Seems like a good reason to appoint a bunch of judges who disagree.
Sounds like we need a constitutional amendment
3
Oh, how we hate the rich. Let's (just for the sake of convenience) call them "kulaks." Let's go and grab their dough! They have too much; we have too little. We will achieve a perfect balance between rich and poor! No one will be allowed to have "too much." We, the self-selected priests of equity, will set the magic numbers! Do not disobey them! Punishment will follow! We will dance in the glow of confiscated riches! All will be well! Trust us!
5
The tax cuts that the Trump administration sponsored overwhelmingly benefited the wealthy. The real estate loophole benefited those who park their income in real estate. How much of the housing affordability issue is related to investors buying and speculating in the housing market? The tax game has been rigged by the GOP. I don’t support the progressive movement amongst the Democratic candidates who can’t balance their budgets and I’m not in favor of a government takeover of individual wealth. I would just like to roll back the tax cuts to the time of the Obama administration. The Trump experiment has been a painful disaster.
4
The NYT hit job on Warren is relentless. If only you all had been so thorough about dismantling the myth of Donald Trump in 2015/2016 maybe we wouldn't find ourselves here. Keep it coming, every time I read one of these columns I feel better about supporting Elizabeth Warren and what she represents.
7
Wealth tax, or guillotines? One or the other seems to be on the way.
4
Head scratcher.....
Why doesnt any politician ever propose a tax on
1. Campaign Donations.......thats where all the money is flowing....right now Elizabeth Warren,despite all protests to the contrary, has collected over 30million dollars, Tax Free, from various PACs, SuperPACs, Corporate Donors, Wealthy Men/Women......
2. A special Tax Classification for all entities with offices inside WashDC, Alexandria, Arlington County,Fairfax County, Montgomery County, Prince Georges County. Pay an additional 20% Government Access Tax. AND they need to have a staffed office in every Congressional District they propose to represent and put business contracts.
3. The money flows on the Internet.....the Incomes are shrinking....Why Oh Why are all the Politicians still focussed on Taxing INcome???
TAX THE INTERNET.
1
Another mouthpiece of the rich explaining to us little people how taking money from the rich is bad.
5
Good thing you shared your bona fides with us. Otherwise, we might have mistaken your story for fake news.
Because, as we all know, anything that doesn’t parrot the standard party line is, generally, fake news.
Amend the Constitution.
3
Unfair advantages are built into our political and legal structure. Why do Wyomians have 4 times the voting power of Californians in presidential elections?* By what contorted logic are corporations people?
If these contradictions can exist, then there has to be a way around the apparent legal blocks to a wealth tax. Tax personal property, VAT luxury tax, progressive 90% income tax including capital gains and dividends. Turn the screws on states to give them little choice but to tax real property at progressive rates. The Supreme Court turned corporations into people, and racist gerrymandering state and local governments into good impartial citizens, so Alchemy is not out of the question either.
*2017 Voting Age Population of Wyoming 442,832 divided by 3 electoral college votes = 147,611. California: 30,476,517/55 = 554,118 adults per electoral college vote.
2
Interesting article ... NYT seems a bit nervous about the prospects of a Warren candidacy. Perhaps because of the helpful effect it provides to her Republican opponent, or could it be that NYT ownership fears that Warren taxes may fall on them?
1
A Wealth Tax Is Constitutional - American Bar Association
https://www.americanbar.org › taxation › publications › abataxtimes_home
Aug 9, 2019 - Warren's wealth tax is constitutional under the standards laid down by the Founders, as this article will demonstrate. Apportionment of a wealth ...
Besides, wealth is where the money is. Just look at the graphs in Emmanuel Saez and Gabriel Zucman's new book, "The Triumph of Injustice. How the Rich Dodge Taxes and How to Make Them Pay. These authors are part of a new generation of economists who are directing their research into the causes of our extreme economic inequality and are researching ways to alleviate it. They are major consultants for Elizabeth Warren.
As for closing tax loop holes and other routes to alleviating this inequality, take a good look at the the many ways Warren would fund her health plan (elizabethwarren.com). It's not just the wealth tax.
And, if we go to the Supreme Court, let's go for something worth fighting for.
1
Revolution for the wealth of it.
Elizabeth Warren has a plan for that ! ... #55 ..?
The big problem with welth txes is tht they would affect the owners of Republican congresspeople and interfer with the legalized bribery they depend on for their ego-stroking and profitable positions of power
The easiest way to do it would be to reinstate the estate tax at the rates in existence prior to the 2000's, with exemptions indexed to inflation. Loopholes would have to be eliminated, of course, but we can figure out what those are.
1
Are you aware that we already pay property taxes? How is that in any way different?
1
Looking through the comments, no one has mentioned getting rid of the institution that has created all this wealth inequality in the first place. The Federal Reserve has stimulated asset prices for 20 years which disproportionately benefits the rich. End ZIRP and let middle class savers start making a decent return and force the financial class to earn a living for a change.
1
We can start by cutting income tax for real work wages and raising investment income tax to a much higher level. It is past time for America to value work more than wealth.
1
How about a highly progressive consumption tax. Subtract investments and savings from all income to find the tax basis. You could have tax brackets 0% to 1000% or more. You can buy your 1ml yacht, but the tax bill would be 1bl. This would also capture taxes for overseas purchases.
The penultimate paragraph finally gets to the point: we need to close tax loopholes and to tax incomes (including capital gains) at a much higher rate.
A "wealth tax" may not be the way, but if we're going to actually close the wage gap, we're going to have to ask people like Bill Gates and Stephen Schwarzman and Jeff Bezos to pay more in taxes. Full stop.
Also: it must be nice to be white, self-proclaimed liberal, Harvard and Yale-educated law professors who get to pontificate on the finer points of 18th century tax theory devised by slaveholders while so many who work multiple jobs have to decide whether they should take their kids to the doctor or pay the rent next month.
This is a double winner.
First, the term "Wealth Taxes" is bad because the word 'TAX' is bad, feared, and looks like a 'ball and chain' to Americans' eyes and minds as meaning the Government is going to take your money away from you.
Second, the word "Tax", while eliciting the sense that money is going to be taken from you, does not actually provide our government with enough money, soon enough, to accomplish anywhere near all the problems that Bernie and Elizabeth actually will need to do. Eg. Taxing Wealth is too slow to salvage our country (not to mention our environment, and world).
Therefore, it is doubly advantageous for one or the other of the leading social(ist) democracy candidates to drop the discussion of "Taxing Wealth" --- and instead start promoting campaigns of more effective economic programs of "Wealth Reform".
Firstly here, the word 'Reform' is neither understood by average Americans, 'our' supposedly Representatives --- as evidenced by the, 'shall we say", extremely politically malleable word --- so none but one very very small group (<1%) is likely to even understand what "Wealth Reform" means. And the more that Bernie (or Elizabeth) tells the vast majority of Americans what "Wealth Reform" means the the more the people will love it --- and the more it will scare the hell out of the 00.1%.
Secondly, the flood of 'clawed-back' money that was expropriated, stolen, looted, hoarded, monopolized, and 'taken out of productive use' is more than enough
2
Henry Aaron's idea of an inheritance tax is a good one. If inheritances were fully taxable, but could be fully deposited into traditional IRAs, then any inheritance-financed consumption would be taxed. Under current law, any wealth Donald Jr. inherits from his father can be consumed tax free -- all the capital gains that had built up would go untaxed, just as they went untaxed when Donald Sr inherited that wealth from his father. Taxing inheritances, dividends, and realized capital gains at the same tax rate as the income from holding a job is taxed would be a major step forward.
31
Wealth inequality is power imbalance, and it is destabilizing not just America, but Europe, Latin America, the Middle East, and plays a role in the Hong Kong unrest. We,'re seeing what feels like the latter third of a monopoly game being played on a global scale.
So far, politicians seem more interested in getting protesters to turn their anger against each other rather than deal with the underlying wealth gap. Through disinformation campaigns, this is working but at a price. Eventually violence rises to such a level that states fail.
We have also seen corporate round tables pay lip service to the notion that their only goal can no longer be about growing shareholder wealth. But there hasn't yet been a lot of movement there. Some pundits say even Apple's 2.5b housing offer is peanuts compared to what it rakes in. People are growing cynical in their impatience, and they're starting to take back control. That process could get ugly.
1
Maybe we should pass a Constitutional Amendment to tax wealth over a billion dollars (indexed to inflation).
We could do this right after we pass an amendment that says:
"Humans, not corporations, are citizens with Constitutional Rights, and money is not speech."
Move to Amend.
2
Pay for 'it'?
We already pay for 'it'.
Every paycheck has deduction boxes for FICA and healthcare.
Change the deduction box for private healthcare to the yet to be enacted FHCA Federal Healthcare Act. This deduction should drop by roughly 30% (due to the elimination of C-Suites, shareholders, vast private bureaucracies needed to manage the byzantine array of policies and policy options).
Healthcare:
USA 17% of GDP
EU 10-12% of GDP
Everyone talks about people earning their money. Many did work very hard and very smart and good for them and certainly they should be able to enjoy the fruits of their labor. But what if you have more fruit than you could ever possibly eat, so much fruit it is just rotting in the field? And more importantly, is there some sort of fundamental and intrinsic limit to our humanity that imposes an upper limit beyond which we would say no one human person could 'deserve' or 'be worthy of' something beyond it?
Thought exercise: Lets say you are an individual making 52,000,000 a year. If there are 524,160 minutes in a year, you are making 99 bucks every minute. So right there it seems odd that a minute of any person's time is worth 100 dollars but carry on. The median wealth of the American FAMILY is 97, 300. Or 18 cents per minute of a year. The multi-millionaire's minute is worth, and therefore that individual is worth, 550 times as much as that whole family??? How? Can one human being truly be worth/deserve/earn THAT much more than so many other human beings?
I recognize that trying to set an upper value to human potential and worth or turn humanity into a monetary unit is nothing but pathway to terrible things. But my point is that at the level of wealth we are talking about, we are also inadvertently justifying and stating that some people are really just inherently worth that much LESS. And I guess that I just don't believe so many Americans are so worth-less.
Almost all of Bezos’ and Zuckerberg’s wealth exists to give them the freedom to run their businesses they want. The only way we have to determine who controls a firm is who owns the most of a company. Forcing them to periodically sell shares to pay wealth taxes simply forces them to give up more and more control, giving them more cash that they have no use for. I really doubt either man wants to control anything beyond the company each built. Bill Gates and Steve Jobs never had any pretensions to have any more than their firms. Their firms got very rich and their ownership shares made them very rich.
I wonder if most billionaires would give up a lot of nominal dollars if they could still retain power over their large firms. No legal means exist to do it. Still observers might consider these people at some basic level do not have motivations that much different from any business owner. Maybe our focus on power should be more on what moguls use cash for, not on how much wealth they have.
Great article. This thing will not fly. I suspect that Warren and Sanders know this. Then, when the wealth tax crashes, they will come for the rest of us.
5
Always good to see a case in point based upon facts, even if it does not jibe with ones, my own, desires or aspirations. So, I wonder why Warren and Sanders are following this course, surely I hope not for purely political expediency, but if they are they should certainly change course. Many other avenues exist to constitutionally have wealthy Americans pay their fare share of taxes and beyond, for as we should know, wealth is not created by any one person, it is conferred upon them and distributed to them by society at large.
1
Interesting, but isn’t it already the case that CA and NY residents are paying far more in Federal taxes than, say, WV residents or far more than 1/50 of Federal taxes, and yet that hasn’t been challenged on constitutional grounds?
@Rjv The 16th Amendment makes it clear that income taxes need not be apportioned among the states. Only direct taxes that are not income taxes must be apportioned. Since federal excise taxes and the federal estate and gift taxes are indirect taxes on actual transactions or transfers, there are few federal taxes these days that require apportionment.
2
Proceed with caution. The Govt. doesn't produce income. It takes money from others and redistributes it. It also doesn't create the vast majority of jobs. If you tax billionaires too much, they'll take their money -- and job creation -- elsewhere. It happens with property taxes all the time.
3
How is a wealth tax less constitutionally suitable than an inheritance tax?
Read the comments. Estate tax at Federal level is an excise tax paid by a short term legal entity to move the assets to the heir. It is neither a wealth tax or an income tax. Inheritance taxes are only at the state level. States have no limits in US Constitution in this area.
2
This article is spot on with the legality and politics of such a draconian tax. It's going to require a movement to amend the constitution. Elizabeth Warren is not the leader to lead such a movement. She falsely claimed that she is American Indian to further her career. She is a phony and a fraud.
5
If we don’t close the wage gap, none of this matters.
They can raise taxes on the wealthy and corporations all day long, the reality of the situation is that without legislation capping executive pay and bonuses at a multiple of workers wages or percent of profits, it amounts to a tax on the middle class because corporations and the wealthy will simply raise the costs of goods and services to cover their increased tax burden.
16
Helpful article. What about the idea of a tiny tax on every stock transaction? Would that be viable?
15
@Golden Rose I believe at least one candidate has proposed that. Keep in mind that would also negatively effect those in the middle class with 401k’s
13
That's why I say do an end run. Pay for medicare for all with mandatory premiums (not a tax) that are higher for those with more wealth.
1
Ummm ... OK, so we don't make a specific "wealth tax."
1) Basis step-up for inherited wealth is eliminated.
2) Accounting and tax fictions on "capital gains" are eliminated (e.g. "carried interest").
3) Transaction taxes are placed on financial transactions.
4) ...
In short, taxes are placed on capital transfers completely analogous to taxes on wages and earned income.
2
It's surprising that the campaigns (Bernie's and Elizabeth's) don't appear to have navigated around this fundamental issue in formulating their plans to address the cost of funding "Med-for-All." Now that it's out there, they must address the problem with talking points in all public debates - not with legalistic jargon, but with solid common sense, e.g., "whatever it takes to make sure the ultra-rich bear the lion's share, since they've had the lion's share of prosperity."
The last thing the Dems want to do is propose a plan that the GOP can slap with a label of "unconstitutional."
2
This just supports the fact that the firewall for the ultra-wealthy is more effective than any country border walls will ever be. Our forefathers rebelled against the corrupt, obscenely rich to conceive of this democracy. Are we not at that point now with a President, Senate, and Supreme Court of the ultra-rich, by the ultra-rich, for the ultra-rich? It's time to make US-subsidized individuals and corporations who benefit off the backs of our uninsured, shrinking middle class pay they're FAIR share. Again, the disparity is obscene and downright inhumane.
3
This seems easy enough to solve.
If taxing "wealth" is a constitutional problem -- or, more likely, a practical problem because it will rely on asset appraisal and will be subject to an enormous amount of gamesmanship -- just tax lifetime accumulated income in addition to income.
Step one: ALL forms of income or transfers are taxed at the same rates, whether the income is from wages, dividends, capital gains, inheritance, or otherwise.
Step two: the tax brackets should be vastly increased and much more progressive. Someone making $600k a year should not be taxed the same as someone making $6M a year or $60M a year, yet right now they are. The tax rate should be lowered for anyone making less than about $100k, but the brackets need to increase in number above the currently roughly $500k max...there should be brackets going all the way up to a 100% tax if you get over a billion annually. We need ceilings as well as floors for those living extreme lives.
Step three: if the foregoing is not enough to break up some of the excessive vast family concentrations of wealth, just add on a lifetime accumulated income tax in additional to the annual income tax. It can come in as an additional tax once someone hits the lifetime income accumulation limit of say $500M or $1B or whatever.
This is all fair, sane, rational, and avoids this supposed constitutional issue.
2
@kryptogal Inheritances are not taxable currently. Are you planning on retaining the estate tax or replacing it with an inheritance tax?
1
Income has strict definitions in the 16th Amendment and subsequent court decisions. No accumulated income total passes either test.
1
@The Judge
The estate tax is a joke and rarely paid.
I'm saying that all these different categories are nonsense and essentially are inventions that the wealthy paid a bunch of nerds who are good with numbers to come up with so that it is so confusing to people that they can hide the fact that they don't pay their fair share. Please note that I say this as someone who works in a practice where we are well paid to do precisely this.
ALL transfers of income to a person should be taxed at the same rates, and it should not matter whether that income comes from your employer, or because you sold some stock, or because your grandma passed away, or because your parents gave you money, or any other reason. It's all the same, it's the same money with the same utility and should be taxed the same, with progressive rates. These nonsense categories are just to protect flows of money from being taxes when they go to the already well-off.
I realize, however, that this would simplify things so much that a lot of tax lawyers, planners, and wealth consultants would be out of a job.
1
We need version 2.0 of the Constitution to fix 18th century bugs in version 1.0.
It’s not enough to tax income. Wealth inequality is much greater than income inequality, which is merely the rate of change of the former.
Part of the answer is a progressive estate tax, which presumably is constitutional because the wealth taxed is income to the heirs.
2
@Kevin Cahill The estate tax is constitutional because it is an excise tax on the privilege of transferring wealth. While heirs bear the economic burden of the estate tax, the tax is not imposed on heirs. Inheritances are not taxable under current law.
2
Thank you for this information. It was interesting and important to know.
I do think you buried the lead, though: "By closing loopholes and hiking rates on top earners, Congress could reduce inequality and raise trillions of dollars without a constitutional hiccup."
2
The authors of this article are spot on. Wealth taxes are unconstitutional, and for very good reason. A wealth tax would put everybody's home, savings, and personal assets at risk. The whole idea is flawed anyway. There are maybe 200 billionaires in America.They mostly have between 1 &10 billion. If you do the math, you can't squeeze 3 trillion dollars a year out of less than 2000 billion dollars of worth, as 3 trillion equals 3000 billion dollars, PER YEAR. There just isn't that much money to be had. That is why the rest of us will be at risk.
It is my opinion that both Warren and Sanders are deceiving the American people in order to lure them to vote for them by offering free everything. Neither of them have much else to offer, such as foreign policy experience, so they should both drop out of the race and clear the air for better qualified candidates. They are sucking the oxygen out of this election.
There is another issue. Americal is supposed to be the land of equality under the law. No other kind of equality matters if you don't have equality under the law. That means that the rich must be treated like everybody else. Why should they pay for everything in this country? Fair is fair. They earned their money, and the people who complain about it are the ones who made them rich in the first place, by buying whatever it was they they had to sell. They owe the same percentages of tax as the rest of us do. This is America, not a soviet style dictatorship.
49
@"Fair is fair. They earned their money". There is very little 'earning' among the super-wealthy. In most cases they inherited a ton of it, and then the money grew exponentially because of investment banking, tax havens and loopholes, and the like.
23
@Elaine The difference between the truly wealthy and the rest of us, is that the wealthy have opportunity to take advantage of more tax savings than everybody else. Down here in the upper middle class, where my family of 3 lives on $160K before taxes in a coastal blue state, I pay 36% of gross salary to taxes and (especially under the new Trump tax law) have no meaningful tax deduction allowed for things like real estate taxes, mortgage interest, health insurance premiums and unreimbursed medical expenses (which typically are post-tax out-of-pocket in excess of $20K a year). I just pay pay pay. It's not fair.
11
@Gilbert Osmond
This has been proven to be inaccurate and misleading. Less than 10% of millionaires received any inheritance at all. Most millionaires and billionaires have made their fortunes through building companies, industry, innovation and good investing. Yes, they pass their wealth on to their families, but many give huge sums of it to charity. I'm all for taxing the ultra-wealthy fairly, but don't go spreading false truths about where the money comes from. All your doing is using that incorrect assumption to make it easier to argue those people don't deserve what they have.
