers the requirement of direct taxes.


      Now, David says that you can get by -- you can actually apportion with existing technology, and that you can essentially return money to the states so that you deal with the inequity of large states, small states. That’s assuming, by the way, that the Court would turn a blind eye to that since it’s an obvious effort to circumvent the apportionment rules. I’m not too sure it would satisfy many citizens. The money would go back to the state, so I’m a little curious as to how that might work because you would still have a heavy burden upon the state for individuals taxed within in.


      That brings us to this question, and that is what is the natural default on the question of wealth taxation? The Constitution itself doesn’t just mention but repeats this distinction and requirement that you cannot have a direct tax without this type of apportionment. So in Article I, Section 9, Clause 4, it mandates no capitation or other direct tax shall be laid unless in proportion to the census numeration therein. Then it goes on to say -- it also says in Section 2 that direct taxes shall be apportioned among the several states.


      It seems very clear that this was a limitation on federal taxation power which was not addressed in the Sixteenth Amendment. The Congress acted after Pollock. It went ahead and passed a federal income tax amendment, but it did not allow for this type of wealth tax. So as a matter of constitutional interpretation, my natural default is to say this is a direct tax. It would be unconstitutional in its current form.


      What I would ask is that this isn’t the first time that the language of the Constitution may seem archaic, anachronistic, or a barrier to social programs. But that’s not a measure of constitutional interpretation. I think that the interpretations raised by advocates of the wealth tax are, quite frankly, too clever by half. I think they try very hard to get around that language. That includes, by the way, some of these cases. I don’t agree with all these cases, and David is right that there is language and there are cases that support advocates for the wealth tax.


      I find those cases largely unconvincing. They seem to me highly opportunistic in trying to find a way to say that something is not a direct tax. One of the things that concerns me about those cases and what also concerns me about David’s view of excise taxes is that it’s sort of a magic bullet solution. You just call everything an excise tax. In this case, you’re being taxed for the, to use David’s words, for the activity of being really wealthy.


      That seems to me rather forced. It seems to me to be an effort to suggest that this really isn’t about a person’s wealth, that we’re taxing you because you are in activity of gathering lots of wealth. But the person living down the street who has $49 million is not engaged in that same taxable activity, but you are. You are in activity because you’re accumulating things. That strikes me as rather forced and insufficient, in my view. It’s very creative, but I find it unconvincing.


      I’m going to stop there to give us lots of time for questions. But once again, thank you to David for his wonderful presentation, and thank you to The Federalist Society for inviting me.


Hon. Eileen O’Connor:  Thank you both. Before we get to questions, David, I imagine there are some things that Jonathan has talked about that you’d like to respond to.


Prof. David Gamage:  Yeah, absolutely. Apologies, I was answering some questions in chat, in Q&A. I’ve been told we’re supposed to save that for later.


Hon. Eileen O’Connor:  Right. We’re answering questions at the end.


Prof. David Gamage:  I do want to raise that lots of questions being asked are about how to do a wealth tax, whether it’s a good idea, etc. I have lots of views that I’m happy to share on all those topics, but that’s not the primary topic of discussion here. So I’m going to focus here just on the constitutionality questions.


      So a couple points, and I’ll try to be quick. First, Pollock had actually two holdings. The first holding was that a tax on personal property is a direct tax. I completely agree with Professor Turley that that holding remains good law. It has never been overturned by the Supreme Court. I think it was wrong when first decided. It was against a long line of prior cases. It’s been eroded slightly. And I agree with my colleagues on the left who argue that the Supreme Court should overturn that holding in order to bless the wealth tax. But I agree with Professor Turley, that holding remains good law.


      The second holding of Pollock, thought, is that a tax on income from personal property is deemed to be a tax on that personal property itself. That prong of Pollock or that holding of Pollock I would argue is no longer good law, has been overturned by prior Supreme Court cases that Professor Turley says are problematic, including prior to the Sixteenth Amendment, the Supreme Court held that a corporate income tax is not a direct tax, even though it is a tax on income from personal property.