18
I thought everyone knew this, and the plan was get a constitutional amendment permitting direct taxes without apportionment.
Yes, if Warren and Sanders think they can adopt their wealth tax plan without a constitutional amendment, they're nuts. But I don't think they're so much laying out the process, but the concept. If the electorate buys into the concept, getting a constitutional amendment to match is no big deal.
1
@Sam I Am Wow, that's hillarious. The chance of passing a Constitutional amendment to allow the government to implement a wealth tax is exactly 0%. The very idea is bonkers.
2
As a tax lawyer, I give my thanks to the author's of this piece. The response to the lawlessness of Donald Trump cannot be a policy platform of dubious constitutionality.
5
Finally some expert comments from people who know a thing about taxes. The wealth tax is indeed the new shiny thing of the Democratic left. The great thing about it is that you can propose it as long as you want, because no one will ever going to implement it in this country. The authors of this article explain why. Even left center fiscalist governments like the German one had to abandon the wealth tax because its equitable enforcement is extremely difficult (people with assets where the value is readily ascertainable such as publicly traded stocks and bonds are taxed, but others with vast holdings of real estate or privately held businesses not so much, because it’s way more difficult to assess the fair value of those assets ). A much more sensitive proposal would be to repeal the capital gains tax rates, repeal the recently enacted pass through rules and increase the top tier bracket rates. That would already go for a long way. But I am skeptical that the Democrats are going to enact even such comparably modest measures, if they win the next election. There are to many constituents of and donors to the Democratic Party affected by that. Let’s face it, in 8 years the Obama administration wasn’t even trying to repeal the capital gains treatment of carried interest income which was earned by hedge fund managers.
5
The wealthy need to be held accountable for their tax evasions. They need to pay more in taxes or be sent to prison without bail.
2
It seems like the Apportionment Clause is incompatible with any kind of wealth proportionality. Ideally, a formula that incorporates population proportionality with a progressive wealth tax might pass Constitutional muster. But what would that mean?
For instance there may be a universal wealth tax rate starting at 0% on accumulated wealth under $10 million (just throwing around numbers) going up to 6% at $10 billion. On a national basis that would yield some total tax revenue. Does the Apportionment Clause then require that revenue number to be spread across the states in proportion to population? Or, can the state's populations be subdivided into the wealth brackets before the proportionality is applied? So maybe North Dakota (with apologies) has no wealthy people on the top tier and so collects no revenue from that wealth group, while New York (or Florida) would find a certain percentage of the national billionaire group paying in revenue according to the percentage of national billionaires residing there?
If that won't work, perhaps the Constitution needs another amendment. The founders didn't get everything right at first and left us a method to improve its structure.
@Some Dude Apportionment would require that if a state's population represents x% of the total US population, x% of the revenues of an apportioned tax be received from residents of that state. This would require a higher wealth tax rate in states with low per-capita wealth than in states with high per-capita wealth.
That situation gets exacerbated by a small number of high wealth individuals, 150 billionaires, moving to low population state, resulting in only a minuscule increase to revenues due from that state. The high wealth people consequently pay a minuscule rate, also enjoyed by the other few residents of state. The high population, regular wealth states, NY and CA, get slammed with much higher rate to meet their sharer, by population of total revenues collected.
As noted in earlier NY Times stories, while moving income streams from state to state is difficult, moving non-real property assets is both easy and very legal.
1
To get around the constitutional issue, could you scale the income tax rate based on the wealth of the person. Therefore someone who has $100M in wealth and $10M in annual income would pay the $3M in income tax, plus the $2M in wealth tax for a total income tax rate of 50% or $5M (all taxed as income tax)?
Virginia has a personal property tax. Is that similar to a so-called wealth tax?
@Somewhere in NY Yes, but the Direct Tax Clauses limit only the federal government's power to tax. State and local property taxes are unaffected.
Just stop calling it a "wealth tax". Just make the rich and corporations pay the same as everyone else. Roll back tax rates (and loopholes) to the Eisenhower era. After all, isn't that where the MAGA people want to be?
Call it "elimination of special treatment for the wealthy".
Constitutional problem averted.
6
"Make the rich pay!" is what we used to see in Canada 40 years ago before the elections. Because the authors of this piece have a vested interest in the byzantine tax code and its myriad dodges that they administer directly, those of us who pay disproportionate tax want the regime to change. My occupation includes protecting the commerce and revenue of the United States and it's amusing when we show up at a bank to enforce this law as Federal officers. High time the rich and the corporations were compelled to pay for the innumerable benefits derived from operating and living in the USA. Let 'em leave and not come back if they balk at this reform.
239
@Tournachonadar Dont need to 'make the rich' pay - but make them pay as they are getting rich; ie on the incomes and GAINS at the same rates as ORDINARY incomes.
5
@Tournachonadar "Let 'em leave and not come back if they balk at this reform."
Really? Then who is going to pay for Medicare for All?
9
There are plenty of countries with lower tax rates than the US, and, shocker! The rich are still here. Florida had had lower taxes than New York since 1492, and the rich are still here. Nobody is going anywhere where they can't make money.
6
Warren in particular seems to be selling a free lunch. Almost everyone gets everything for free by soaking the rich. But supposedly there is no such thing a free lunch. So the ramifications of trying to soak the rich need to be carefully analyzed. Will the rich leave the US? Will find loopholes to get out of being soaked? How will it affect the overall economy?
1
A thought provoking piece and one that any candidate exposing its' use needs to answer. However, I don't understand why taxing capital gains (under most circumstances) at income rates isn't a centerpiece of their alternative solutions.
What about the estate tax? That covers both assets and property, yet I have never heard anything about proportioning that among states.
@Joe K The federal estate tax is not a direct tax and thus is not subject to this limitation. It is an indirect tax imposed on transfers of assets on death rather than a direct tax imposed solely because one owns property without regard to whether there was a transfer.
Whats left out in this article is Warren (and I imagine Sanders as well) plans on significantly increasing funding to the IRS, so they can actually pursue tax fraud.
I work in an industry that sells luxury goods to people of ultra high net worth and about 70% of them have schemes to avoid the general sales tax on their purchases. The same tax that the working class pays for goods. We're talking about billions of dollars in lost revenue, due to fraud. This is Panama Papers level stuff.
4
Look at this shiny bauble over here... this is exactly what corporations are doing, and what we are debating wealth taxes and personal income tax rates. In the 50's corporations paid 36% of all Federal tax receipts. Today it's 6%. What we are missing in terms of Federal funding for education, health care, pensions, etc. is that 30%. Politicians are afraid to talk to corporations about paying any portion of that 30%, either because they are taking their money, or because they decided that outright warfare is a better tact. Neither is working. What does work is dialogue, long tough, boring dialogue. Many of these CEOs know that America is faling in terms of infrastructure, education and health care. Whereas they are hired to earn the maximum profit they can for shareholders most of them don't want, and most of their shareholders don't want to live in a 3rd world version of America. However, they need to wake up, and take action. Post Citizens United, government is for sale - thank you Justice Roberts et al. American CEOs need to decide if it's national money that is influencing our policy, or as is the case with 45, foreign money. The future is ours for the taking, but we have to realize that change will come whether we act for the collective good, or not. As Hoover lamentably once said "The business of America is business." He should have added, without providing essential goods and services to Americans, there is no business. CEOs need to get that.
3
Did the founders of our nation ever envision that ONE person could have a BILLION dollars?
Until not long ago, I couldn't either.
2
@Panthiest Of course they did. You are aware of the Dutch East India trading company right? This is one of the reasons England pursued America.
1
John Jacob Astor was a younger contemporary of most Founding Fathers. His wealth in 2019 dollars was close to 700 million dollars.
The income tax code provides deductions,credits, subsidies and lower tax rates.
But only for certain industries, persons, transactions, sources of income, business entity structures, contracts etc. favored by lobbyists buying legislative, executive and judicial complicity and conspiracy.
Pitchforks, torches, gallows. guillotines, firing squads and drawing and quartering and locking up and head chopping block and stake burning the royal rich are offen the best means for reasoning with them.
2
blah blah blah...you can talk all you want about constitutuonaility (which the authors are correct), the problem with the wealth tax is its tantamount to a licensing fee for what is yours. People, capitalism and American grit and ingenuity is what made us great and wealthy and the most prosperous nation this world has ever seen. Embrace it, make sure it works to drive job creation and raise up those at the bottom with some common sense revisions that do not tear the institution down!
@mcamp
There is no "great and wealthy" us, and the divide between the great and wealthy, and us, is growing into a vast gulf.
Capitalism must have some guard rails. The unrestrained greed and lax regulation of the Bush Jr years drove the financial collapse that almost tanked the world economy. The notion that some mythical laissez-faire supply side economic system will actually function has been repeatedly been shown to be a fiction. Greed, contrary to Gordon Gecko, is not good.
A system that pushes so many into a crushing cycle of economic lack while a growing class of obscenely wealthy shirks any sense of social responsibility is not sustainable. We should fix this before it breaks.
2
The authors of this article are looking at the problem of wealth gone off the charts into the hands of the super rich and their answer is, "How can we NOT help you today." Because, "Oh, the 230 year old moldy constitution says we can't solve this problem...... " Resulting in, "So, you'll just have to live with the new aristocracy. "
2
What’s the difference between a wraith tax and an estate tax? There is no apportionment for an estate tax.
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@Xander Patterson The federal estate tax is not a direct tax and thus is not subject to this limitation. It is an indirect tax imposed on transfers of assets on death rather than a direct tax imposed solely because one owns property without regard to whether there was a transfer.
@Xander Patterson
Excellent question.
Warren and Bernie (and Stalin and Mao and Hugo Chavez and Castro before them) like to take from the rich and "redistribute".
When we were young, we learned that STEALING is wrong. Stealing is wrong.
even stealing from rich folks; it is still wrong.
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@Yes to Progress
Do you think that all taxes are stealing? If so, how should be pay for public services (you know, police, fire, streets, etc)? If not, why is a wealth tax stealing while other taxes are not? What is the distinction?
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@Some Dude taxing wealth, deliberately trying to “redistribute” wealth is indeed akin to stealing.
Income tax of a reasonable amount is fair. Taking a portion of their entire assets is not.
Bernie and Elizabeth, and demos should go forward on this even if it's shot down. The party must address this cancer eating at our society in which the very rich keep getting richer and more powerful as they use the gov. as their foundling. I expect the NYTimes to throw more doubt and criticism on these populist proposals as Warren and Sanders get closer to power. Perhaps those who run the newspaper should stop going to the parties with the fat cats who will of course have "concerns" about the progressive proposals. Nothing radical about Denmark or Norway and their progressive social safety net. Stop listening to these WSJ chicken littles. Time to really do something.
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Whether Ms. Warren's ideas become laws or not, the discussion of such topics and the implications of inaction are huge. I remember when POTUS Clinton & VP Gore talked up the information superhighway couple decades ago. Talking up big ideas results in new implementations, hopefully, for the better. This is something Trump & his GOP cohorts do not understand. They are talking their way to extinction! GOP is the real modern WMD and hopefully will detonate themselves soon!
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This argument, while perfectly reasonable, mistakes the trees for the forest. As the authors allude, the income tax was unconstitutional as well, until it wasn't. The wealth disparity in this country is approaching historically unprecedented levels (measured by income, our economic inequality is already the most extreme of any group of humans that have ever lived on the planet, period. It's worse than feudal Russia, ancien regime France, you name it). The scale of the problem calls for fundamental change. It may take some time, but we begin by addressing the problem and fighting to fix it--this is what Warren and Sanders are doing.
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The constitutional problems with the wealth tax are daunting, but they aren't the only problems. Liquid assets such as stocks can be fairly valued at any time, but paintings, jewelry, and real estate can be difficult to value and subject to 'creative' valuations. Just ask Donald Trump about this.
Addressing the enormous - and growing - wealth gap will require a variety of measures. Return of the inheritance tax for large estates, a more equitable income tax not structured exclusively for the benefit of the 1%, a realistic minimum wage, and most important of all - finding a way to at least diminish the effect of money on politics will get us off to a good start.
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@Dave
Valuation isn't that tough. Appraisals estimate illiquid asset valuations all the time, and purchase price is pretty good too.
I agree with you, though.
I wonder how this analysis compares with the opposition to Federal income taxes, when they were introduced around the turn of the 20th century. In response to the Constitutional requirement that taxes be laid in proportion to the populations of the States, Congress proposed, and the States ratified, the 16th Amendment to the Constitution. https://en.wikipedia.org/wiki/Sixteenth_Amendment_to_the_United_States_Constitution .
States, if their own constitutions permit, can of course lay wealth taxes, real estate taxes, etc.
Whatever constitutional issues may or may not exist for a wealth tax, pragmatic concerns linger on. Proponents often argue that wealth, especially above $50 million as has been proposed as the wealth tax target, is invested in the stock market and real estate. That may be partially true, but neither would have to be within the United States. Getting wealth into foreign real estates or stock markets is not extraordinarily difficult.
Assume, however, that a wealth tax in place. In rush tax lawyers and accountants who will dream up new investment vehicles and be drivers to move the wealth outside either taxation jurisdiction or detection. Stock market funds? No problem. Change to art, gems, precious metals, or just start creating new companies in tax friendly countries.
It's not that we should be opposed to a wealth tax per se - the wealthiest earn little in salaries compared to what their wealth earns them - but if we can't find the wealth to tax, it's as though there is no tax at all.
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A problem, maybe, but there is a solution. Let the market that Republicans love work its incentives and citizens of West Virginia to whom the wealth tax would apply move to California.
You do not understand the Direct Tax clause. If invoked, the billionaires move to WY.. WY has to deliver total tax based its population, plus the extra 150 people times the average national rate. Its actual state rate goes to near zero. NY and CA have huge numbers of people all expected to contribute at the national rate few rich. Its rate is an order of magnitude higher than WY. Then the next year, the national rate rises since funds fell short, WY still only collects a tiny amount at a low rate and NY and CA get slammed with even a higher rate.
The two biggest problems with taxing the wealthiest at much higher rates (whether on assets or incomes) are:
1. It worked great when we did it back in the Eisenhower era.
2. The rich don't like it and have fought like blazes ever since to shift the tax burden to less wealthy folks instead.
We don't have to keep losing that fight.
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If what the professors say is true, we should avoid the issue. Instead of having a wealth tax, we should increase the income tax to levels that produce an equal amount of revenue.
In 1950s we had top marginal personal income rates of 55%. In 1960, we had a top marginal personal income tax rate of 91% on incomes in excess of $200,000, equivalent to $1.5 million in today's dollars. To be sure, there were reductions in the early 1960s. In 1964, the top marginal rate was down to 77% on incomes in excess of $200,000.
Yet somehow, in the 1950s and 60s, (prior to Baby Boomers voting; the voting age was not reduced to age 18 until 1972) the U.S. economy skyrocketed with these rates. Among other things, all kinds of housing was built in suburbs, an interstate hghway was built, people were flying in space and in comparison to today, state colleges were either free or had minimal tuition. Oh, and there's was more. We also had Brown v. Bd of Ed, passed three civil rights acts, passed Medicare, declared War on Poverty and in 1970 created the Environmental Protection Agency.
What happened? Did the tax rates have anything to do with it?
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Ahh, America, land of No, We Can't.
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America is the Land of the Government Can’t. That leaves a lot of freedom for the rest of us to get things done. Just as the Founding Fathers intended.
More nearrepublicans attempting to cloak their fear of progressive ideas in pseudoscholarly cant. Blech
Not buying this obtuse and convoluted reasoning at all. Scare tactics.
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This article really carries interest!
It’s pretty clear that the NYT is going all in to fight Sanders and Warren and Gabbard. The NYT is “liberal” when it comes to issues of race, gender, ethnicity, or sexuality but when it comes to class, economic injustice
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Here and on today's front page, the Times continues with its avalanche of articles and op-ed pieces directed against Elizabeth Warren. Is that Wall Street speaking?
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The Wealth Tax is Constitutional. https://www.americanbar.org/groups/taxation/publications/abataxtimes_home/19aug/19aug-pp-johnson-a-wealth-tax-is-constitutional/
@winchestereast I disagree.
https://news.bloombergtax.com/daily-tax-report/insight-the-proposed-federal-wealth-tax-would-be-unconstitutional
Who cares what Hamilton and others thought and wrote 300 years ago? The Constitution can and has been amended numerous times, to bring it up to date with changing reality on the ground. The 1700s Constitution was written for the white male owner class, who didn't want to pay taxes to the King.
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Yes, but Warren / Sanders have not proposed a Constitutional amendment, which would be even more difficult (read: impossible) to pass. A wealth tax is not viable. There’s no such thing as Santa Clause.
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Yeah, but haven't Bush, Cheney, Rove, Trump, et al. established that the presidency is above constitutional law?
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I can see it now, a Fed TV channel called the Wealth Tax Road Show, where appraisers try to put a price on Mark Zuckerberg's Mickey Mantle signed rookie card and Donald Trump's hand-made hair pieces.
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The Democratic candidates are fighting against a Republican party whose current standard bearer routinely and brazenly lies and manipulates and bullies, who physically assaults women, and who has completely abandoned such traditional niceties as honor, respect for law, and belief in the Constitution. Hemel and Kysar's advice to two of the most effective candidates in the Democratic party is like handing them a copy of Robert's Rules of Order instead of mighty swords, and priggishly insisting that they read and memorize it, just as they are advancing into battle against the foul, fire-breathing dragon.
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OK, then...how about we re-establish Sumptuary Laws as they existed in every colony of early America?
More targeted, not a tax, and so much fun to say.
Plus, Evangelicals would jump on board with both feet because God said so. I think.
Sumptuary Laws do not limit what wealth you can have. They regulate what you can buy. Since the accusation is Bezos et al actually only spend a tiny portion of their wealth, thereby avoiding capital gains and other taxes, it looks like we already have your desired impact.
Yes, but the even bigger problem with wealth taxes is that they don't work! The super-rich aren't stupid like politicians.
Twenty years ago most European countries had large wealth tax systems, especially Germany and France. What happened? Millionaires fled their countries, dropped their citizenship and took their capital with them.
Bernie and Liz like to point to European socialist systems as superior. But today only Norway, Spain and Switzerland have small wealth taxes. There is a lesson here.
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I can see it now, a Fed TV channel called the Wealth Tax Road Show, where appraisers try to put a price on Mark Zuckerberg's Mickey Mantle signed rookie card and Donald Trump's hand-made hair pieces.
Why the debate. Yang already sited history. Wealth taxes failed in Europe, why do we think they will work????
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Well, well, Esquires Hemel and Kysar,
If a Sanders or a Warren is elected, the 1% of citizens that own half the world's wealth will certainly know who they can rely on to press their suit - won't they now?
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Sounds like your feelings are hurt. The truth does that sometimes...
Forgot about constitution muster, it doesn't pass common sense muster and this is coming from a progressive.
Yes, do look at all the tax codes and tax where needed wealthier people but don't call it a wealth tax. It a tax on wealthy people who are not paying their fair share not on rich people as opposed to less rich people.
It would be like because of a spike in crime in black areas calling any remedy for it a Black anti crime bill. Apply it equally to all criminals.
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I find it truly amazing how many of my fellow commentators want to use the Constitution has outhouse fodder on this issue. I find it fairly hilarious because in many the people calling for ignoring the Constitution on this issue are the same people saying the Constitution says you can do this on other issues!
A constitutional Amendment has some here are advocating ? Well even assuming the Progressives got every single seat in Congress and Congress voted unanimously for such an amendment. It still wouldn't matter unless 38 states agreed! An event so unlikely I would rate the Mafia all repenting and joining a nunnery as more likely.
Next folks wealth is fluid even if a loophole was found the wealth you are proposing to tax would be out of the country before the ink was dry on the law.
Lastly a note for those calling for a VAT, No politician who wants to be reelected (Or come to think of it avoid a lynch mob) would support a 20, 30 , 40 % sales tax. To call such a move politically unacceptable to the voters is to put it mildly, Suicidal and not just politically is closer to the truth. For those calling for a massive VAT ? It isn't going to happen!!! Too many people would be broken by it for it to be acceptable to the massive number of people barely getting by now!
Yes, funny how the Constitution is the greatest thing ever when it’s on your side. Both parties are dishonest about this.
Thank you for this article, as I have always thought a wealth tax is a stupid idea - no wonder most western countries that adopted it got rid of it. In additional to the Constitutional challenges this article points out, the impracticality of implementing it is clear. There will be fraudulent divorces, there will be transfers of wealth out of the country, and there will be an impossible job of assessing the wealth for any particular individual. (Is the government going to knock on doors to look at what these people have in their houses and tabulate the value of the furniture, jewelry, and art?) Worse, there will be a move transferring productive assets into non-productive assets that can be hidden! A wealth tax is a political talking point for a campaign, nothing more. Total nonsense
Let's start with a $1,000,000,000,000 (trillion) levy on billionaires.
That will generate about $3,000 for every American.
It should take us about 3 months to spend that money.
Rinse and repeat....every 3 months.
Doesn't that sound like a good idea, my fellow NYT readers?
Or am I missing something here?
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Profits for online retail behemoth Amazon soared in 2018, but it paid no federal income tax for the second consecutive year, according to a report published Wednesday. The Institute on Taxation and Economic Policy says the company is subject to a 21 percent tax rate on its U.S. income. However, through various tax breaks and credits, the company will receive a tax rebate of $129 million. That's despite the company nearly doubling its profits to $11.2 billion in 2018, up from $5.6 billion the previous year, ITEP reported. The organization explained the negative tax rate this way: "The fine print of Amazon’s income tax disclosure shows that this achievement is partly due...to a tax break for executive stock options." An April 2018 Motley Fool analysis declared that Amazon is a "master of tax avoidance." Other profitable companies, including Netflix Inc., General Motors Co. and Prudential Financial Inc., are able to use tax breaks to completely offset their tax bill, Gardner said. Netflix spokesman Richard Siklos said the subscription streaming service’s tax break was reduced by standard tax breaks and that they anticipate their tax rate to be higher in 2019. Prudential said in a statement that it prepaid some of its taxes and follows all tax requirements. GM did not respond to a request to comment. “If you want to be mad, be mad at the people who wrote the tax code,” Yarbrough said.
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@KOOLTOZE
Behemoth companies like Amazon, Alphabet ( Google), Microsoft, Facebook, and the like, along with multibillionaires like Bezos, Gates, Zuckerberg, the Koch brothers, the Walton family, and yes, the Trump family, should not be paying less in taxes ( or no taxes) as a percentage of their yearly accumulation of wealth than the average American.
"Power begets power."
"To the victors ( ones with money) go the spoils ( pittance amount of taxes)."
What was so wrong with the tax structure of the 1950's, anyway?
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@KOOLTOZE
Would you get rid of the Net Operating Loss carryforward deduction?
FYI: Small taxpayers take advantage of this too.
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The development of the internet has complicated tax policy beyond real and personal taxes. Ireland has been accused of developing into a tax haven for internet firms for online income earned in other European countries. France and other nations feel their own consumers are enriching these corporations in a non-sustainable way as a portion of their citizens' wealth is being shipped to Ireland in the form of internet profits. The rigid definitions of real and personal property may bend to include newer versions and treatments of intellectual property, such as patents, that can easily be easily transferred internationally. Much of today's discussion seems to be hidebound by an artificial "letter of the law" versus a more progressive "spirit of the law" discussion.
11/07/2019 Thursday 1:42 pm Greenville NC]
Here is THE SINGLE biggest problem with Warren's proposal: taxing unrealized gains will force the wealthy to continuously sell assets to pay the tax. Stocks, being the most liquid of those assets, will be sold. When there are more sellers than buyers in the stock market, stock prices drop. Every person in America who is investing for retirement plus every pension and their pensioners will suffer from lower prices. In addition, you can kiss goodbye to the additional revenue generated by taxing capital gains at ordinary income rates. This plan is a disaster and has more chance of fueling a Trump reelection than it does of ever actually passing. What on Earth are we doing?
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I have no conceptual problem with a wealth tax, or property taxes in general, but it does seem like this tax would not be allowed by the constitution. The obvious fix is a constitutional amendment, though it is laughable to think that could actually be done.
I'm most amused by the authors stating that legislators have an ethical obligation not to pass laws that they believe to be unconstitutional. Until about 15 years ago, I assumed that virtually no public official would knowingly go against the constitution. I was not yet familiar with the modern Republican Party and its plethora of 6 week abortion bans, voter suppression measures, and similar moves that are enacted in bad faith, daring the courts to strike them down.
It seems pretty obvious that income - money you earn and profits from investments - should be taxed at the time it is realized to pay for public services and government. But a wealth tax is levied on money that has already been taxed (or will be taxed when the profits are taken through sale of assets etc).
How is it moral to tax someone who invests smartly adnd diligently saves and accumulates wealth, but a person who spends lavishly on depreciating assets avoids the tax? And while two percent doesn't sound like much, it's two percent a year, year in year out. I can't see how this won't lead to massive capital flight.
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Democrats are going off the rails. Beto's last comment in the debates was spot on, Elizabeth Warren is punitive of success, and we should be focused on lifting people at the bottom instead. Too bad he hadn't made that a centerpiece of his campaign from the start, maybe he wouldn't of had to drop out.
This far left envy of wealth is utterly bizarre, and I think its dangerous. There is a difference between wanting fair and progressive tax rates and wanting to SEIZE people's wealth they have accumulated. That is Marxism and more in the spirit of the French Revolution when they were running around beheading people looking for various enemies to blame for their problems.
With all these wealth seizure plans, how are we going to fund the grand plans of Warren and Sanders when the wealth gets reduced by significant amounts?
They are going to come after YOU, with massive taxes on the middle class.
Finally, a universal health care system is a worthy goal, but why are progressive Democrats wanting the government to satisfy EVERY basic need? Pay for your own housing.
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There are several ways to go. One is to strike down the constitutional requirement of apportioning taxes on property and wealth. Apportionment ignores the modern reality of both industrial concentrations in some states and concentrations of preferred residential locations and real estate prices in some states. If the states were uniformly agricultural, maybe apportionment would halfway work, though even in that case, states with high agricultural productivity would become wealthier than states with low agricultural productivity and the absence of wealth-producing resources. As it stands, the constitution institutionalizes regional inequality. The second is to apply steeper income taxes and leave it to the states and local government to tax property and intangibles adequately. So far, that's not working well.
James Madison et al set it up so it would be difficult to do. They knew what they we doing.
didn't Regan cut taxes on the rich. I believe they were paying around 50% at the time
Maybe -maybe, I'm just spitballing here- the problem isn't with wealth taxes. Maybe the Constitution is the problem. Maybe the document written by genocidal colonizers that declared their slaves 3/5 of human beings was constructed to always exclude vast swaths of the country from political life. Maybe genuine democracy is incompatible with a founding document so drenched in fear of popular sovereignty that it allowed multiple presidents to be decided by a minority of voters (let alone residents). Again, I could be off-base here, but I wonder if a set of arcane rules allowing a handful of individuals to hoard untold sums of money, but actively impedes creating basic social infrastructure is, uh, not very good. But if that were the case, it would mean granting a vague, 240 year old paper written by phrenologists isn't a very good idea.
Good thing these experts -who helpfully clarify that despite uncritically presenting far-right talking points, they're actually "liberal Democrats"- are here to assure us that, in fact, the problem is definitely wealth taxes. The problem is definitely not the slew of specious arguments substantiated exclusively -tautologically, even- by the Constitutions' very existence. Now I see that better things aren't possible, so we shouldn't even try, thanks!
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Let’s face it most of the wealth in this country is ill gotten: cheating on taxes, hiding assets, having Congress pass laws that favor the rich. The solution would be to put the tax rate back to what it was under Eisenhower. Obviously there was nothing wrong with that tax rate under the Constitution.
I’m tired of the super rich pretending to be saints in saying, “tax us more.” However, when the idea of raising taxes on the rich is discussed seriously, they pick up their bags of money and fly home on their private jets.
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Middle class folks already pay a "wealth tax". Most of our wealth is tied up in our residences. We pay property taxes on our house/wealth. Wealth taxes are a fact of life.
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The elephant in the room is that the Constitution is in serious need of amendment / revision. This is just one example and not the best one. Others include:
1. Corporations and other legal entities have no rights as “persons” but only those rights granted them by the Legislature (including the right to exist) — essential to the rights of actual people and to stop the corporate takeover of the country dead in its tracks.
2. No more electoral college.
3. Fix the obscene antimajoritarian structure of the Senate and mandate non-partisan apportionment for House districts.
4. Right of Congress to regulate political spending.
Because one of the clauses that needs fixing is the one that prohibits amendment of the composition of the Senate, this means a new constitutional convention is required.
Frankly, a wealth tax will mean my state, California will pay an even more disproportionately large share of the federal budget as compared to the benefits received. I and many Californians are not willing to invest more in this obsolete 232-year old federal system when states such as North and South Dakota have twice as much power in the senate but contribute a tiny fraction to the federal budget. Either fix it or break it and start over.
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Sounds like hogwash from professors at a conservative school, no matter how liberal they say they are. Congress has the authority to tax. I don’t see it as fundamentally different from a graduated tax based on income. Of course, the reason for the proposed taxes by Warren/Sanders is the many loopholes the rich find to avoid paying “regular” taxes. Money is power to make more money (and keep it). That’s why we’re in this mess to begin with.
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@David Parrish The fundamental difference is that the 16th Amendment explicitly permits an income tax and the Direct Tax Clauses explicitly prohibit an unapportioned wealth tax.
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The authors raise significant and substantial points. Ms Steffek's letter hits the nail on the head, then: another Constitutional amendment is needed.
OTOH, how then are progressive tax rates in the IRS Code, constitutional? I see no discussion on this point. If not a wealth tax, then a return to the much, much steeper climb in tax rates as a function of income, is indicated.
It is also significant to point out how European countries deal with wealth inequities: precisely through a wealth tax. An in-depth article by the Times, exploring how other countries implement a wealth tax, and whether they are successful, is warren-ted (sorry, couldn't help it...)
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@Albert K Henning Progressive income tax rates are constitutional because the 16th Amendment explicitly permits an unapportioned income tax.
NY Times has done articles. Almost all countries abandoned wealth taxes though allowed by their constitutions, written or unwritten. On the other hand, they all have VAT, paid largely by middle class, to fund health programs proposed by Senator Warren. What would a betting man think our likely end state would be?
Don't worry about the constitutional muster. They will not pass the voter's muster, not anytime soon, and not without a major economic downturn.
Hmmm... It would be interesting to know what the statistics are right NOW. Are currently collected "direct taxes" proportional to state populations? I'm guessing they are NOT.
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@StatBoy While there are a few provisions in the Internal Revenue Code that are arguably unconstitutional direct taxes, the vast majority of the taxes currently imposed by the federal government are either income taxes, which the 16th Amendment explicitly provides are not required to be apportioned, or indirect taxes such as excise taxes and the federal estate and gift taxes, which are not covered by the Direct Tax Clauses and therefore do not need to be apportioned to be constitutional.
Zero provisions in the tax code contradict the combined US Constitution that includes the Direct Clause, the Sixteenth Amendment and the Twenty-fourth Amendment, the only limit on taxes states can assess against their residents or activities in their states.
Interesting opinion.
I also thought a wealth tax would be unconstitutional, but for a different reason. I felt it would be ruled "ex post facto". Many very wealthy individuals, e.g. Bezos, Bloomberg, Gates, etc. have made their fortunes during their lifetimes, and, I assume. paid their annual taxes, after their accountants applied every legal loophole. To pass a law to go back and re-tax that money would be "after the fact".
The only way to institute a wealth tax would be with a constitutional amendment, similar to the 16th, which established the income tax. The chances of that are zero.
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Hogwash! The Estate Tax takes a percentage of wealth from dead people with uneven treatment between states and the Gift Tax does the same for living people. This is just the latest fear tactic from those who rake in cash from our abysmally inefficient health care system.
Maybe the wealthy fear that taking 2% of their wealth a year, over time, will make them less wealthy? After all, taking 2% a year means 20% over 10 years!
Such thinking assumes fixed wealth. But wealth of the super-rich is not fixed; it will increase as it has increased in the past - and likely more than 2% a year.
If Bill Gates and other such reasonable individuals among the wealthy were to consider this tax deeply, they would realize that their wealth would likely increase even faster if Medicare for All were enacted on the foundation of this 2% wealth tax because less will be spent overall on health care, the population will be healthier and more productive, and far fewer people will file bankruptcies in which the wealthy take significant "haircuts" - or even lose everything. Medicare for All would make the wealthy even wealthier.
William Henry Harrison said, "all the measures of the government are directed to the purpose of making the rich richer and the poor poorer." Perhaps Warren's plan will reverse this trend by making the rich richer and the poor richer too!
Wealth is not a zero sum game!
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@_____Q_____ The federal estate and gift taxes are imposed on transfers of assets upon death or by gift, and therefore are constitutionally permissible indirect taxes. Direct taxes are taxes imposed on the mere ownership of assets without regard to whether the assets are being transferred or otherwise used. Unlike the federal estate and gift taxes, a federal wealth tax would be a direct tax that absent apportionment would be unconstitutional.
Thank you for explaining the distinction.
The response is to do what America did when the U.S. Supreme Court pronounced the income tax unconstitutional for the same reason in Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429 (1895): pass a constitutional amendment (see Amendment XXVI to the U.S. Constitution). Perhaps it's just time to remove the constitutional requirement that taxes must be apportioned.
The authors state "The constitutional objection to wealth taxation is based on two clauses that require any “direct tax” to be apportioned among the states based on population. So, since 12 percent of the population lives in California, Californians must pay 12 percent of any direct tax."
If the supreme court agreed with this then federal income tax rates for NY,NJ,CA, MA would drop precipitously because these states are paying well over average. If FICA is constitutional on these grounds then so is a wealth tax.
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@Dan G The article says the 16th Amendment allows incomes to be taxed without apportionment and that it doesn't apply to a wealth tax.
What I've wondered about is how one's wealth might be used, not as a basis for a new tax, but as a basis for the progressivity of the existing income tax. That is, on a scale from 0% to 100%, how much of one's income should be paid for taxes, including capital gains, and what rules should be following in allowing deductions, etc.? Currently, the progressivity of our income and capital gains taxes do not take net worth into account, only income itself. But why not take wealth into account?
I believe that it would be possible to approximate the effects of a wealth tax on revenue without actually taxing wealth, by using wealth to modulate other tax rates. Under that system, completely inactive or dwindling fortunes would be spared, but any profit making or increase in value could be taxed at rates up to 100% as a function of net worth.
I would propose this as a stop-gap until a constitutional amendment could be passed to permit direct taxes other than on income.
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Even if it is true that the constitution prohibits a wealth tax it should be tried. If it is ruled unconstitutional the constitution should be changed. This is difficult I know, but it will not changes unless we try to change it.
The broader picture is that the Republicans are set to impede the agenda of an Democrat President (and they will be just as recalcitrant against "moderates" like Biden or Buttigieg as against "radicals" like Warren or Sanders). They just want to block everything. If constitutional arguments serve this purpose, well and good. If not they will find other ways to oppose.
There isn't going to be a liberal agenda in America. The country is in gridlock. The Democrats don't have the votes for the overpowering majorities they need to pass their program. The Republicans have procedural, constitutional and structural roadblocks on their side and an apparently unlimited will to always say no. And a large part of the country, given the choice of universal health care or Trump, or a wealth tax or Trump, will pick Trump.
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Yes they will.
I'm really disappointed in the quality of the comments I'm seeing. Some appear to have no understanding of the history and value of the constitutional arguments presented and some are from folks who think political reform is like a high-school pep rally where the louder you chant "Rah Rah Sis Boom Bah" the more likely your under sized and under talented football team is to win. The test we all will face after the defeat of Trump is how to remove the myriad politically popular tax benefits from the code and strengthen the system to ensure that taxes, where owed, actually get paid. That in itself will be a herculean task worthy of the efforts of every patriot and calling for the moral and political skills of a Lincoln and a Roosevelt (both Roosevelts) and the managerial skills of an Eisenhower.
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isn't a wealth tax just a tax on your total assets. why so much discussion about 'land and property'. are cash assets now 'property'?
"A good-faith reading of history and precedent would suggest that the Warren and Sanders wealth taxes are unconstitutional."
A good faith reading of history and precedent would suggest A LOT of things that SHOULD be unconstitutional are somehow perfectly fine through some method of "constitutional alchemy." Why should this wealth tax be any different?
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OK, this problem is intractable. So maybe we need a redo of the 16th to the original, a wealth tax. After all, income is only a only a clumbsy approximation of wealth.
Numerous court decisions since passage of the Sixteenth Amendment have the definition pretty well nailed it. Now and then people create very off the wall variations, but tax court judges usually eliminate the gray areas. Nothing clumsy about the process. Note the sequence: amendment, court decisions, clear understanding.
I believe it is dangerous to a free society to allow such obscene concentrations of wealth as we are witnessing today. Moreover it is intuitively obvious that concentrating purchasing power in those who have so much they cannot possibly spend it distorts the economy. Having said that, I am very uncomfortable with the arbitrary taking of property. It's a bit like putting a property tax increase on the ballot and then allowing non-property owners to vote on it.
1
Potential purchasing power is different from purchasing power. If Bezos et al actual turned wealth into purchasing power and bought things, then the system would capture that income and tax it.
A more realistic approach to income inequality is to revise the tax code and re-visit exemptions. The $10,000 SALT limit really hammered middle-class families who live in blue states. Restore that exemption by removing the SALT cap for families making up to some set amount (say, $150,000), or raise the cap to at least double what it is now.
Similarly, income from capital gains should be taxed at the same rate as ordinary income, with the exception being dividends, interest, and capital gains earned from retirement income.
Keep the new standard deduction amounts for those who choose not to itemize, and eliminate any thresholds or caps on medical expense deductions. ALL medical expenses should be deductible, which would help offset the cost of medical insurance and out-of-pocket payments.
Failing that, what this country REALLY needs is a constitutional amendment that reads, "Congress shall pass no law nor promulgate any regulation, extending any specific financial advantage, privilege, exemption, or benefit to any person(s), groups, organizations, or legal entities, that does not extend to all citizens of the United States of America."
We can dream, can't we?
Warren already knows that both the Wealth Tax and M4A are not feasible. But they’ll get young voters to the polls, help her win the election, and allow her to rally the public and Congress to pass more feasible but directionally appropriate plans (like Public Option and taxing capital gains to tax the wealthy). Looks to me like Warren knows how to campaign AND how to lead. More power to her!