      And in doing so, the Supreme Court held that a tax on personal property may still be a direct tax, didn’t overturn that portion of Pollock, but effectively overturned the second holding of Pollock. And as long as the second holding of Pollock is overturned, Professor Turley is exactly right. Almost everything is an excise tax. That was the consistent view across the 1700s and 1800s in cases, commentary, and among the founders.


      What isn’t an excise tax? Taxes on property itself, specifically taxes on land, buildings, enslaved persons, people in the form of capitation, and some debate about whether taxes on personal property itself should be direct taxes. But I’m fine with that version of the Pollock holding. That wasn’t a consistent view across the 1700s and 1800s, but taxes on activities or transactions are the excise taxes. That was the consistent view across the 1700s and 1800s.


      Pollock was a dramatic departure from that and has been consistently weakened by every other Supreme Court case except one notable exception being Eisner v. Macomber. But Eisner v. Macomber has been largely if not entirely overturned by subsequent cases at the Supreme Court. So the Supreme Court precedents have largely if not entirely moved away from this look-through view that we treat taxes that are designed to be taxes on activities or transactions as taxes on property itself because they have the effect of having an incidence on that tax.


      So under the modern view that most Supreme Court precedents hold, although I agree there’s some mixed precedents, again, the Warren wealth tax and most everything else should be an excise tax. That was the view of the 1700s and 1800s. That should be the view today.


      Final point I want to make. Professor Turley says designing an apportionment way to enact a wealth tax is a workaround. We have to understand that the founders and all commentary have consistently, without, as far as I know, any departure, agreed that Congress has the power to tax wealth. The only question is, is this a direct tax that needs to be apportioned or not? Making it apportioned perhaps was designed to create additional bars. That’s an argument that has been raised.


      I think the more persuasive argument that the historical reason for this was to limit taxes on slavery, that was the concern of many of the Southern authors behind these provisions and the tying it to the Three-Fifths Clause for voting. Regardless, it doesn’t matter. The Constitution is clear that Congress can enact a direct tax with apportionment, doing exactly what the Constitution asks, exactly what was done multiple times in the 1700s and 1800s, and then combining it with other tools that Congress clearly has the power to do today, that Congress always had the power to do but weren’t administratively feasible, perhaps due to limitations on information technology in the 1700s and 1800s, is in a sense a workaround.


      But it’s only in the sense that doing something the way the Constitution says you do direct taxes is a workaround if you would rather do it another way. If the Constitution says there’s two ways to do something, and if you don’t want to do it way A, you can do it way B, then doing it exactly way B is not a workaround in a sense that the Supreme Court or any court should restrict. The Constitution clearly says that direct taxes must be apportioned, not that you can’t enact a direct tax. If a wealth tax is a direct tax, then it can be done, if apportioned, and we know how to apportion direct taxes. I’ll end on that.


Hon. Eileen O’Connor:  Excellent. Thanks, David. Before we let Bob in, Jonathan, do you want to respond to that?


Prof. Jonathan Turley:  Well, I think -- look, it’s very creative. And I haven’t really thought about it. I haven’t seen David’s proposal on what I refer to as a workaround. This is the first time I’ve really heard about it.


Hon. Eileen O’Connor:  Other people refer to it as a workaround, also.


Prof. Jonathan Turley:  The concern I have is that your requirement of apportionment and then Congress would attach to the apportionment a way to reverse the apportionment. If the point of apportionment was to have apportioned taxes, then the question is whether the Court would look askance at the same law, saying, “We’re just going to technically apportion, but then it’s not really going to be a real apportionment because we’re just going to take back that money and give it to you.”


      It sounds like it is too clever to have. It would be better to do that in a separate bill, so at least you can have the pretext of apportionment. But instead, David, like every good academic, is being honest. And he’s saying, “Well, yeah. But honestly, we’re going to apportion, but then, boom, you’re going to have a reverse apportionment provision to allow you to do this.”