I don't know if this is correct or not. What it should be is one of a group of amendments to the Constitution which are needed. The Constitution is not exactly a great piece of literature and fails in many ways. I know it will never happen but a rewriting from top to bottom would be a good idea. Starting with using the word equality as an aim of democracy. Not to mention the second amendment which is ridiculous. Scalia apparently was only capable of reading the second half of sentences. The current Supreme Court ruling on interpretation of this is just plain silly: it makes no sense at all.
4
When anyone mentions opening the Constitution to a wide-ranging rewrite, my response is "be careful for what you ask." That would be opening Pandora's Box. I am far from certain (to put it mildly) that the Bill of Rights would survive unscathed.
5
Let's start with the reality that the Founding Fathers and most colonists, wanted to be equal to the Aristocracy of England. An Aristocracy that gained its wealth and power by violence, subjugating the vassal class to a form of slavery and forcing its daughters into marriages to consolidate wealth and power. This was the model they aspired to, because it was the only one they knew.
No one really balked at stealing the land of the colonies from the Native Americans, then murdering those who fought back. A whole industry developed vast wealth for its participants by kidnapping and forcing millions of Africans into a life of slavery that included the everlasting enslavement of their children. Even those who did not own slaves benefitted by the commerce that unpaid labor produced. Every bottle of wine, yard of satin and lace, chair, carriage, horse and horse shoe bought by the fruits of slave labor enriched the merchant and professional classes.
This is, honestly, where our nation began.
So why would we be surprised that they built a mechanism to protect their own wealth and the wealth of their friends and equals into the Constitution? They built in a mechanism to perpetuate slavery and to hold women as second class citizens.
So we are left with work. But just as the gods packed Hope into Pandora's box the Founding Fathers packed the power to Amend into the Constitution.
Perhaps this is the century to face its limits and give it life in the modern world.
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@Maureen Steffek Amendment is too slow a process, and given today's political standoff, impossible in any case. If we are to dream, we should junk the Constitution and start over to reflect new realities. Alas, that is even more impossible than amendment.
5
@Maureen Steffek
Not that we can adequately cover world history in 1500 characters but yours is a very strange interpretation. That's not really how things went down. We would need to consider the Norman Conquest, the origins of British Common Law, the Reformation, the Enlightenment, the Great Awakening, the Seven Years War, and many more topics just to name a few. That's before we can get to the US Revolution. From there, the rabbit hole only goes deeper.
Suffices to say, the framers were very well aware of the hypocrisy in forming a democratic government with the institution of slavery intact. So much so, most early US economic development centered almost entirely around the question. Everything orbited around this gravity. Fiance, transportation, administration, human rights, diplomacy, trade, taxation. Everything. What do you think the Missouri Compromise was about?
And anyway, the salve owning mega-plantations of the antebellum south was actually a late forming anomaly in the context of European colonization within the Americas. Your depiction more accurately describes the Spanish Conquest and the resulting inter/intra continental cultural and financial tensions as much as it describes anyone. You need to reel it in a little bit.
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@Andy
If you admit that "...the framers were very well aware of the hypocrisy of forming a [so-called] democratic government with the institution of slavery intact," what is your point in saying Ms. Steffek's comment is "a very strange interpretation."
I think it is spot on.
8
If the wealthy actually paid their share, rather than hiding their wealth, we might not need new taxes. We should be holding tax havens accountable to report American wealth so we can enforce taxes. If they refuse, we discontinue business with the tax haven, and freeze all American assets, unless the account holder agrees to pay the taxes they owe us. No more loopholes, no more exemption status for the wealthy, and no more hidden money.
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@Stephen The wealthy already pay WAY more than their share. On a per capita basis over time, wealthy people pay WAY more in federal taxes than the middle class or below.
In income taxes alone, the least wealthy 50% of the households filing tax returns pay only something like 3% of the federal income taxes.
Yet, the least wealthy 50% of the households benefit from many national and state programs that the wealthy are not eligible for (Medicaid, SNAP, free school lunches, etc) or do not use as much of (as they often send their kids to private schools instead of public school, and the rarely reside in correctional institutions for much of their lives).
Even in Social Security payroll taxes, the lower income workers get a much better deal - even though Social Security retirement benefits are tied to the amount contributed by the worker and their employer, the relationship is not linear. The first dollar a low wage earner contributes to Social Security via payroll taxes returns six times the benefit than the last dollar a upper middle income worker contributes just before hitting the cap (actually, when one considers that SS benefits become taxable at 85% as income rises, it's more than six times -- as "tax free" income is much more valuable than "taxable" income).
And "loopholes" are sometimes just legitimate business expenses - just ones that someone who doesn't own a business would not understand.
7
@Stephen That's what a left wing president would actually be able to do, maybe: tighten up loopholes, fund the IRS and collect taxes that already exist. A wealth tax proposal is a sky castle and a virtue signal.
2
@Bob Richards
Where are you getting these figures?
2
Odd that the constitution applies only to Democrats but not to Republicans who ignore it 24/7.
10
This article doesn't make sense. The ATM is still in effect and has been for several decades. No one has struck it down.
Your argument sounds convincing, it simply runs afoul of reality.
7
@pastorkirk The Alternative Minimum Tax ATM) is just another type of income tax so not a direct tax. It simply removes certain tax preferences (for example accelerated depreciation) that the regular income tax calculation allows in calculating the alternative minimum tax amount. The taxpayer must pay the higher of the AMT or that derived under the regular income tax calculation.
2
The reality is that AMT is an income tax. It has no wealth components. If it had wealth components, it would be illegal.
3
Interestingly, the comments I've read so far do not even attempt to address the constitutional issues raised by this opinion piece. They attack Warren, or The Times, or the Democratic bona fides of the two authors, but there's no serious effort to argue that the authors are wrong about the constitutional battle that would result from an effort to tax wealth as opposed to income. Will Warren (or Sanders) have a convincing answer, or will they just hope the question goes away until they're nominated/elected?
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@Lee VV: Taxation of wealth is problematical because the valuation of every asset is set at the margin of exchange, which is subject to unpredictable fluctuations.
It is going to be a fight. Interpretations like your's will be opposed by others with just as much legitimacy and authority. That is part of the challenge. This will take fortitude, intelligence and a great deal of drive and perseverance. Do you think Warrne/Sanders have not considered this? Wrong. Obama faced the same challenges with health care. You must go ahead, take on these challenges, for they must be done. Simple as that. Look at what is happening to our water, our air, our food, and our lands under Trump. Do we sit back and worry about constitutional fights that are inevitable when our very survival is at stake? No. Warren and Sanders are saying "fight". It is an inevitable fight, if not know, later when folks are dying in greater numbers. The time is now. Warren and Sanders spell out a feasible path. Pain? Yes, Adjustment? Yes. Difficult? Yes. I say to everyone - Courage. This can be done, it must be done. We have to go Big to anything significant enough for our children to have anything similar to what we now have as adults. Courage.
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Why is it any proposed solution to our current income inequality and rigged system issues doesn't pass some kind of muster? Could it be that our country has been igged onwards furthering he welfare of the rich since its founding? Maybe it's time to start over. New states, new countries, new Constitution. Maybe it's time to acknowledge our citizens have reached the point where compromise is impossible.
Inheritance taxes are constuitutional. Inheritance rewards the beneficiaries for doing absolutely nothing. Gift taxes are also constitutional. Maybe these can displace "wealth" per se.
Moreover, for many yeas Florida had an "intangible" tax, investments like stocks and bonds, patents, copyrights, life insurance and partnership interests. At one time, taxes on intangible personal property were commonplace across the U.S., but starting in the 1980s states began pushing to repeal these laws. From 1956 to 1986, personal property shrunk from more than 25 percent of the tax base to just over 15 percent, making it such a minor tax revenue source, lawmakers began to question its value.
"Wealth" per se is not a suspect criteria under the 14th Amendment.
http://law2.umkc.edu/faculty/projects/ftrials/conlaw/wealthandepc.html
1
The arguments over Medicare for All and taxes revolve around the issue of "how to pay for it." This is a uniquely Democratic Party problem.
No one asked how to pay for Trump's giveaway to corporations and the wealthy. Consequently, our deficit now runs about one trillion dollars a year.
Any time Dems propose anything good for the country, Republicans (and many Dem voters) howl about the costs. Warren has to be prepared for this, and she is responding as best she can, which is not very well.
I don't know why she doesn't point out more clearly that health care costs will be overall much lower, because all the marketing and administrative costs of competing health plans and claims denial and deductibles and insurance payments will all disappear. Our per capita costs will drop by 30-50% overall, if the experience of other developed nations is any guide. Wouldn't you like to cut your costs, and have a human equitable system to boot!?
There are so many ways to "pay for it" when the truth is that we will have much lower costs. But for the sake of argument: Reverse the Trump giveaways. Return capital gains taxes to above the earned income rate, as they were until Bill Clinton slashed those capital gains tax rates. (There's a centrist for you.) Tax luxury items at higher rates. Raise the marginal income tax. Close loopholes.
Point is, don't get trapped in this "how to pay for it" argument because Republicans will crush Dems with it. Too many voters will conclude they're right.
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@Unconventional Liberal
We did ask how Trump tax cuts would impact government revenues. The CBO responded with a report stating deficits would grow. That's what happened. Republicans passed the law anyway. We're discussing a point of false equivalence. Everyone is asked "how to pay." Only one side cares about fiscal reality. Zombie economics strikes again.
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@Unconventional Liberal I can see a pretty good ad: Wealth patricians saying "How will she pay for it?"
As they're getting on their private jet, helicopter, yacht, from Cannes, Monaco, Moscow, from their long island mansions or wherever. Could be funny and effective!
8
@Unconventional Liberal,
"Our per capita costs will drop by 30-50% overall, if the experience of other developed nations is any guide."
American health care is far more specialist- and procedure- oriented than any other country. Also, physician salaries are top of the scale. We are not headed towards 50% savings, especially with poorer, newly insured people likely to get more services in a M4A setting.
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There is no question that wealth taxes are Unconstitutional. None. Zero. Zip. They absolutely are. I am Pretty Damn Blue but that is the reality.
Therefore the only way to fund Progressive program is with taxes increases.
Good luck with that.
2
@Lefthalfbach
i don't agree with your 'conclusion'.
A wealth could easily be passed as an adjustment to the income tax to avoid the constitutional objection of a direct tax. Most of the tax involves computation of tax expenditures and even Justice Roberts was willing to consider the Obama penalty for no insurance as a tax adjustment.
Elsewhere the NY Times reports that Sen. Warren might sit down with Bill Gates to discuss a wealth tax. I support the 2-4-8 Tax a/k/a inverse taxation of wealth and income a/k/a wealth adjustment to income. See www.TaxNetWealth.com
1
The campaigns need to respond.
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I am not a tax expert but have read the history of taxes. A basic idea was a proportionate tax, you pay a portion of what you earn. You earn 100,000 you pay a % and if you earn 20,000 the same %. This, if the only method , would be like a flat tax. Good idea until you get the 2000 pages of exemptions then it is destroyed.
Then there is the idea of a graduated tax, increasing % with certain increases in income, and above a certain amount (maybe 300,000) you get a high marginal tax of say 50%. This was the way things were done for many years until 1980 and Reagan.
Now we have a reversal where many people making less then 100,000 pay way more then folks making millions. This was created by special interests to buy congress to make their tax dodges "legal".
Going back to the idea of graduated taxes, based on income, then a high marginal tax above a certain amount and reducing the many loopholes would allow us to pay our services, and get out of debt.
Its not radical, its going back to how we did things for years.
6
"general assessments... on the whole property of individuals"
~ Alexander Hamilton
How does this quote that you use as "proof" of your argument on the thinking of Alexander Hamilton indicate his thoughts on anything? I'm not saying the authors are misrepresenting what Hamilton said, but that quote is beyond useless.
1
Simple question - does the current tax system pass constitutional muster by your criteria?
1
@jlc1 My guess is that the authors' answer would be mostly yes. Federal taxes on realized income are clearly permitted by the 16th Amendment. Federal taxes on transfers or other uses of property, such as the estate tax, the gift tax and excise taxes, are indirect taxes that are not prohibited by the Direct Tax Clauses. There are a few federal taxes on deemed sales or deemed distributions, such as the deemed-sale tax on expatriates and certain others and the recently enacted deemed-repatriation tax on certain US persons that own shares in foreign corporations, that raise the constitutional issue that the authors address.
Warren doesn't care. She's probably the first one to know her plans are pie in the sky. She's telling people the things they want to hear so she can get elected. She doesn't care if her ideas have zero chance of passing, she already knows that.
3
The problem with a wealth tax is that is does not work. It has not worked in any country that has tried it so why will it suddenly work in the US? You don't think people will flee? I would. Can you name any country in the world that does not tax the middle class in some way to pay for healthcare? Name one please? Warren needs to be honest with people. Her plan to tax only the rich will not work. Can you say VAT?
2
The healthcare insurance premiums corporations pay is effectively a wage tax, albeit per capita, not per dollar. By replacing those premiums with an equivalent tax, wage earners continue to foot a large chunk of the bill.
The law can be written so that fleeing is impossible or counterproductive. The United States is much bigger than any European country. It has reach others don’t.
1
Alas Andrew Yang is correct. We need a VAT tax like Europe bc wealthy people buy a lot of....stuff.
@Pablo No, they don't, at East not in eras of consumer goods. Turns out they early do refer to just use heir money to make more money.
so much for claiming you're democrats when your only arguments are from the good playbook. we've taxed wealth before and we can do it again. Enough with the defeatist may saying.
1
Dear no one,
As Somerset Maugham wrote in "The Razor's Edge", "It doesn't matter."
Well since calmly raising progressive taxes on the rich to pay for a better life for all Americans, based on free and fair elections of progressive representatives will fail anyway. Because the idle rich will use their army of lawyers, paid off politicians, and paid off judges to strike down every opportunity to create a fairer life for more Americans.
Maybe "We The People" get fed up of fighting each other for scraps. Maybe we'll follow Thomas Jefferson's call to water the tree of liberty with some tyrants blood. Maybe we'll use the French Revolution model and break out the guillotines, or the radical farm protests of the 1930s, where roving bands of starving Americans started to halt the machinery of production.
"Those who make peaceful revolution impossible will make violent revolution inevitable." JFK
4
Grabbing taxes collected by states to pay a portion of Medicaid is illegal too. Warren seems to think she can grab money and redirect it under presidential or congressional authority. NOT. Does she plan on seizing retirement funds set aside for healthcare benefits too? The idea she can take expenditures for healthcare benefits from companies is another myth. Those benefits were used to recruit the most qualified workers. What keeps them there if they can work for a company that pays billions less in healthcare cost? They could get a substantial increase in pay by changing jobs. Jonathan Gruber, an architect of the ACA bragged about deceit and the stupidity of the American voter to get it approved. Is he working for Warren now?
"We are tax law professors who identify as liberal Democrats, donate to Democratic candidates, publicly opposed the Trump tax cuts and strongly support higher taxes on the affluent."
One can only wonder if this introduction is needed to give credence for NYT readers or to signal their worthiness to write for this paper.
The reality is that the wealth gap can be closed only by raising the bottom; lowering the top is insignificant.
4
The NYTimes persistently attacks Warren, knowing Sanders will not make the cut, in hopes that Biden’s moderate position will not threaten it’s comfortably established order. This failed us last time, and will fail us again.
2
Kinda like that constitutional obligation that requires congress to approve war?
Where are the democrats on that one?
Nice to see someone other than the left hand-winging and fussing about the Constitution these days. Gives me hope.
1
If the top 10% of U.S. households continue to gain wealth at the same rate they did from 2013-2016, they will have 100% of the wealth in the U.S. just 33 years from now.
Source: https://www.dallasnews.com/business/personal-finance/2019/08/04/at-this-rate-the-rich-could-truly-have-it-all-just-33-years-from-now/
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What constitution are we talking about, the one that Trump violates every single day, that one?
4
The Electoral College is the most atrociously unequal treatment of the US public imaginable. What a farce to see how equality is cherry picked under this awful relic of liberty to enslave.
5
I fear that Warren is going to hand the election to Donald Trump with this Medicaid For All thing.
3
To quote Nicholas Kristof, “Longstanding economic inequality in the United States, exacerbated by Trump’s tax cuts and other policies, is staggering. A single hedge fund tycoon, James Simons, made $1.6 billion last year, or more than $4 million each day — yet the United States has 100,000 children who on any given night are homeless. Since 2000, 61,000 foster kids have simply gone missing. Girls and boys are sold by pimps for sex in every American city.“. That’s why ANY wealth tax is a good tax.
2
How is it states and localities can tax on wealth (property taxes) if the constitution doesn't allow it?
How is it we can have an estate tax since it's based on the transferred wealth? Is it just that the transfer then becomes income to the recipient, and if so, why isn't it treated as simple income?
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@David - the Constitution defines the powers of the Federal government, not those of states and localities.
1
@David The Direct Tax Clauses apply only to limit federal taxation. States and localities are free to impose property and wealth taxes as far as the federal constitution is concerned. The federal estate tax is an indirect tax on the transfers of assets that occur on death, rather than a direct tax imposed simply because one owns property.
It would be a herculean challenge to enact any reforms meant to undue years of changes meant to reduce taxes of all kinds on the richest among us. So what? Over the years we have suffered so many changes, including the transparently ridiculous Trump give-aways, that we now have an essentially flat tax and the largest wealth gap in the “developed” world. If a wealth tax is unconstitutional what about property taxes, most of which are taxes on property not owned by the person paying the tax? Isn’t that what is happening when a family pays a tax on the value of the home they live in even when that home may be legally owed by the bank or whatever entity holds the mortgage. I suggest the two of you use your knowledge of the Constitution to come up with ways to provide medical care to all and provide an education to all without driving students from poorer families into debt. A herculean challenge task no doubt, but worth the effort. In the meantime I’ll vote for Sanders.
1
Why is the liberal argument around taxes always about raising them for those benefiting from low rates rather than slashing them for everyone? Why is every negative event in the human experience a definable problem that the government must solve? And why is that solution ALWAYS money?
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@From Where I Sit simple - liberals want all or nearly all private wealth confiscated by government so that it can be doled out as liberals see fit
@From Where I Sit Because I do not share your magical thinking that the greed-motive will solve our ills.
The authors' reasons against a wealth tax are all legalistic, without criticizing the idea itself. Well, then, why not simply propose an amendment to the Constitution to allow it, rather than dedicate their time to making a list of legal technicalities for why it can't be? There is no more time for more old-school thinking.
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@Sam
ERA introduced in 1971 and still wending its way through the states to this very day - that is why.
1
@Sam Proposing an amendment is one thing, getting Congress to write one and getting it approved by 38 states is quite another.
1
@Sam Because you think passing a constitutional amendment is an easy route to solve it?
1
Unbridled capitalism has led to severe income inequality. Those with money have used the Supreme Court decision in Citizens United to pour millions into elections thereby effectively buying Congress.
How much money do the rich get to syphon off before the middle class disappears and the poor become serfs? Stop defending the indefensible.
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@Lily Quinones No, advancing technologies/economies do this with automation, first of muscle power, and now more than ever brain power. Economies don't need much labor anymore, and that's trouble for humans who only have labor to offer. Labor jobs will all have to find space in the service sector.
As much as I love Warren and Bernie, as much as their values and vision of what constitutes social justice aligned with mine, I won’t be able to vote for them this time, even I voted for Bernie in 2016.
My son-in-law is in private equity business and according to recent Bloomberg warning his company will be destroyed under Warren policy.
https://www.bloomberg.com/opinion/articles/2019-11-05/elizabeth-warren-private-equity-plan-wall-street-hates-it
Elizabeth Warren Will Give Wall Street Something to Cry About
And it probably won’t be a wealth tax or health plan...
I can’t contribute to my family downfall, my kids and grandkids welfare takes a precedence.
https://www.nytimes.com/2019/11/04/opinion/medicare-warren-plan.html?action=click&module=Opinion&pgtype=Homepage
Plus, my son-in-law has his moral values intact, he wouldn't defraud or fleece the companies like some wolves of Wall Street do.
So, as of now I’m left with Kamala whom I really like, but she is trailing in a polls for no apparent reason or Mayor Pete whose center position I do understand, for this specific moment in time.
6
Unfortunately, this American experiment is too important to vote your pocketbook.
12
@faivel1 - Excellent that you are a Democrat with an abundance of common sense and are able to recognize what is in your economic best interest.
There is hope yet for us all as long as the Dem candidates trumpet confiscatory and punitive tax policies.
2
@faivel1 I am sure it's not your intention, but your post doesn't come out as anything but self interest. My family is doing well and of course my son-in-law is moral support let's ignore the fact that more harm than good has resulted from current Wall Street practices.
3
Constitutional scholars, as opposed to these two tax lawyers, seem to feel this is not open and shut. An op-ed in NYT is a great place for tax lawyers to put their names in front of potential clients, who will be wealthy.
Picketty makes a compelling case that the Great Depression and two world wars destroyed a lot of accumulated capital and evened our wealth, and that we’ve now moved back to Gilded Age levels of inequality. And it will only get worse until one way or another it collapses. Picketty recommends a wealth tax to slow this down. Seems entirely sensible.
But the establishment depend on accumulated wealth and really, really don’t want to pay taxes on it. So the NYT, as the self appointed voice of the establishment will attack wealth taxes, and Elizabeth Warren. OK. Got it.
4
@gVOR08 No, you just need to think it through. Even the income tax required a constitutional amendment.
It's why the drug war is unconstitutional. We had to amend the constitution (foolishly and embarrassingly and with great economic and human hardship and violence as a result) to ban alcohol, but they think they can ban others stuff with a simple regulatory sentence passed outside of the legislature.
1
The US Constitution had a specific provision regarding police power over intoxicating beverages. Belonged to states with Feds only covering importation and interstate movement. Reformers wanted a nationwide ban that overruled the police power clauses. Therefore the 18th Amendment. Drugs do not have that segregation of police power to states and consequently Fed laws are supreme in this area.
@gVOR08 is Picketty your "constitutional" scholar?
An easy solution to this problem is to put a very large tax on estates in excess of $10M dollars when they pass to the next generation. I believe inheritances count as income and therefore do not have to be "apportioned" by population. This approach get's around the interesting issue raised by the authors I believe.
In addition, I think aa stronger moral case can be made for taxing the heck out of these huge sources of income that in no sense of the word have been "earned" by the heirs.
1
@Harry - we already have that. It hardly raises any revenue for all the trouble it is to administer.
@Harry There already is an estate tax. And yes, it should be treated like normal income, but of course equal protection could never hold as corrupted politicians carved out all the special interests that avoid having taxes, like family farms, as if they are even a thing in the modern economy.
The estate tax is neither an income tax nor an income tax. It is a transfer fee to record the new holders of the assets. The estate, not the heirs, pays the fee to complete the transfer. It may seem a nuance, but that nuance has made it constitutional for over 200 years, Assigning some other legal status, whatever the actual legislative intent, spreads confusion on what powers the Fed Government has.
I’m a liberal but I hate the idea of a wealth tax. If you earned the money, you should keep it.
However, your children did not earn a penny of that money. We should wealth *transfers* extremely heavily.
Pay for what you get. That’s the American way. Inheritance of wealth has no place here.
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@J c True, but they just hide the money in corporations, trusts and other "equal protection" schemes that only benefit the donor class. Corporations already are super-human with their preferred tax rates.
10
Yes, we don’t need an inherited aristocracy.
7
@J c And just how did they "earn" that money? Back room deals or hard work? Most of that wealth came from the hard work of others that were underpaid. More like stolen then earned.
Did they create anything ? Most just make their money by taking a cut from deals or for making contacts
15
Capitalism has no self correcting mechanism short of revolution.
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@northlander Capitalism isn't a governing system unless your leaders are corrupt (which they normally are).
Even China disagrees with your bold statement without basis in fact. Please compare East/West Germany, North/South Korea, and get back to me.
@David Please read Thomas Piketty’s excellent treatise on this subject, “Capital in the 21st Century”. Quite a thorough explanation, and direct quote is available therein.
@David Some would say that eliminating carried interest, capital gains back where we started, taxing cash not invested or distributed to shareholders, tax on stock micro trades, limiting stock buybacks using debt, and an interest rate above 4% to stimulate savings would be revolutionary indeed.
I do not care if the Wealth Tax ultimately raises a dime. I'm fine with it being declared unconstitutional. I support it because message needs to be sent. The 1% have abused the position of power and leadership they have in our economy. They have conducted a 40 year class war on the rest of us.
I am a capitalist at heart. But healthy capitalism requires responsibility. And not just from those at the bottom. The 1%, and especially the greed heads on Wall Street, forgot that years ago. They need a refresher course.
The Wealth Tax threat is a mild form of making the 1% hear the rattle of the guillotine. The only way they will change their outlook on life is fear. You have to admit it’s a lot better fate than the real thing. Think of it as a refresher course in responsible leadership.
14
A VAT tax may be the answer.
2
@Janice Wakefield Sure, but that would require Democrats getting behind the most regressive tax ever enacted nationwide.
A VAT tax is just another regressive sales tax that can be readily avoided by the wealthy by just buying fancy goods.
1
@Richard By regressive you mean fair per equal protection under the law.
1
Let’s assume that the professors are correct. An estate tax would fix the problem (although over time).
2
@BR Perhaps. But the Estate Tax has been "revised" in the past several years to reduce, sometimes avoid, taxes on the wealthier class. The solution is in taxes that rise as wealth rises. How wealth is defined and taxed is the trillion dollar question.
1
@BR How? Billionaires create or donate vast majorities of their wealth to charities. See Gates and Buffett. Is Warren going to stop charitable contributions from being tax deductible too? Zuckerberg has already set up a charity his daughter will run, and Bezos will sure do something to avoid estate taxes too. Billionaires will find a way to designate their fortunes to anything to avoid confiscation of their wealth by the government.
@Better4All All taxes can be revised over time. This is because equal protection under the law has been discarded in favor of giving away free stuff paid for by others due to envy.
Caveat: I have only read about the first 20 "Reader Picks".
I am a sociaI democratic Democrat and have no problem with taxing the rich. I have a different problem with wealth tax than expressed in the article. Valuation of property will be a nightmare for all assets except publicly traded securities. (Obviously original cost is irrelevant.) Appraisals of real estate, privately held companies, works of art, yachts, etc., are notoriously subject to wide variations even amongst the most objective appraisers. Add in the fact that the property owner will choose the appaiser and be the one paying for the appraisal. Yes, as in the case currently of appraisals for very large estates the IRS has some ways to question valuations but I will skip the specifics. If you think the optics of income tax loopholes is bad you should be wary of how unfair any wealth tax would look.
10
So then how is the estate tax constitutional?
2
@Leo Sternlicht
I suspect because the estate tax involves transfer of wealth (property) from one person to another, most likely children. The wealth tax is a tax on wealth that a person just has.
1
@Leo Sternlicht Estate tax has been held constitutional as a tax on a specific event (death, hence the name 'death taxes') rather than a direct tax on property.
2
@Leo Sternlicht The estate tax is applied to the recipient of wealth (similar to unearned income), not to the person who died (hard to tax a dead person).
1
Let's see if we can understand why wealth inequality, is bad for the economy. Economists have a concept called the velocity of money. It is the frequency, how often, that money changes hands in domestic commerce.
Here's an example. Suppose the government gives Scrooge McDuck a Billion for advice on the comic book market, If Scrooge puts the bucks in his basement, and forgets about it, that doesn't help the economy at all. That Billion has a velocity of 0. Also, if Scrooge loses a financial bet to Daddy Warbucks, and the Billion moves from Scrooge's basement to Daddy's, that is a change, but the velocity does not change because it is not a useful change. It doesn't affect commerce.
Money going to the Rich has a lower velocity than money going to the non-rich. The Rich spend a lower percentage of their money. What's a guy or gal who already has so many houses he can't remember how many & an elevator for his horse gonna spend his money on? The answer is he is going to use it to speculate.There is a correlation between inequality & financial speculation. That money has a very low velocity. AND it increases risk which we have seen in 2008 ain't a good thing.
Since 2008, the velocity of money has plunged. https://fredblog.stlouisfed.org/2016/04/a-plodding-dollar-the-recent-decrease-in-the-velocity-of-money/
At the same time, wealth inequality has exploded.
https://inequality.org/facts/wealth-inequality/
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@Len Charlap Or it's because labor can't produce much wealth these days. Wealth can be created with technology, robots and other automation to greatly reduce the need for muscles and even low-end brains.
@David - Well, that's conventional wisdom. HOWEVER if you look at the data, many of the the countries with the most automation have low unemployment which is not what one would expect if conventional wisdom were correct.
1, South Korea - 4.9%
2. Singapore - 2.1%
3. Germany - 3.3%
4. Japan - 2.4%
5. Sweden - 6.3%
6. Denmark - 4.8%
7. US - 3.6%
The answer is simple. The middle class need to pay for Warren's plans.
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I don't disagree with your interpretation of the law. Yet I do question your analysis of the end result. You say that pushing for this tax will send us back to square one. That the court battles will end as you predict (no dispute), and it will have accomplished nothing.
This is where I disagree. What we know is that the wealth tax is incredibly popular. I'm not a pollster or a pundit but I think around 70% of the country supports it. Why does this matter?
While you might be right, that ethically, legislators shouldn't support unconstitutional legislation, politically, there is value in fighting for a loosing cause. What do I mean by that? Sometimes, when you can't win, you measure success by how little you lose.
If democrats can paint themselves as the champions of this policy, as the fighters who fought the good fight on behalf of working people, against the american aristocracy, there is value in that perception. Especially if the republicans fall into the trap of becoming the defenders of the privileged elites.
Think about it like impeachment. There is a reason dems are pushing forward even though he wont be removed, and its got more to do with the optics than outcome.
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@Jared raff
So, while our legislators are fighting for a losing cause, how are we going to pay for MFA and the other programs that were to be financed by a wealth tax? A middle class income tax hike or VAT will be a high price to pay for feeling good about sticking it to the rich.
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@Jared raff But the optics are: 1) democrats push for unconstitutional taxes without regard to the constitution; 2) the impeachment was purely political as the charges were filed by a party and Trump was found not guilty of all the charges which sets precedence for how presidents can behave.
In order to overcome the Constitutional prohibition on income taxes, another direct tax, an amendment was required. Wealth tax is no different. The same can be said about efforts to end the corruption of government by big money donors. It will take a Constitutional amendment to undo that fiasco.
It's something that has to be done. Otherwise we have no hope of moving forward.
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@J.I.M. Oh great! So we’ll have a new health care system after we pass a constitutional amendment to pay for it.
@J.I.M. If that is true the result is the same: it will never happen.
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@J.I.M. Well, you could ignore the wealth tax, and instead ensure equal protection under the law with regard to income (and estate) taxes, VAT, higher social security taxes, etc. Why do some always think we need ever more ways to limit liberty with more taxes rather than stick to established ones that would generate the revenue any sensible government should need.
This wealth tax is particularly anti-liberty and anti-American because they want to impose a new broad tax category without a constitutional amendment in order to take over more private sector businesses to buy votes with freebies handed to individual citizens rather than focusing on the common good.
Makes sense. Increase the tax rate at the highest income brackets and crack down on tax write offs. The highest tax rate was 50% when Reagan came into office. Since then there has been shameless catering to wealth and tax cuts. Piketty showed that income inequality spiked with the efforts of Reagan to cut taxes. The GOP effort was based on their plan to defund the gov't to the extent that made discretionary spending was impossible. Now the situation is such that income is distributed about as well as in tsarist Russia. A serious reappraisal of defense spending is essential. The obscene over spending on the national security state has not only pushed out spending that could be used to improve health insurance for all Americans it has led to a pernicious misuse of US weaponry that promote violence and anarchy.
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Using 2018 figures, the total wealth of all households in the US was $98 trillion. Of that, a little over $25 trillion belonged to the top 1%.
The total cost of Warren's proposals (M$A, college loan forgiveness, reparations, child care, etc.) is close to $30 trillion.
If we were somehow able to take away every penny from the top 1%, it still wouldn't pay for all of Warren's proposals.
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What people forget or deliberately leave out, is the transfer of current premiums and employer contributions to insurance. What we currently spend on healthcare is sufficient to cover the plans. While it technically is called tax increase it comes with premium decrease. I don’t care what it’s labeled, if my total outlay is decreased and I avoid the stress of fighting the insurance companies, I am good with that.
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@kridge Warrens numbers are over 10 years. They include things that some of us are already paying for with taxes and other yearly income streams.
You also need to assume that if we do go to a single payer that we will be able to "negotiate" better prices for medical care since there would be huge amounts of buying power and no other customers for pharma/medical industry complex. The 30 trillion needs to be compared to what is already being spent for the goods and services and it needs to be presented as net additional spending.
It is a complex issue, and twitter sound bites don't explain it. One problem I see already with Warren is that she isn't smart enough to present her plan differently.
It is much easier for the Republicans to send a tweet storm and shout "socialist" or "with Elizabeth Warren undeserving people will get free medical care"
It is well documented that today's huge wealth gap was largely caused by changes in the tax laws that favored the ultra rich. That needs to be reversed, but in a way that can be enacted by Congress cleanly and without getting hung up in the courts.
All campaigns need to consider constitutionality arguments seriously and honestly to avoid a major lash back when their policies cannot be enacted.
While an amendment of the Constitution may look attractive, it is not likely that it will happen.
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@Konrad Gelbke Well you know -- nothing ventured nothing gained.
Change the existing tax laws to levy a very high tax rate on rent-seeking behaviors--interest earned on any kind of lending, rental income derived from income producing properties, gains from stock market speculation--and upend the current monetization/financialization of our economy to discourage these activities altogether or at least tax the bejeesus out of those who benefit from them.
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@Donna You might want to think that through. If you apply a very high tax to lending, you will destroy the mortgage market, which means no one can afford to purchase or build a home (there goes the construction industry). You also destroy the auto loan market, so the US car industry implodes as no one can afford a car, and the student loan industry, so no one can afford to go to college. Apply a high tax to 'rental income derived from income producing properties' and no property owner will provide rental properties, meaning millions become homeless. Basically the Great Depression, but much worse. There is a reason not to let progressives near large amounts of money - it's more dangerous than leaving a child near a hot stove, or letting a drunk pilot into the cockpit.
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'Law professors who identify as liberal Democrats' are having great difficulty coming to terms with Lincoln's dictum that labor is superior to capital. The implication for today is that remuneration is being increasingly sacrificed, esteemed professors.
With friends like this, who needs enemies?
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@Apple Jack Lincoln wasn't an economist, nor had he seen the main results of the industrial revolution, tech revolution and now the AI revolution. Trains were the big idea in his day.
@Apple Jack
If you won't accept the truth from friends I don't know what to say.
A wealth tax is a bad whose returns would be mostly illusory. I see stock market collapses, depression and long term injury to almost everyone.
The easy part: billionaires whose wealth is in publicly traded stock would have to sell some of their stock every year to pay the wealth tax. Do they also pay capital gains taxes on these sales? If so, they have to "gross up" their sales well beyond the amount of the wealth tax so that they can generate the amount of the wealth tax after payment of the cap gain taxes. After a few years, the amount to be taxed would be severely decreased. The sales wold drive down the value of their companies's shares. Drive down stock values and you undermine all kinds of pension and savings funds -- state and local pension trusts, IRAs and 401(k)'s for starters. The sales also likely run afoul of all kinds of rules that apply to sales of large blocks of shares by insiders. And pose very difficult conflicts of interest between the needs to the billionaires who must sell and the other stockholders who may be injured.
The hard part: how to value illiquid assets -- privately held businesses, land, art. I see armies of accountants and lawyers engaged in 1000's of protracted disputes over value. How quickly will values in art collections, land and office buildings plummet from forced sales? What happens to privately held businesses? Major disruptions? Forced sales?
Better: substantially raise income and estate taxes; close loopholes.
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@john640 Well oc course as inequality shrinks the tax on inequality will also shrink. That is the point.
@Stephen Boston That is most definitely not Liz Warren's "point". She is looking for a revenue source. You may want to kill the Golden Goose but if she does, her program fails.
I think it is safe to say that the Republican Supreme Court would rule against any wealth tax regardless of precedent.
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@Keitr, sure, but in this case, they also have precedent and constitutionality on their side. It might be that even the liberal justices ruled against a wealth tax.
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Well, then I guess the laws will have to be changed.
@Keitr - perhaps you didn't read the article written by the two liberal scholars who also think it's unconstitutional.
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Why does constitutionality only apply to the rich? And when the average person is affected, it no longer seems to matter?
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@Jem Equal protection is given lip service because politicians, by definition, are corrupt. They either do the work of the donor class, or of the mob.
Liberty is no longer an ideal worth their attention, and equal protection is considered unequal by the new intersectionalists.
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This reads as though "wealth" just falls out of the sky and lands in somebody's back yard. All those holdings that define a person's wealth were derived from some type of income. In this regard, the authors are saying nothing more than that the holdings that define a person's wealth are a constitutionally protected tax dodge: If I earn a million dollars and my tax accountant manages to get it taxed at 1%, and I spend the balance on a nice piece of art, then that piece of art is untouchable for tax purposes?
This seems like an extremely narrow and suspiciously self-interested interpretation of "wealth". The authors speak to the constitutional requirement that direct taxes be apportioned, but their leap to defining a tax on accumulated wealth other than land and buildings as also being a direct tax reduces everything to a generic definition, completely disregarding how and why that wealth was accrued, and for what purpose.
Land and buildings are generally the basis of productivity, whereas wealth holdings have a different character, in that they represent accumulation for the sake of accumulation, and often for the sake of tax avoidance. It's contradictory to say that wealth accumulated in order to avoid taxes is not taxable.
It would be worth examining why Hamilton singled out "lands and buildings" taxes as direct, while excluding personal real property. I doubt he would agree that accumulated wealth for the sake of wealth fit the basis for his distinction.
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@Jim
"If I earn a million dollars and my tax accountant manages to get it taxed at 1%, and I spend the balance on a nice piece of art, then that piece of art is untouchable for tax purposes?"
No, but it IS a direct tax and so follows rules laid out in the Constitution that are very likely impossible to meet.
This one is going to take an amendment.
I'd really like to hear how your tax accountant is able to get your hypothetical $1 million in income taxed at 1%.
Can you explain?
@kridge Really? You honestly don't know how people earning that kind of income avoid paying the actual tax rate? You actually believe that everyone earning this kind of income simply fills out their 1040 and mails the government a $300k check?