      One of the other issues about this that I find interesting is there is no debate -- there are two issues that David has done a great job of talking about. One is, is this a direct tax? And then second, this issue of if it’s a direct tax, could we still do it? On whether this is a direct tax, I really don’t see quite as much of a formidable argument. And I do find it interesting that so many of these academics have insisted it’s absolutely clear it’s not a direct tax when one of the things that has to be taxed is going to be property, it’s going to be real estate, because you have to tax it; otherwise, everyone’s just going to buy as much farmland as they can get their hands on. So you’re not going to exempt that.


      The Court is absolutely clear throughout all these cases that the one thing that we all agree on is if you try to tax land, it’s a direct tax. So that’s a sort of mysterious thing to me of how people can get around that. And I don’t think the Court will buy redefining a land tax in a way that’s not really a land tax. But that’s putting aside the rest of this stuff.


      Now, Warren’s bill, by the way, includes a massive increase in the size of the IRS, and I think that’s largely because she recognizes that this is going to be a difficult thing to do, even with David’s assurance that we have technological breakthroughs. The bill would actually mandate a breathtaking $100 billion increase in the IRS over the next ten years. The annual budget of the IRS is about $12 billion, to give you an idea of how massive that increase would be.


      And I think it’s because what they are suggesting, going back to the Warren quote, “I’m coming after your Rembrandts and your diamonds,” that is something that will put most IRS officials in a fetal position thinking about how they are actually going to start to tax wealth instead of something like income.


Hon. Eileen O’Connor:  Thank you so much, Jonathan. You started your remarks with suggesting that I bury my background here in the backyard, and that is right up the alley of what I always think about, which is, is it administrable and enforceable, which is not our topic today. Maybe we’ll do a separate event on that.


      But I’m reminded -- when I told my daughter we were doing this seminar, she reminded me about the window tax. And people will find ways to avoid tax. In the late 1700s, I believe it was, the United Kingdom decided that it would assess property taxes on the basis of the number of windows a building had. And so what do you suppose people did? They bricked up their windows, leading to a term which I did not realize until my daughter told me about it is called daylight robbery.


      Bob, your turn. Who do you want to start with?


Robert Carney:  Well, I’d like to follow up on what Professor Turley was suggesting by actually with a question to Professor Gamage, and that is if this wealth tax were ultimately to be attacked, and we’ve excluded how you would do that with the Anti-Injunction Act and so forth -- we’re not going to talk about that, a whole separate topic of conversation. But if it’s going to be attacked at some point, one way or the other, it would probably be attacked both on the constitutionality, and perhaps on the apportionment, or whether it is an apportionment or not, or whether the workaround works, similar to how the workaround has been talked about in connection with state and local taxes in conjunction with the 2017 act.


      But the question is, since it was only recently in the ACA Obamacare case announced in the opinion by Justice Roberts in an opinion that many tax people have a question where the ACA -- the individual mandate was said to be a tax for constitutional purposes but not for purposes of the Anti-Injunction Act. The question would be, he, in that opinion, said that the direct tax provision applies very clearly to land capitation, which everybody had previously assumed it did, but also reinforced the Eisner v. Macomber case that was referred to, and said that it also applies to personal property.


      So how -- if you start with the proposition that it’s going to be -- that that case exists, you’d have to say would you have to attack that as needing to be overturned? Would that be dicta? Or how would you deal with that if you didn’t want to get to apportionment, I guess would be the question.


Hon. Eileen O’Connor:  Is that a question for Jonathan?


Robert Carney:  Well, either one.


Prof. Jonathan Turley:  I think it was directed at David.


Prof. David Gamage:  Oh, okay.


Robert Carney:  It was directed to David, yes.


Prof. David Gamage:  I want to very quickly rebut the comments on administrability, then I’ll turn to this question. You have to understand, first of all, that Arras has been starved a long time, so part of the reason for increasing funding in the Warren bill is to make up for past bad practice.


      That said, yeah, taxing the ultra-wealthy is difficult under any mechanism. Economic studies suggest that less than a third of the actual income earned by people with $50 million and wealth above is ever subject to any level of taxation using very common tax planning games. The economic research suggests the estate and gift tax actually does a little bit better, even though it’s a very poor -- been allowed to erode on the vine, it gets about 50 percent of the actual wealth transferred upon death. Even if you did nothing more than piggyback an existing estate and gift tax rules for a wealth tax, you would do better than 50 percent because a lot of the estate and trust games played as being gift tax don’t work.


      You can do much better than that, though. What the actual revenue estimate is is debatable. And sure, there’s going to be some gaming. But you have to understand how poorly our existing taxing instruments are at getting at the ultra-wealthy as a basis of comparison.


      So I’ll move to the constitutionality question. This gets to the twin holdings of Pollock that I mentioned before. The holding of Pollock that a tax on personal property is a direct tax was affirmed in that dicta in NFIB v. Sebelius.  It’s clearly dicta. Should we read much into it, only the Chief Justice’s dicta? You can debate that, but I think it’s reasonable to infer from that sentence that this Chief Justice is inclined to uphold the first holding of Pollock that a tax on personal property is a direct tax. If so, the Chief Justice would presumably vote against the views of Professor Bruce Ackerman and Calvin Johnson and others who have said that the Supreme Court should completely overturn Pollock to approve a wealth tax.


      But that doesn’t say anything directly about my argument as to how existing Supreme Court precedent upholds the constitutionality of the Warren proposal as an excise tax. That’s the second holding of Pollock, that you look through an excise tax if it has an economic incidence on personal property and call it a tax on personal property itself. Let’s be clear, the Supreme Court, even before the Sixteenth Amendment, has overturned that multiple times. The corporate income tax is a tax on income from personal property held in the corporate form.


      The Supreme Court said, “We don’t look through like Pollock does.” The Supreme Court said, “We treat it as an excise tax because it’s not a tax on the personal property itself.” That it has the incidence of that is not the constitutional question. The estate and gift tax was also upheld as an excise tax. Going to Professor Turley’s question about taxes on land, land transferred via the estate and gift tax, or for that matter, land on which income is earned in the corporate form before the Sixteenth Amendment, were both held to be excise taxes because they weren’t taxes on the property itself.


      So as long as the Supreme Court goes with these other precedents, which I view as already having overturned Pollock, that says nothing about the Chief Justice’s dicta. It can continue to be the case, but the first holding of Pollock and the Chief Justice’s dicta remains law that a tax on personal property itself would be a direct tax, and the Supreme Court could still easily follow the direction of other cases, a long line of other cases, of upholding taxes that have an indirect incidence on property but are in the form of taxes on activities or transactions as excise taxes that would be upheld.


Prof. Jonathan Turley:  Yeah, if I could say, I actually think I did address it, that I think that interpretation of an excise tax is too broad, particularly in this context, because it is designed effectively. If you adopt that broad of an excise tax definition, then it negates the meaning of these constitutional provisions, essentially just removes them. Everything would then be instantly taxable.


      Now, it may be that the Court adopts something like that, but the individuals that were cited by David earlier put a great deal of reliance on alternative argument under Hylton that in their view, what Hylton meant -- there’s sort of two different propositions of Hylton that come out of that rather mixed opinion, even though it’s very critical to a lot of these arguments. But the one that is often cited is the suggestion that direct taxes are taxes that cannot be practically apportioned. And that’s been a big argument made by advocates. And that’s the type of argument that really rubs me the wrong way. I admit, I’ve gotten more textualist in my old age.


      But it’s sort of similar to the excise tax definition, and that is the exception swallows the rule. That is, if the language of the Constitution is now going to be interpreted as to only applying the barrier on direct taxes for things that cannot be easily apportioned, that’s a rather strange interpretation. It’s not reflected in the language. It’s not reflected in the debates. It would suggest that something that was clearly unconstitutional earlier is now going to be constitutional because, as David says, technology has caught up. I just don’t buy that. I think it’s too convenient.


Hon. Eileen O’Connor:  Thanks. Bob, do you have another?