In the (very) unlikely event (A) Warren is elected AND (B) gets her wealth tax through both Houses of Congress, the current Supreme Court will declare it unconstitutional. To pay for all her plans, especially MedicareforAll, Pres. Warren will then be forced to massively increase Federal income taxes, including on the middle class (because even a 100% income tax rate on the 'rich', applied year after year, wouldn't raise the amounts needed), or institute a European-type VAT, or 20% sales tax, on the purchase of all goods and . Extremely unlikely Dem reps and senators will support that, as their middle class constituents will rebel. So, in fact, Warren does NOT "have a plan for that". The saddest thing, is that Warren herself understands a wealth tax is unconstitutional, and has floated the idea simply to outflank Bernie Sanders and pander to far left primary voters. Democrats have a few more months to rally around Biden or Bloomberg, else Warren will see the Dem party wiped out at all levels in 2020.
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@Richard Yes, I love Warren, but this suggests she's not an honest person after all, like most politicians, winning because the focus rather than leading the charge for more liberty and more equal protection.
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The point of what Warren and Sanders are saying is that the current system has gone so far to the right, i.e. in favor of the wealthy, that we need to swing back to a system that supports the working people of this country.
It likely will take decades to get us back to any level of fairness, but we have to begin somewhere. And big proposals, like a wealth tax, get peoples attention and motivate people to go to the polls.
What Warren and Sanders are saying through these proposals is that we need to look at every way possible to balance the system by getting back some of the money that the wealthiest Americans owe their country.
@Bobby
"And big proposals, like a wealth tax, get peoples attention and motivate people to go to the polls."
Why attempt to motivate people to the polls with something that is unconstitutional.
Campaign on a plan to change the Constitution. Let's actually USE the amendment process for once, and not try to get defacto amendments via the courts.
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Motivating people to go to the polls by making unrealistic promises you know you can't keep doesn't sound like the most ethical approach, and I doubt if it will work.
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@kridge Except if you are Trump who campaigned (and was elected) on a number of unconstitutional and unrealistic promises (e.g., Muslim ban, Mexico paying for a border wall, etc.)
A good-faith reading of history and precedent would suggest that Congress and SCOTUS have created a special class of "people" known as corporations—the source of our crippling wealth disparity—and Congress and SCOTUS has granted this special class of people a free pass went it comes to paying their way.
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@teoc2 Then run on increasing the corporate income tax back to something higher, not on something unconstitutional.
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@teoc2 Yes, people who cannot vote -- so taxation without representation. We need equal protection, and then we'd all pay our fair share of taxes and stop giving special treatment to those in the donor class and stop giving away other peoples' monies to individuals, and stop punishing those who we think are not good to our standards.
Liberty and equal protection work. We should try it again.
To go by this argument, it would appear that property tax is unconstitutional. This will surely bring hope to every suburban homeowner. Who knew?
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@Global Charm We're talking federal taxes here, as the cited part of the Constitution makes clear.
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@Global Charm The Direct Tax Clauses limit only the federal government's power to impose taxes. As far as the federal constitution is concerned, states and localities are free to impose property taxes and wealth taxes.
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@Herman Munster Exactly. And it would not be difficult to organize single-payer health care at the state level. I am confident that the boundless imagination of the American lawyer will uncover a solution.
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The crux of the issue is this: my labor is taxed. Capital gains are not. One has real value, and tangible results. The other is a self perpetuating scam built on little more than an almost religious belief in a process that somehow claims that doing nothing (except “owning” the benefits of the aforementioned labor - done by others!) builds wealth.
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Capital gains are taxed. I am ignoring the claim that investing has no real value.
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@Jack
It used to have real value back when it was used to fund actual tangible things. Nowadays for the most part that is considered too risky to most firms and they put the vast majority of their capital towards low risk instruments that basically amount to circling money at the very top of the economic pyramid, like stock buybacks.
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@Matt Capital gains are most certainly taxed.
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Sounds like the Constitution needs another Amendment.
On the other hand, terminating all the tax ‘loopholes’ that apply ONLY to wealthy individuals and corporation would be better.
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@Victor Yes, rather than add another tyranny, why not look towards equal protection and avoid all the special interests loopholes that make donors and corporations better than mere persons.
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Then what?
Then Congress does its job. It analyzes (GAO anyone?). It investigates. It interviews. I would say that Mr. Hemel and Ms. Kysar might be good people to talk to (and I have no idea what their politics are). Then it compromises. Then it develops bills that will pass constitutional muster and the House, then the Senate, then be signed by the President.
Hey, this reminds me of something.
Hang on a sec. It'll come to me.
Oh, that's right. It's Congress doing its job.
I'm undecided on a candidate, but I can say with certainty that America needs someone like Elizabeth Warren, with big, thoughtful ideas and plans. Will every single one of them work as proposed on the campaign trail? Of course not. But neither will those of Sen. Sanders, VP Biden, et al. But we are a nation that needs some big ideas right now that focus on the needs of its citizens and not on the needs of billionaires.
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@Matt
"I have no idea what their politics are"
I thought that that was perfectly well laid out in the article.
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@Matt I agree about big ideas. But the ideas are what RESULTS we ultimately want to achieve (less income inequality, affordable healthcare, better education, reversing climate change, etc.). We need realistic plans to achieve those bid ideas . . . and realism often involves some degree of patience and pragmatism. To use a basketball analogy, basketball teams seldom win when their players play "hero ball". That's what Warren and Sanders are doing. They're proposing to "win" by going one on three/shooting 30 foot jump shots (i.e., taking on a Republican Senate, conservative Supreme Court, and a majority of the electorate not in favor of their aggressive strategies). Basketball games are won by not turning the ball over, passing the ball, and utilizing all your teammates. To achieve great ideas, Dems must have the patience to retake both Houses of Congress, remaking the Supreme Court, and building a consensus and a majority of the electorate.
If you're middle class, you pay income tax which is good but if you are a billionaire, you pay a "Wealth Tax" which is bad? Republican voodoo economics at work. Based on their economic theories, the poor should pay all the taxes and the ultraweathy none. The problem is not really Trump, he is just the frontman for the Republican Party.
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@Jeff
It's hard to respond here because your comment demonstrates a complete lack of understanding of the terms being discussed and of reality in general. You are frustrated with wealth inequality, as are the authors of this piece, as are many of us. But that doesn't mean that anything Warren or Sanders says is the right solution. This piece focuses on how a wealth tax is unconstitutional. It doesn't even bother to touch on how it would be nearly impossible to implement. (How is the IRS ever going to account for everything wealthy people own and then value each item?)
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@Jeff If you look at federal tax receipts, you'll learn that those with money pay most of the taxes. The poor do not pay most of the taxes; in fact, some 40% pay no federal income taxes.
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The simplest, easiest most sure fire way to start correcting the economy is to tax interest, dividends and capital gains over an amount certain as regular income. This is not only good economics it makes sense. Income that comes from a persons labor is limited by the amount of hours it is possible for a human to labor. No such limit exists on income from interest, dividends and capital gains. Huge incomes from these sources should be taxed at WWII rates of 90%.
Certainly there is no constitutional prohibition on sales taxes for stocks and bonds.
The question of whether stocks and bonds are "real property" is worth fighting over. The current status quo of 1% of the population holding 93% of the wealth is not a democracy - it's an oligarchy.
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@Mike S Democracy has to do with voting and the public sphere. Wealth has nothing to do with votes and is primarily in the private sphere.
A corporation has never once forced you to buy anything from them. It has never forced you to work for them.
Whereas government does force you to buy, forces you to work for them, and is a true monopoly with the added force of being able to take your money, lock you up, and or put you to death.
In "Wealth and Democracy," Kevin Phillips points out that there is a feedback in economic distribution because as the rich get richer, they use their wealth to get more power. They then use their power to get more wealth and so on. In the olden days they hired gangs of thugs called knights to extort money from the peasants and merchants. Today they hire politicians to pass laws that benefit them financially.
There seems to be a tipping point where this process becomes impossible to reverse. When inequality becomes bad enough, the country soon goes down the tubes. He gives several examples, e.g. the 18th century decline of the Dutch Republic. Chrystia Freeland used 14th century Venice to illustrate this process in a Times article, but history is replete with other examples.
According to Phillips, the great success of America has been that before the tipping point was reached, something has always happened that reverses the flow of money upwards, e.g. the rise of unions, FDR's reforms.
I don't know if a wealth tax is the best way to reduce inequality, but something serious needs to be done.
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@Len Charlap The rich don't get rich by stealing from the poor. Learn how capitalism and economies work. We do not live in a zero sum game where my gain is your loss.
Bezos, for example, started in his garage. He didn't force anybody to buy his products. We did because we like what he offered. That you hate him for producing stuff people want is absurd and smacks of pure envy.
@David - I do not hate Bezos. In fact, I quite admire him. I am just relating what has happened in history from even before capitalism was invented.
To reiterate, Phillips point is that without government regulation, countries tend to get a more and more unequal distribution of wealth, and that if this increase in inequality is not stopped, the country suffers economic decline. Do you have a counter example?
Another big problem with new taxes is that it takes a new apparatus to collect them, hiring assessors, collectors and enforcers. Taxes don’t collect themselves. IRS is already overloaded and has had staff cutbacks so it will all be a new process and cost.
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@Lamar Smith
Yes. This piece focuses on how a wealth tax would be unconstitutional. It doesn't even touch on the fact that it would be nearly impossible to implement. How is the IRS going to document every asset and value it and track it and re-value it the following year? This is nonsense. It's impossible to do on any large scale. Local municipalities can handle property taxes but property ownership is well-documented and value is relatively stable. Yet property owners are often going to have their homes re-assessed. Imagine that process for everything a wealthy person owns. Not only every house but the cars and the jewelry and the furniture and the art and the wine collections. Who is going to track this stuff? Who is going to value it? Did the car get more or less valuable since last year. What about the wine. This tax idea is silly and is taking up all the oxygen, preventing other ideas/candidates from getting attention. And as this piece pointed out, Warren just doubled her wealth tax idea. She doubled zero. And somehow the media is giving her a pass.
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All the sudden rich "liberals" are realizing what Republicans have known all along: If you don't like where a democratic movement is going, fight it via voter suppression or the judicial system.
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Jeff Bezos has a fortune worth $110 billion. Mark Zuckerberg has a roughly $70 billion. That money didn't just magically appear, it represents real income. In fact, in both cases it represents an income of roughly $12 million/day since their respective companies were founded.
Rather than calling it a "wealth tax", let's just call it an "imputed income tax". We impute incomes of Bezos and Zuckerberg by dividing their net assets by their age. Surprisingly, that is $2 billion/year for each man. We then charge an income tax rate (75%) on the imputed income above $10 million, i.e. $1.5 billion.
A little smaller than Sander's wealth tax but still not trivial.
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Income implies cash in a way that wealth doesn’t. I get what you are trying to say, but there really is a fundamental difference.
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@rbitset Such a tax on imputed income would raise the same constitutional concerns. It would be a direct tax because it would be imposed solely by reason of the taxpayer's ownership of property. It would not be an income tax that the 16th Amendment would allow because it would be imposed not on realized income but on deemed income.
@rbitset Bezos doesn't have $110 lying around. It's mostly in Amazon stock. What do you suggest he do, sell the stock, tanking its value and the portfolios of millions of people who have Amazon stock (including countess IRAs)?
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So get to work lib Dem tax experts and find workarounds. E.g., establish a high surtax (say 50%) on incomes above $1 million and with a ceiling of 2% of net worth in excess of $50 million. For purposes of the surtax, sales and exchanges of assets during the year would be considered income with deductions of basis.
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An inheritance tax, already part of our income tax system, and is an excellent substitute for Warren’s wealth tax. It’s of unquestioned constitutionality, and also a far more practical approach since it doesn’t require annual reassessment of illiquid assets. Establishing a 50% inheritance tax on the part of any estate which exceeds 50 million dollars would generate substantial revenue with far less waste in administrative waste as compared with an annual wealth tax.
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@Senzaferma The Republicans have been working very hard to reduce the inheritance tax rate if they can't just abolish it.
@Senzaferma
Thank you. An inheritance tax may or not be the answer but at least this can be done. It is a transaction. It is a one-time event. Valuing an estate at the time of death is something that is within the realm of possibility. Sadly, Warren has discovered that she can just continue to make up impossible plans with impossible numbers and her reputation as a wonk, combined with an ill-informed/lazy press, will allow her to continue to do so with limited scrutiny.
(Note that Andrew Yang did call her out on the impossibility of the wealth tax during the last debate. She had no response.)
@Senzaferma - I believe the same effect could be achieved by eliminating the basis step-up rules.
I'm confused. If this is all true, then how do localities tax real estate? It's not as if the constitution doesn't apply to them.
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I think this is saying that this particular restriction applies to the federal government. The constitution also says that rights not reserved to the federal government are by default reserved to the states and the people.
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It is as if the US Constitution does not apply to them. As sovereign entities, states have all powers not specifically restricted from them in the text of the US Constitution. No provision makes any statement on imposition of direct taxes by states. Consequently the 24th Amendment was necessary to bar the poll tax by states. The same reasons why the 24th Amendment was necessary apply to why the wealth tax at Fed level is illegal.
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@Leslie Ehrlich
This is a difference between federal and local governments.
I will also add that there is another concern beyond the constitutionality and local real estate taxes provide the perfect example. Localities have meticulous records of real estate ownership and have a pretty good idea of property values. They can tax real estate accordingly. Still, they often deal with property owners who want their property re-assessed in the name of lowering their taxes. No imagine this process applied not just to the ownership of a home but to everything a wealthy person owns. This is unmanageable. A wealth tax would be impossible to implement, even if it were constitutional. (Note that Andrew Yang pointed this out at the last debate along with the fact that other countries have tried it and repealed it. Warren had no response. Yet the media continues to let her get away with this plan, including her announcement last week that she is literally doubling down on this.)
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I accept the constitutional issues this raises with a wealth tax. What I object to in some comments I have read is the approach to increasing taxes on the rich by raising the top marginal rates. I think this is a bad idea that will simply make the rich look even harder for tax evasion schemes. Much better is ending the deal for capital gains and other special forms of income and closing loop holes. Many of our largest and most profitable corporations pay no taxes. I'll bet Donald Trump hasn't paid taxes for years--and that is why we need to see his tax returns. Clearly there are evasion schemes available only to the rich in the tax code that can be closed.
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@rawebb1 The solution is not to lower the rate on the rich but to outlaw all their tax avoidance schemes. The fact is that I, with a modest pension and Social Security, pay a higher proportion of taxes than Trump, Bezo, and all the other rich people.
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@rawebb1 Yes, equal protection would be nice to experience for a change.
The few times in my life when I have benefited from the kinds of untaxable gains the wealthy enjoy regularly have convinced me something needs to change. How is it my labor can be taxed but gains made for doing nothing isn’t? The constitution needs to be amended if democracy is going to survive.
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We should replace federal income tax with some other kind of tax on wealth. For the sake of West Virginia, and for the people generally as well.
What the authors of this article fail to adequately address is the money that is made from money. Why on earth is there not a tax on each and every movement of the market? It is there, in the computer generated micro transactions, that billions of dollars are generated. These need to be taxed like any other income.
Yes, I know retirement investments are indexed to the stock market, but like other investments in this casino, there are risks and costs. Costs should include tax on earned income.
"Money for nothing and the chicks for free", seems to be the theme song, adopted without irony, by this administration and many others previously. Ironically, it was precisely this issue, that got Trump elected and now ironically still has support of those he dupes on a daily basis.
Irony abounds. Maybe it's a monarchy that America wants to be rather than a republic, a democracy, or heaven forbid a just society with a social conscience. You do rather worship the almighty dollar and those who have the most and you do love your royalty, even if they are just celebrities.
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@Memi von Gaza: "Money that is made from money," in regard to property, including stocks, is not realized until the property is sold. The resulting capital gains is subject to taxation.
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@Memi von Gaza
"Why on earth is there not a tax on each and every movement of the market?"
There is a tax. When we say the market moved, that means someone paid $X for a share of stock, ,aking $X the new current price. Whoever sold that share of stock paid a tax on their profit from that sale, if they made a profit.
What we do not do is tax someone who did not sell, because: 1. that person may not have the cash, since he hasn't sold anything, and 2. what do we do if the price drops, without selling?
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@Memi von Gaza Because that would be regressive and for some reason no mainstream dems would propose a regressive tax like that.
I wish Warren and Sanders would be honest and admit that they are shooting at stars, and that there are many steps along the way to a direct hit which would be worth taking.
5
Is not a wealth tax more like chasing the horse when it escapes the barn? The history of capitalism is full of examples the owners of capital keeping the vast majority of the profits for themselves. Yes capitalism has raised the living standards of many in the world but still the rich got richer and many in the middle class are struggling. Making America great again should be more than creating jobs. It should include a more equal tax system,better pay,and a more public approach to healthcare and education. In many instances privatization of public services has not lead to to better quality but instead to higher prices. The current administration seems to like the status quo. At least Warren and others are giving us options.
2
Here’s an idea. Eliminate all tax breaks for billionaires. Tax them on the same basis as the rest of us. No engineering loop holes through foreign treaties and stop allowing corporations to avoid taxes just like their obscenely rich CEOs. Don’t allow any corporation that has paid no tax to benefit directly or indirectly fro federal or state contracts.
5
@Justice Holmes Agreed! We don't need to raise their taxes - just tax them at a reasonable rate but make them actually pay their taxes. And as for businesses, make them pay workers a living wage and tax them to help pay for the infrastructure they need to run their businesses - that is the price of doing business. And stop boondoggles such as stadiums that are paid for in tax dollars but all the profit goes into private hands.
1
That means among other things, no tax break for charity giving. Is that a good idea? What would happen to charity recipients like theaters, museums, hospitals, scholarship students, homeless people, etc? Would the government guarantee to replace that money?
"We are tax law professors who identify as liberal Democrats, donate to Democratic candidates, publicly opposed the Trump tax cuts and strongly support higher taxes on the affluent."
If that's the case, why aren't you writing an article that suggests better ways of raising revenue fairly?
10
@Katherine
Because, right now, the idea of the wealth tax is taking up all the oxygen in the room. At least two candidates, much of the media and (judging from the comments here) too many voters are captivated by this idea. Captivated despite the fact that it is a bad idea; unconstitutional and impossible to implement. If the NY Times fairly critiqued the idea (instead of simply parroting whatever Warren has to say about it) then maybe these authors could have focused on something else.
During the last debate, Andrew Yang pointed out that a wealth tax, while well-intentioned, would be impossible. Warren had no response. If Warren or Sanders gets the nomination and is allowed to proceed with the wealth tax idea, then Donald Trump will point out the same things Yang did...and he will be right. These authors are trying to prevent these candidates from giving Donald Trump things to be right about. We should be dong the same.
2
I am not legally trained in tax law. But as a progressive liberal of the center, I view the position of Warren and Sanders as an ill-thought socialist-communist drive to wealth redistribution through confiscation. Such measures have never improved the lot of the underprivileged, who do not know how to manage the manna from heavens or, rather, the remains of the money windfall left after the politicians have dipped in it their long fingers.
Warren and Sanders are laying eggs, from which hatch the likes of Alexandra Ocasio-Cortez and some other Islamo-socialist judeophobic women Democrats.
12
@Tuvw Xyz - Cut out the "socialist-communist" nonsense. Take a little time to learn what socialism and communism are and how they differ.
PS A " progressive liberal of the center" sounds like a schizophrenic to me, Sorta like a monarchist of the center.
Wait, Democratic tax plans have to pass constitutional muster? After two years of Trump, I'd forgotten we had a constitution that was still operable!
2
@WRosenthal: Indeed! Were it not for the Constitution the President would have been forced out by the mob on the day of his inauguration!
The wealth tax would never pass congress let alone make it into law to be challenged.