Robert Carney:  Yeah. I was just going to, again, follow up on the apportionment question. If the tax were to be litigated years after the fact, which is quite likely, do you see an attack on the apportionment as having a very detrimental effect on the federal budgeting since it will be much after the fact? I’m directing this to Professor Gamage.


Prof. David Gamage:  Yeah. The fallback provision I am currently in the process of drafting, and I’ll say I speak only for myself in this, although I’m in conversation with policymakers on these questions, but the fallback provision I’m currently in the form of drafting in the form it’s currently in would apply the apportion rules retroactively to the date of the enactment of a wealth tax. That’s fully consistent with Supreme Court doctrine on retroactivity. There’s plenty of warning in the original legislation, and so would -- it would create some administrative hassle, there’s no question about that. But it would not have any negative impact on revenues.


      Now, we have -- it’s worth saying here, we haven’t had constitutional litigation on apportionment. All of the apportioned direct taxes of the 1700s and 1800s were not challenged, or if there were challenges, they didn’t go up to the Supreme Court, and there’s no historical record of them, to my knowledge. So being -- there’s every reason, I think, and my co-author and I argue, to think that, especially since the founders were involved in a lot of these direct taxes and we have the historical discussion, that the views on how to do apportionment then should be upheld. And we can design around those.


      But it’s possible the Supreme Court could strike down an apportionment clause I or someone else would design, even if it’s designed based on those historical precedents. And if so, there might have to be several rounds, or at least another round, of Congress then trying to draft a new apportionment provision in line with whatever the Supreme Court decision ended up being. If we get down that path, then there might not be revenue generated for a period of years from a wealth tax. I fully acknowledge that.


      But this is sort of in the line -- many of my colleagues on the left tell me, “Why are you even bothering with this? The current Supreme Court majority is so disingenuous that anything that’s novel, that’s progressive that Congress would try to do, they’ll come up with some totally novel, unprecedented argument for striking it down.” That is not my view. For my colleagues on the left who have that view, they’re not interested in exploring that much how the Constitution says a wealth tax can be designed.


      I would like to think that the current majority in the Supreme Court will interpret the provisions of the Constitution with fidelity, perhaps influenced—everybody is influenced by an agenda one might have—but could interpret those constitutional provisions with fidelity. If so, it is crystal clear that the Constitution is supposed to allow an apportioned wealth tax. And we have historical precedents on how the founders and everyone else who engaged in commentary in the 1700s and 1800s thought that that should happen. We also have lots of precedents of the Supreme Court and in the Constitution of how spending provisions can be designed.


      As to Professor Turley’s point, multiple of the direct tax acts of the 1800s had partial refunds back to the states. Workaround is a slur, not an accurate description here. This was what was contemplated in the 1700s and 1800s when we had apportioned direct taxes. The only issue is that it was not as administratively feasible back in the day as it is now.


      I think if the Supreme Court tries to build more into the requirements of apportionment that is in the Constitution, that is in any historical commentary or discussion, that would be disingenuous. And I would like to think that the current majority in the Supreme Court is not so disingenuous.


Prof. Jonathan Turley:  Can I respond?


Hon. Eileen O’Connor:  Yes, Jonathan, absolutely. I’ve got a question from the audience which I’ll pose after you.


Prof. Jonathan Turley:  First of all, of course, the majority may not be a problem if the recent bill solves that by simply adding four new justices that will pursue a new agenda. But assuming we don’t have that moment of collective insanity, yes, the Court might have problems with this. But the idea that -- I understand that we all expect that this would be retroactively applied, which just adds another level of concern for many people. But there will be years of litigation.


      It reminds me of the move Deadpool when Deadpool actually kills a guy slowly by chasing him with a Zamboni. You have to assume that all these wealthy people are going to just stay on the ice as you pursue them in your Zamboni with Elizabeth Warren. That’s not what they do. They tend to be very mobile. They’re like a flock of geese. And in France, they went to other countries. The countries that were listed by David don’t include the countries that tried this and reversed because these wealthy people tend to be rational actors, and they tend to look at these laws.


      Now, it’s true, you could retroactively try to go back years on this, but that raises another question about people who are willing to give up their citizenship and whether and how you can impose that on them. All of this is going to produce a mountain of litigation, and it may ultimately not result in a single dime being collected, except the IRS will be expanded by $100 billion. That part will be constitutional. That will occur.


Hon. Eileen O’Connor:  Thank you, Jonathan.


Prof. David Gamage:  May I respond on the administrative points?


Hon. Eileen O’Connor:  Quickly. We’re reaching the end of our hour. But we might have to have a separate program on the administrability, and in that one I will absolutely --


Prof. David Gamage:  -- That’s a whole separate issue, yes.


Hon. Eileen O’Connor:  -- Yeah, get involved in the fray. Before I do that, David, let me -- somebody has asked, and this is a detail of the current proposals, whether there is any thought to distinguish between this taxable excess wealth that was created by labor or that which was created by capital. Is there any thought to distinguish between the two? I think, David, that’s a question for you.


Prof. David Gamage:  That’s another administrative point. So I’ll answer both very quickly. First of all, there’s an economics literature on how much people move. This is mostly only relevant for state level wealth taxes. It finds quite low mobility effects from taxes on millionaires and billionaires.


      The issue in the French wealth tax and a few European wealth taxes was less about people actually leaving the country. But based on the technology available until about 15 years ago, it was quite easy, especially in European countries, to move your wealth to accounts in foreign countries. FATCA, an innovation passed by Treasury and Congress over the past 15 years or so and similar European versions make it so that’s no longer easy to do. And again -- we can save this for another time.


      The question of returns to labor versus returns to investment income, you have to understand, for those who have an economics background, our existing tax system, the income tax, does not make that distinction very well. So what the income tax calls capital income or capital gains includes a lot of stuff that economists would call labor income and vice versa. So economists have a definition of what they mean by these things. We have not yet designed any tax system that is able to effectuate the economists’ definition.


      That said, there’s questions in designing a wealth tax about what you would do for human capital and the like. And I have views on these questions, but the wealth tax proposals that I’ve been involved in would presumptively exclude from the base contractual rights designed to monetize human capital that don’t involve other marketability rights. That’s probably all I can say in the time.


Hon. Eileen O’Connor:  All right. Thanks, David. I see Nick is joining us, probably getting ready to wrap up. But we can let Jonathan have the last word, can’t we? Jonathan?


Prof. Jonathan Turley:  Well, I won’t up much time. I think that there’s a lot of interesting issues here, and living in interesting times is thought to be a curse. And I do think that this is what’s going to happen with this wealth tax, even if it is approved.


      What I would note for David is I don’t believe that all those countries that got rid of their wealth tax was just because they were short on technology. They saw serious removal of wealth by people who were the ultimate mobile creatures. And for those individuals, this represents a massive difference. I was talking to somebody last weekend, just the movement in the United States, who said that moving just from New York to Florida saved him 33 percent, or will save him 33 percent, in terms of taxation. That was enough to get him to move to Florida. When you’re talking about the super-rich, imagine what the numbers are for those individuals.


      I don’t think it’s just a technology question. But this will take years. And the question is, what happens to the tax base during that time when rational actors look at the ultimate potential cost?


Hon. Eileen O’Connor:  That is a perfect point to end on. Thank you so much, Jonathan Turley, David Gamage, Rob Carney. Nick, do you want to close up shop now?


Nick Marr:  Thanks very much, Lee. Just a quick thanks on behalf of The Federalist Society, to you, Lee, for taking the time to moderate, to all our panelists for taking the time to engage in this discussion. It seems like we could have another program, maybe another five, or go another few hours. But it is Friday afternoon, and so we’ve got to let people off a little bit early. Just my thanks again.


      Also, thanks to the audience for calling in, your good questions. As a reminder, be checking your emails and our website, maybe next week, for announcements about upcoming teleforum calls and Zoom events like this one. And with that, everyone have a great weekend. We are adjourned.




Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s Practice Groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.