7
FDR’s high taxes on corporations & the wealthy helped create the greatest generation & a healthy middle class. Warren or Sanders are following that example. Every time the top tax rate falls below 50%, the games of bubble & burst economies hurts the general population but not those who can take advantage of the situation. By making incentives to re-invest in business rather than hoarding capital benefits the overall population.
11
@Thomas Hermance No, FDR was part of a global economic boom, one created by war-time spending, and the massive destruction of factories and property all over the world except in the US (where only Pearl Harbor was really harmed). It was a fluke of timing, based on a period when labor mattered.
Labor simply has less value as technology progresses. First, steam engines and the electricity it generated took over muscle power, and now tech automation and AI are replacing many thinking jobs too.
"Big problems with the wealth tax" say the wealthy.
13
There's always money to give an enemy of an enemy, or start a war, or give to arms dealers, or protect an oil pipeline...Billions and ultimately trillions. When it's time to take care of the American people with the nation's collective resources and perhaps shore up Social Security or get education costs under control everyone looses their minds and screams "socialism!" to the heavens.
3
@Red Tree Hill Yes, but you think this evil government and corrupted politicians are now supposed to be only smart, good and of course right in their decisions?
Central planning never can outperform a free people. Well, we'll see since China has adopted the benefits of capitalism without having liberty and a reliance on central planning. Nobody looks to socialism anymore, well, Venezuela did.
1
There’s already “central planning” it’s called plutocracy.
This article is well-written, but let's not get ahead of ourselves here. There is no guarantee that Warren or Sanders will win the the democratic nomination, or, for that matter, 2020 presidential election (and there's certainly no guarantee that if either does win the presidency, Trump will even willingly leave office). Even then, odds are that Democrats won't gain enough seats in the senate for these taxation proposals to be taken seriously.
All that is to say that what this article concerns itself with is deeply hypothetical at this point. We should be worrying more about winning over voters in Ohio and Pennsylvania than possible eventual legal battles over the constitutionality of a hypothetical tax plan. You can't change any policies if you don't win in the first place.
5
@Kevin
I think a vast majority of America's middle class would without question vote for a candidate who is up for rescinding Trump's tax cuts for the rich or just promoting a new wealth tax.
Why should the filthy rich get so many more tax loophole opportunities than hardworking middle class taxpayers?
@Kevin
Actually, this article is essential right now. Why? Because the wealth tax has received very little criticism in the media and it's getting traction and may need to be embraced by more candidates. It sounds good. Raises a lot of money. Doesn't ask anything from most people. Hits the wealthy hard. This makes it a great talking point. Too bad it's unconstitutional and impossible to implement. And if the candidates aren't challenged on this now, then Donald Trump will challenge them and he will be right. It is essential that we don't give Donald Trump reasons to be right.
37
Raise the highest federal tax bracket to 60%. Tax capital gains the same as ordinary income. Eliminate all charitable deductions since 90% of Americans can no longer take them.
Tax Social Security earnings up to $1,000,000. Raise the estate tax to 75% on assets over $1 Billion.
There are many things we can do that will diminish income inequality and that will pass constitutional muster.
27
well, let's close the loopholes, repatriate foreign accounts and hike the tax rates on the wealthy, as these writers propose is constitutionally valid.
then let's get on with repairing the public wealth deficit that is a drag on our national vitality and morale.
wealth inequality, however we finally dismantle it, is a principal driver of social injustice, change inertia, and the entrenched corruption in our federal government.
7
Thank you for yet another well written, well reasoned, and trustworthy article about how Warren and Sanders are completely divorced from political realities.
These politicians can get themselves and their deep blue urban supporters as fired up as they want about far left political “revolutions”, but to me that simply indicates that they have no grasp of reality.
Some of their proposals are unconstitutional (ie wealth tax explained here), others don’t hold enough support among the swing state voters who will decide the next election, and others don’t hold enough broad support to get passed through congress even if the can get themselves elected.
Somehow “pragmatism” has become a dirty word among progressives, but to me it means getting things done and making progress on our urgent national issues. If a politician isn’t at least a little pragmatic, they will become a failed leader that spends 4-8 accomplishing nothing while things like climate change, healthcare costs, educational underachievement, etc only get worse.
There’s an entire half of our country who has opposing views. Democracy shouldn’t be winner take all; that’s called a dictatorship. Democracy should be about compromise and collaboration. Just look to our founding fathers for inspiration.
13
@SH "Just look to our founding fathers for inspiration." an definitely do not look to contemporary Republicans fo whom "compomise is a swear word.
"No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census..." Article 1, Sec. 9.
"nor (shall any State) deny to any person within its jurisdiction the equal protection of the laws." Amendment XIV, Sec. 1.
Amendments override previous constitutional language where it applied. The as-yet unratified constitution had many provisions requiring states to be treated equally, which was smart since the need to ratify. Thus, the Electoral College and the two Senators each. However, Hamilton, Marshall et al. were writing before Amd. XIV, which creates a deep conflict with the Direct Tax clause. XIV certainly does apply to government funding and payment, which is what Section Four is all about.
Wealth is unevenly distributed among states to an extreme degree. https://www.wealthx.com/ultra-wealthy-population-as-percentage-of-total-us-state-population/ shows about CA 200 people with wealth > $30MM for every one in WY. Remember that the underlying argument of plaintiffs in Brown v Board of Ed was that black families were taxpayers and deserved equal access, not separate, with respect to the laws.
How can the wealthy (and the rest of us) be treated equally despite differences in wealth? By recognizing that, given that slavery is now banned (Amd. XIII), a national application of estate and wealth taxes must apply. A provision intended to protect the wealth of slaveholders need not be defended by the Court, given Equal Justice Under Law.
3
@Speakin4Myself The 14th Amendment prohibits states from denying equal protection of the laws. It does not prohibit the federal government from doing anything. The 5th Amendment, which does apply against the federal government, has been held to have an equal protection component, but it is hard to see how there is any conflict between the Direct Tax Clauses, which are a structural constraint on the federal taxing power, and the 5th Amendment equal protection guarantee. Would you argue that the equal protection guarantee also nullifies the requirement that representatives in the House be apportioned among the states by population?
Since the Sixteenth Amendment followed the Thirteenth Amendment, Congress and the states did not buy your argument. Otherwise why waste time on the Sixteenth?
The problem with a wealth tax is the complexity of administering it. It is one thing to tax an estate, as that is a one time situation where the estate's representative has to find and have evaluated all of the decedent's assets and debts etc. Having to do this every year is absurd, and I am more than happy to seriously tax the rich....Just not this way.
7
Sounds like we need a new provision in the 28th Constitutional amendment that will reverse Citizens United.
10
The big problem with wealth taxes is we don't have any.
13
@T.H. Wells
We can easily fix that!
Let your (probably rich) congressman/woman know this.
Love Elizabeth Warren’s gutsy proposals, she’s right, if not now when are we going to go bold?
Can’t rebuild a broken system, it needs to be plowed under and newly planted. She seems to have the energy to follow through.
11
@Jerry Davenport
She’s “gutsy “ in an out of touch, non pragmatic manner.
If Trump survives relatively intact, he’ll viciously lampoon her socialist proposals and be re-elected.
4 more years and his authoritarian fascism will be complete.
“Gutsy” is not the word. More like ego driven ideology — with the price tag being our democracy when she loses all the swing states.
The Dems need a centrist.
2
@Hannacroix
"The Dems need a (pragmatic) centrist".
Exactly why I'm supporting the Amy (Klobuchar) for America campaign at every opportunity.
Even if this legal analysis of a direct tax on wealth were compelling to a majority on the current Supreme Court, it still wouldn't mean that Warren's proposal is unconstitutional.
Warren's policy proposal is not drafted in legislative language. And it's the actual legal text that the Supreme Court would be ruling on (if Warren could get Congress to pass such a law).
For example: Warren's wealth tax could take the form of a tax on (a) the income from, (b) the distributions made out of, and/or (c) the appreciation in value (realized or unrealized) of estates worth over $50 million, up to 2% of the value of that estate minus $50 million. That would be a wealth tax structured as an indirect tax.
That might sound more complicated than a direct tax on wealth. But it accomplishes the same goal in a way that is obviously constitutional. And, for the purposes of campaign rallies, it'd still be totally accurate to just chant "2 cents!"
11
@Adam A tax on unrealized appreciation would raise the same constitutional concerns. The Supreme Court would have to overrule its 1920 decision in Eisner v. Macomber, which was cited by the Court with approval as recently as 2012, to hold that a tax on unrealized appreciation is a tax on "incomes" that is permitted by the 16th Amendment rather than an impermissible direct tax.
@Adam
First of all, she just doubled it. So I guess it's 4 cents now.
Second, a tax in (a) income, (b) distributions or (c) appreciation is very different from what she is proposing. We already tax those things, although imperfectly and sometimes at different/lower rates. Her plan is tax the wealth itself...not the change in wealth. She wants to figure out the value of everything the wealthy own (or at least the most valuable stuff) and add it all up and then have them pay a percentage of that total. In addition to constitutionality, this raises all sorts of other concerns including how wealth would be tracked, measured and valued. Concerns that Andrew Yang brought up during the last debate and Warren had no response. It's time for the press to start holding Warren accountable for the contents of her proposals.
@Mark B Unrealized appreciation is capital gains, not dividends. Eisner v. Macomber has nothing to do with it.
Can we just start by eliminating the cap on Social Security *contributions*? And the 'pass-through' loophole that hedge fund managers get?
38
Here's the thing. Throughout history, the return on capital investments has exceeded the growth of the economy. This is what produces wealth inequality, and no amount of income tax reform will change that. History has also demonstrated that when wealth inequality becomes too great, social unrest follows. A wealth tax is the only tool that can give us leverage on this issue and enable us to redistribute wealth to those who actually produce it -- working women and men. Read Piketty's "Capital in the 21st Century.'
23
@Mark
Well, the French Revolution offers at least one other tool to solve the problem of massive wealth inequality, irrespective of the Constitution. Just sayin’
From the perspective of a 75 year old moderate Democrat, I would insist that, taxation must be fair across the entire economic spectrum. Simply taxing the rich for being rich, is not a strategy. It sounds more like an election campaign tactic.
Now, I have been a fan of Liz Warren for more than 15 years. I am also retired on a very tight budget.
However, Warren needs to focus on how to beat Trump, instead of promoting a program of Medicare for All, an idealistic healthcare concept (which I like) that will take at least 20 years of adroit promotion to succeed in such a diverse, and divided nation.
Thus, I would advise Warrent to tell The People that her plans are looking into long-term goals. I would also tell her that a lot of Americans: like their current employer-provide insurance, and; a millions of Americans have become fond of, and dependent on, Obamacare.
Here is my basic message to Warren: announcing a $20 trillion plan will fuel the anti-tax attacks; never tell voters you're going to take something (ACA and private insurance) away from them; the "socialism" label is sticking, right or wrong.
Take on Trump and his criminality, and incompetence. Stop taking a verbal machete to your primary opponents. It worked for Trump in 2016, but it won't work for you.
If Warren continues her tactics, and wins the nomination, she will likely lose the general election by at least 35 states. Dems need a moderate message from a moderate candidate top beat Trump.
10
@David Ohman I strongly disagree. Democrats should be working to fix our broken country. Taxing the rich isn't unfair, the concept that some people should be starving to death and other people should have more money than they could ever possibly imagine how to spend is unfair. I think 100% of wealth over $10 million dollars in assets should be taken and redistributed to the folks out there who work full time or double time and still can't feed their kids. To the descendants of slaves, and first peoples who are way less likely to own land despite being the ones who most deserve to.
2
@David Ohman
I agree. I think Warren is fabulous but we need a centrist moderate who is leveled headed to beat lunatic Trump.
So,you’re saying “If only Warren would see the wisdom of not being Warren, she would be great.” Might as well vote for Biden then.
1
The argument presented here adds to the problem of a wealth tax. Just carrying it out would be difficult. Art collections and other type of valuable assets such a jewelry would presumably have to be appraised to determine their value. While clearly there is a need to address income inequality I think if middle class citizens want the type of social programs being offered by Warren and Sanders they should be willing to pay higher taxes for these benefits. That is how it works in Europe. Average people pay a greater amount of their income in taxes. You can't have it both ways, great social programs and no increase in taxes.
8
@Bob That sounds great, except that the that on average, the minimum wage doesn't even cover rent in EVERY STATE. Redistribute enough of this country's vast (and largely stolen) fortune to the unpropertied class, and we will HAPPILY pay higher tax rates for actual respectable health care. Various counties in Europe have wealth taxes, or have in the past, and their wealth inequality is a lot less severe than ours.
1
@Bob when someone who is s beneficiary of th status quo says 'You can't have it both ways" thy usually want to have it both ways
I'd support a one time Constitutional Amendment levying a progressive wealth tax on individuals (together with beneficial trusts) above say $50 million as of January 1, 2022.
With a one time levy, at least we are assured that the feds' power to seize private property remains limited (rather than the unlimited power to take all property every time the Democrats are in power).
Furthermore, the administrative burden of an annual wealth tax would prohibitively expensive.
Imagine requiring an *annual* audit of net worth--every share of a private business, house, land, car, patent, trademark, celebrity likeness, annuity, painting, government license, etc. etc. held everywhere in the world. Valued again and again every year. There would be such a backlog of audits that the ranks of accountants, lawyers, and valuation consultants in our country would need to double or triple to keep up. It's really quite unworkable.
4
Very informative article.
This brings up a question about why then the federal estate tax would not also be unconstitutional. Like the wealth tax, the estate tax is based on the value of a decadent's net assets (the market value at the date of death of the estate's assets less its liabilities). Based on this it is a tax on both real and personal property and so would seem to be a direct tax according to this article. Since the estate tax is not apportioned by population among the states as required under Art. I, Sec.4, Clause 9 of the US Constitution why isn't it unconstitutional?
1
It is a récords transfer fee. It occurs only when a transaction occurs. It is a fee paid by the estate, not the heir, for the government to transfer deeds. Why a récords transfer fee could be fifty per cent is not a matter for the courts. The courts only rule on whether a tax is allowed, as the Court did with ACA taxes, not on whether the tax is a good idea.
7
@P Locke The federal estate tax is a permissible indirect tax rather than an impermissible direct tax because it is imposed on the transfer of property at death rather than on the mere ownership of property. Federal excise taxes are also indirect taxes because they are imposed on transactions. While states are permitted to impose direct taxes on those who own property without regard to any transfer or other use of that property (local real property taxes being a common example), the federal government is not.
Is there a problem with taxing small population states like N. Dakota, S. Dakota, Wyoming, Idaho, etc. 10 or 20 times what the populations of big states like CA and NY are taxed?
Via the Electoral College residents of those states have 100s of times the representation in our federal government as do residents of CA or NY. Let them pay for their reputation.
13
That is not how the rule works. You divide the tax assessed by number of people in country. Then each state must deliver that amount from each of its residents. All billionaires move to Wyoming. The rate in Wyoming drops to practically nothing to deliver its nut. The rates in states like CA and NY with no billionaires are far higher than in WY and are being paid by much less wealthy people. While billionaires have difficulty transferring sources of income, stocks, bonds and anything besides real estate can easily transfer. People in NY and CA scream outrage.
Hamilton and the Constitution Bro’s were very smart and knew exactly what would happen. That is why they wrote the Constitution as they did.
1
@B Better yet, let such ’overtaxed’ states threaten to leave the union, then let a few well chosen ones actually do so and thereby solve the problem of the electoral college. Make America Sensible Again.
@Michael Blazin
First, states don't and never have "delivered that amount from each of its residents"
Second, what is proposed is a tax that only applies to the wealth of individuals with vast fortunes.
Third, contrary to the opinion of these authors, leading experts in tax law opine that the taxes proposed by Warren and Sanders would not qualify as direct taxes, so that Constitutional requirement would not apply. "The Constitution, Article I, section 9, clause 4, requires that a “direct tax” must be apportioned among the states by population.3 For the Founders, a necessary element to be a direct tax is that apportionment among the states by population must be reasonable and just. Thus import taxes (the impost), excise taxes, duties, carriage taxes and now real estate and wealth taxes have been expelled from the definition of direct tax, sometimes by the operation of ordinary language and sometimes by Supreme Court decision. https://www.americanbar.org/groups/taxation/publications/abataxtimes_home/19aug/19aug-pp-johnson-a-wealth-tax-is-constitutional/
Instead of a wealth tax per se, we can go back to our taxation rates of old (think the 50's when the rich paid a hire share of income in taxes than now) We do not need to have a special wealth tax, all we need to do is change the tax rate and cut out the loop holes, such as how investments are taxed, and how off-shore companies with investments in this country are dealt with.
10
There is a simpler solution. A higher marginal tax rate for the wealthiest. And a minimum income tax with no way out. Let's say it starts at 10% of your income, regardless of deductions, tax hedges, real estate - anything. Rising to 25% for the one per cent. And a 25% tax on all monies held overseas (off shore), not declared in the US. Basically, every penny you have in the world is taxed if you are a citizen, or do business or work in the US. You pay our tax rates on US all income. And minimum corporate taxes as well, regardless of deductions, losses, right offs. Let's say, oh, the same scale - starting at 10%, rising to 25% for companies l;ike Amazon and Facebook. No way out. No amount of expensive accountants can shield a penny. That's how to make merica great again.
4
You cannot tax money simply held anywhere because that would be a wealth tax. The Feds can only tax the income earned.
3
A huge % of the very wealthy's wealth, is never taxed and probably never will be. That is plain wrong when your average worker making $50,000 a year is taxed at source.
Take for example the stock held by Bill Gates in Microsoft. ( and I respect him and not picking on him). He started a great company, and holds a lot of shares that have increased in value tremendously, but that increase in his wealth is not taxed until the shares are sold and /or the gains are REALIZED.(cashed in)
Someone in his position can take out huge loans using the shares as collateral and simply live off those loans, in effect never having any income of any sort. No income means no income tax.
At the end of his life he leaves everything (or a large part of everything) to charity (his shares less the loans) , and guess what - no taxes have ever been paid on all that wealth accumulation.
Already we see Buffet, Gates et. al. saying they will give away half their fortunes to charity, and bully for them, but in reality the taxes have been dodged and instead paid into the persons favorite charity. Inheritance tax on $100 billion is a lot - but it can be avoided by giving it to a charity.
This is a simplified view - but it is perfectly feasible that the fortunes of the very wealthy will never be taxed. It is done all the time. And even if it is taxed, it could be delayed for 50 or 60 years.
It is done all the time.
8
He does not get the loans for nothing. He has to repay them with interest. To get the funds to repay the loans, he sells stock incurring capital gains taxes. He is not getting away with anything. If he dies, the estate has to sell the stock to pay the loans prior to any transfers to heirs or charities. The estate then pays the capital gains taxes.
2
@Michael Blazin Not so. The stock gets a step up in basis to the value on the stock on the day of Gates' death. Thus, the estate must pay estate tax on the value of the stock at the time of death (less amounts given to charity) but will not owe capital gains taxes except to the extent the value of the stock has increased since Gates' death (either zero or a very small percentage of the overall appreciation).
One proposal is to change the tax law to eliminate this step up in basis, but under current law, the estate does not pay capital gains tax on the appreciation over Gates', or anyone's, lifetime.
1
The estate pays the tax on transactions prior to step up. Only heirs get the benefit of step up and heirs only get assets after all taxes owed by the estate get paid, to the satisfaction of the probate court.
1
Put in very stark terms, for fiscal year 2019, the government ran a deficit of about $1 trillion. The Trump campaign promised a real GDP growth rate of 3% or more, annually. Thus, $1 trillion of GDP spending was borrowed; and, with growth of only 1.9% in GDP, at an annual rate, as reported by the Commerce Dept. for the third quarter of 2019, we are in a predicament.
Simply put, with real GDP of about $20 trillion in fiscal year 2019, about 5% of this GDP arose from borrowing. [($1 trillion/$20 trillion) x 100 = 5%]. Also, the growth rate for the 3rd quarter of 2019, at only 1.9%, trails the Trump campaign's promised GDP growth rate by 1.1%. [(3.0% - 1.9%) = 1.1%] Thus, overall, GDP is short about 6.1% from the promised benchmark. Or, in dollars, 6.1% of $20 trillion equals about $1.220 trillion.
Lastly, for emphasis, the CIA's web site lists US GDP at $19.4 trillion for 2017, measured by purchasing power parity, with China's GDP per this metric at $23.2 trillion in 2017.
[11/07/2019 Thurs. 10:34 am Greenville NC]
So let’s wrap it up and make it simple.
1) Income inequality is a problem.
2) Lack of economic opportunity and difficulty affording college, and making it when you’re in the middle class, is a bigger problem.
3) If our country afforded reasonable opportunity to make it in the middle class and for income growth, would anyone care about the billionaires?
4) If I was trying to fix the economy, I would definitely be nervous to expand government. The DMV is bad enough, and Social Security is almost insolvent, and the Postal Service is bankrupt. I don’t need them touching more.
5) Doing economically unsound things that have unintended consequences, like conditioning people to more entitlements and letting them expect more stuff for free, is a bad idea.
6) Jealousy is bad.
7) Many rich people have provided fuel for our economy, are charitable, and provide employment to many.
8) If rich people followed the rules, then it’s their money-why should we take it away?
9) So what do we do? All the common sense things that we should do to close some of the gaps.
Long term capital gains rates on stocks-get rid of that.
1031 exchange where you can take all your profit from a real estate investment and put it in another property without paying taxes so you can go your whole life without paying taxes on it get rid of that.
Carried interest-get rid of that.
Mortgage tax deduction-which is a middle and upper middle class thing, get rid of that.
2
@Jose ostal Service is bankrupt becau republicans imposed an irrational requirement on it to psy fsr in sdvsnce or gfuture costs hs requiremen which would bnkrupt ANY business.
Is AMT unconstitutional?
It's been on the books since the '60's. So I'm guessing it's not unconstitutional. If it was, someone would have noticed by now.
To summarize: don't tax the wealthy. They get upset. Tax the middle class to the hilt. Make them insolvent, outsource their jobs, force them to forfeit all their assets and file for bankruptcy. That has worked so well for our economy for the past 35 years.
25
AMT is an income tax. It has no wealth components. If it did, those components would be illegal.
2
@Michael Blazin
Really?
Property taxes are illegal? What about capital gains taxes, are those illegal too?
@Bob The Builder If you have to ruin the economy to solve this "problem," then it's not really a problem and more about the envious notion that people shouldn't have significantly more than you.
This may seem a naive oversimplification, but if we truly want to make ideas such as single-payer healthcare a reality, then I am certain we can find a way to “constitutionally” come up with the funding. Too much is at stake for us to hide behind changeable bureaucracy and archaic legalities.
3
the New Deal didnt pass because the courts were ok with the constitutionality of it at the time. it passed because the rich at the time understood the cyclical nature of history and remembered the French Revolution.
to pass a wealth tax, simply refer to it as the Guillotone Abatement Act.
51
Even if a wealth tax was constitutional, every country that has passed a wealth tax has run into significant implementation problems. You end up spending almost as much money arguing about how to measure "wealth" as you collect in taxes.
The better solution is a VAT, which has very low implementation and enforcement costs. A VAT is inherently regressive so it should be used to fund a universal dividend, such that the majority of Americans get back more than they pay.
7
And you think such system is less complex?
@David Chang you write that "The better solution is a VAT, which has very low implementation and enforcement costs" but a v.a.t. does nothing to address the concentration of wealth in the hands of the few.
Forget the wealth tax. Impose a larger inheritance tax. Apparently no constitutional problem with that.
12
The unexplored and unaddressed point in this article and comments is that, yes a wealth tax is unconstitutional, and Yes marginal tax rates can be raised to 1970's levels and Yes capital gains rates can be raised to match earned income rates..but those constitutional and legislatively achievable goals do not come anywhere near to paying for the massive and unprecedented explosion in government spending proposed by Warren/Sanders without a huge broad based tax increase on the middle class.
And that is the problem, Warren is conditioning Americans on the concept that the government will provide all this amazing "free stuff" (tuition free college, free child care, free health care, wiping out all college debt) and somebody else(the "rich" the "the Wealthy " the "corporations", the "greedy Wall Streeters" will pay for it all....everybody else will pay nothing.
its an absurd and character destroying premise and lie.
9
@pirranha299
What you forget about the "free stuff" canard is that all of the things you mention are already being paid for. We just pay for them in the most regressive way politically possible. Tuition is paid by loans, which transfers the interest payment from the bottom to the top. Healthcare is increasingly paid for by workers and bankrupting them. Child care is paid by the poorest, and the employers benefit by having the parents in the workplace.
3
@pirranha299, would you be willing to pay $10k more in taxes if you didn't have to pay $12k in premiums?
Paying for private services isn't always the more pragmatic solution, especially when lack of access by significant numbers of our population has a negative effect on our economy.
3
I agree with the underlying issue implied in this article that we need a plan that is realistic and enforceable and not radical. We need practicality.
9
Also, what would the impact be to real estate and equity prices as billionaires are forced to sell off their holdings to pay the wealth tax? Assuming their actions drive down prices this will impact all of us as we all own parts of Apple, Alphabet, Amazon etc. A lot more study needs to be done to understand the full scope and impact of a wealth tax.
6
But falling prices for the real estate is a good thing for affordable housing, right?
1
@Ski bum Nonsense, there already is a wealth tax on real estate. It's your local property tax! And real estate prices have not tanked because of it.
Let’s face it: the way many countries raise the funds for social spending is with a substantial VAT.
Alas, a VAT is a big regressive tax hike on the poor and the middle class.
But if you want what Warren and Sanders desire, all of us sharing the burden is probably the only realistic way to pay for it.
10
And how that will address the problem with inequality that actually Warren and Bernie want to address?
Bill Gates and Elon Musk have accomplished great things with their wealth. Disease eradication in Africa, research on advanced nuclear power, new rocket technology to name a few.
They are better stewards of their money than any politician proposing to take it so they can play Santa Claus doling it out to buy votes!
10
@Lane
What percentage of extremely wealthy Americans use their enormous wealth for the greater good?
9
The Government created the conditions and spend a lot of money on the research that allowed these billionaires to become billionaires and spend money on their pet projects. The Government needs money to continue to fund all initiatives and allow other people to contribute to the society.
2
@Lane
And much of what they spent was probably a write off against their potential tax liabilities. So in effect, whatever tax was owed on what they spent of these noble works, was paid instead by ordinary taxpayers like you and me, or in Trump world, was passed on to our kids and grandkids as national debt.
The answer is to vote in better stewards and tax appropriately.
4
.”....since 12 percent of the population lives in California, Californians must pay 12 percent of any direct tax.....”. ?????
A more accurate statement would be if CA as a whole pays 12% of the nation’s direct tax bill but an individual CA taxpayer’s portion of that national bill would be a fraction of that 12%. The sizes of the pie’s slices is dependent on the number of slices cut from the whole pie not just the size of the pie. Mathematically, a state with a lesser national tax bill per its population size could have its individual taxpayers paying the same amount as a CA taxpayer.
CA has more US House Members not because the state is geographically larger than others but the population is.
6
Tax law professors are notoriously paranoid. The solution, if there is a problem to solve, is not to combine real estate with personal property. They are right. It would be alchemical to believe that combining a direct tax with an indirect one somehow cleanses the mix. Instead simply apply the wealth tax to personal property. Most billionaires have their wealth invested in personal, not real, property. Problem solved.
8
Where in the op-ed do you see a distinction between real and personal property at the Federal level in the US Constitution? Feds cannot assess real or personal property taxes. States can assess both. They choose to focus on real property because you cannot move it. Exceptions for personal property may be a car registered in that state.
@Michael Blazin The authors state twice that so-called "direct taxes" consist of real but not personal property. Thus we have the constitutional distinction the authors believe could throw a monkey wrench into this method of taxation. My suggestion avoids that .
Why are federal estate taxes not considered a “direct tax”?
5
@Claire Hearne Because the estate tax is a tax on the transfer of assets at death, and thus an indirect tax, rather than a tax on the general ownership of assets.
5
Was the Constitution suspended during the 1950's and 60's when America's wealthiest paid an income tax of 91%? Wealth tax, like death tax is just another attempt to scare the horses.
5
When you get back to Earth, you will learn the high taxes in the periods cited were on income, not wealth. The US Constitution has been in full force since 1789.
I am not a constitutional scholar, so I cannot evaluate the soundness of the legal arguments here. But wealth tax was tried in several European countries, including France, and repealed. In France it led to loss of revenue because rich individuals simply left the country. The same will happen here. Wealth tax is simply a punitive measure to fan the flame of class hostility, not a real economic necessity. If you need more revenue, add VAT as they do in Europe. As for the argument that the poor will also have to pay it - yes, and it is only fair that they do.
10
@Mor
France still have some wealth tax on limited class of assets. So you could have millions in stocks and pay no tax, however if you own multiple houses (any where in the world) then you need to pay additional wealth tax in addition on top of the real estate tax collected.
So that really only penalize the somewhat rich not the people with outsized economic power.
In my case, it does give me pause about moving back to France for retirement.
@Mor The US is one of the few countries that tax world-wide income. France does not. So, when the French Wealth Tax was passed, high net worth individuals simply moved across the border. This would not work in the US.
1
@Mor
"As for the argument that the poor will also have to pay it - yes, and it is only fair that they do."
This sad imitation of an argument holds water only if you believe it is "fair" that poor people are poor.
And sentient American, any bona fide capitalist knows it is not.
President Trump like Reagan hawked tax cuts to spur economic development, but all they did was put the rest of us in more hock. Taxing wealth, as we saw in the 1950s, would increase economic development. Business owners understand their money is better spent on business development or charitable giving rather than handing over their wealth to the tax collector.
2
I don't care if we use a wealth tax, or if we change capital gains rates to match regular income rates and reinstate high estate tax rates so that fortunes can't be used to create a permanent hereditary aristocracy. Either way, the point is to reverse the giant vacuuming up of all of our national wealth to a very very small percentage of people at the top. I know this kind of talk makes Jamie Dimon et al take to the fainting couch, but it's a lot better than what will happen to them if this rapacious looting of our economy continues.
25
very learned but what about the federal estate tax? Isn't that a wealth tax?
1
@Rhporter -
My guess would be no. The wealth in an estate tax is owned by a person. When that person dies, it is passed to another, and could be considered a special form of income for that person.
4
@Rhporter No. The estate and gift taxes are taxes imposed when assets are transferred (at death or in a gift) and thus are indirect taxes. A wealth tax would be a direct tax because it is imposed simply because someone owns assets, whether those assets are transferred or not.
1
Estate tax is really a récords transfer fee. It is not about income because the transferring agent, the estate, pays it.
1
The states tax wealth in the form of property tax. Let them!
The federal government taxes income, sorta. Senators Warren and Sanders should focus on correcting the federal income tax code to moderate the accumulation of wealth instead of imposing a new tax on existing wealth.
A sensible federal tax code would limit the accumulation of capital, i. e., after-tax income that will not be spent, with the investment needs required to satisfy consumer demand, i. e., after-tax income that is spent. A sensible economic stimulus program would distribute money to those who will spend it, not to those who will accumulate it.
2
@AynRant
But since there are no pension system left for most workers and SS payment are clearly not even close to large enough in states like California, people who can are told to save money (401k, IRA, houses,...).
So we should still encourage some savings with some tax avoidance benefits.
I promisse I will stop saving when I get to 65.
I think wealth tax above $10M makes a lot of sense, because no one can claim they need more to retire comfortably. If we take away the fear of going broke through gigantic healthcare bills, the limit could even be less.
Ultimately, all taxes are directed at human behavior and decisions. We see this commonly in the form of "sin taxes" directed at activities like smoking and drinking that some people wish to discourage.
So what is the logic behind taxing financial success? Putting aside financial gains through illegal activities, why punish people who make decisions and control their behavior in ways that lead to personal wealth?
Some might claim a moral preference that prioritizes other values over wealth, but that is just a personal preference. And comparing unequal wealth among people who hold different preferences has no logical meaning.
If it did, then could we just as rightfully control human decisions and behavior that lead to lack of wealth?
4
@Bob Krantz, "sin taxes" are a more recent development than taking money/goods from those who have excess to hand over. The "logic" is to take from those who have because you can't take from those who don't.
@Bob Krantz -
If you have nothing at the start and then earn it, I could almost see your point. But, as the aphorism states, “It is far easier to earn your second million than your first.” If you start with money from your family (or just the head start from going to better schools and universities a well off family brings), it is easier to earn more than someone from a poor background. Just like it is easier to win a 100 meter race if you, alone, start from the 50 meter mark.
If Trump and the GOP can lower taxes on the super-rich (which they did), then the Democrats can raise them. Pure and simple.
9
@Cal Page
put in place an inheritance tax with teeth.
progressive tax up to $1 billion
Flat rate of 70 % of everything over $1 billion for a start.
All charitable gifts in last 20 years of life are added back to determine wealth at death.
1
"If provisions of the Constitution be not upheld when they pinch as well as when they comfort, they may as well be abandoned." (Justice Sutherland.) It does us liberals no credit to rightly rail against Trump's willingness to ignore the Constitution in pursuit of his goals if we are willing to do the same in pursuit of ours.
Even if there were no Constitutional questions here, enforcement of a wealth tax on personal property presents troubling practical difficulties, as other commenters here have discussed.
There is usually more than one way to skin a cat. For starters, restore the progressive marginal income tax rates which had been in place for decades, under both Democratic and Republican administrations, prior to Reagan's regressive changes in the 1980s.
4
Come up with taxes on high incomes, change tax rates in LT gains and dividends above a certain income level, impose transaction taxes on each stock trade, etc., There are lots of ways to increase taxes on the wealthy, and it can be started by making the goal of the wealthy carrying at least the same total tax burden percentage that the median household carries.
Make an index that includes all taxes paid by the median income family, FICA tax, sales tax, property tax, income taxes, etc., and arrive at an amount percentage, and apply it to an adjusted gross income of filers above a certain amount.
8
A carefully written article.
There are ways to create taxes on wealth that are not "wealth taxes" but they are based on targeting the income that wealth produces - with high deductibles, along with tougher estate and gift taxes, phasing out tax reliefs that benefit almost only the already very wealthy, etc.
The problem with Sander's and Warren's wealth tax proposals is that they are, to a degree, seeking to replace the door on the stable after the horses have bolted. That is to say that the decisions in the US and elsewhere to limit progressively in the tax system - which has allowed the super-rich to get so far out ahead.
5
Most importantly, will Warren's and Sanders' wealth be taxed? Thank you.
2
@Southern Boy
Obviously yes. You can check Warren's tax returns on her website:
https://elizabethwarren.com/tax-returns/
@Southern Boy Yes.
@Southern Boy Of course it will.
In the Netherlands, we have gotten rid of capital gains tax, dividend tax, tax on received interest and tax on real estate income. Instead, an imputed rate of return is applied to all wealth (with imputed return being higher for higher wealth levels). The imputed return to wealth is considered non-labor income and is taxed at a 30 percent rate. Ergo, not a direct tax.
I wonder what the courts in the US would say about this?
10
@Rose
I don't know what the Courts would say, but this is an interesting idea.
2
What happens when wealth drops during the tax period as it would during a stock market drop in a recession or property values in a painting when artist becomes less marketable? Does the Netherlands send big refund checks to wealthy individuals for the temporary losses that happen to cross over tax periods?
6
@Rose The 16th Amendment permits Congress to impose tax on "incomes" without apportionment among the states. But the Supreme Court has given meaning to the term "incomes," for example holding that unrealized gains are not income within the meaning of the 16th Amendment. Thus, taxes imposed on deemed or imputed income are constitutionally suspect.
2
"At least we're hearing some conversation."
I don't understand how money derived from money by people who do not work cannot be constitutionally classified as "income."
It would also be interesting to hear a little more about how the Warren Sanders ideas stack up compared with Andrew Yang's proposals. A previous article found his ideas more practical. Are they worth more than a journalistic one-up?
4
Sounds like the amount of tax could calculated based on wealth and the taxes then only imposed on income broadly defined (including capital gains). If there is insufficient income, then the tax would be excused. I wonder if the professors believe this would pass constitutional muster.
Let's tax income on wealth over a billion dollars at 70% (treating capital gains, dividends, interest, and other forms of income the same). Then add an alternative minimum tax that is calculated as 70% of the expected return on assets of that value given investment in a typical portfolio of stocks and bonds. So something like 70% of 8% of the asset value.
1
@617to416
The authors just said that it’s unconstitutional. You can tax their income, but not their assets.
9
@William Feldman
It's a sleight of hand, yes, but we're taxing their income, just presuming a minimum income. Sleights of hands sometimes work with the Supreme Court. Just look at whether the Obamacare mandate is considered an unconstitutional mandate or a constitutional tax.
3
@William Feldman
My assets are taxed all the time. My property, an asset, is taxed. My house, an asset, is taxed based on its value. My car plates are taxed based on the value of my car. Interest on my CD's are taxed. My capital gains are taxed. And of course my income is taxed. The billionaires wealth is often tied up in stocks, bonds and property. All can be taxed marginally and progressively based on value. While you may not be able to pull back a persons wealth via a tax by the state, you may certainly tax any gains generated by that wealth.
Where does capital gains taxes or transactions fees on stocks fit into this scenario? It seems that if tax increases affecting the rich were done carefully any constitutional questions could be mitigated. It is hard to follow the argument here. We have had progressive tax revenues for a hundred years now and still do. Adjusting these rates make our tax system more equitable and raise revenues to pay for an overhauled Medicare health care system that could include everyone.
2
@just Robert obviously there are vast numbers of stock transactions daily. So, a transaction stock could raise a lot of money. However many such transactions are made by mutual funds and pension plans. So, say you have money in a 401k which is invested along with thousands of others in a Vanguard mutual. If the account manager makes a buy, then you have made a buy. YOU get taxed on that.
1
@just Robert Indirect taxes such as federal excise taxes on actual transactions are not prohibited. And federal taxes on income are not prohibited. It is only federal taxes imposed in the absence of a transaction, for the sole reason that the taxpayer owns property, that are direct taxes that are prohibited absent apportionment among the states.
Hamilton also wrote in federalist 68 that in order to have second amendment rights, you had to be in a state militia with officers appointed by the states. If the Supreme Court can ignore that, they can ignore the other federalist papers as well.
20
@Mike They won’t ignore it.
Senators Warren and Sanders must come up with a taxing plan that will pass muster with both the Supreme Court and the GAO, before claiming that their plans are possible.
Furthermore, they need to include a complete breakdown of current health costs and how they are paid, showing which segments of the population will be forced to come up with more money.
They also need to explain how many jobs will be lost in the conversion, and how many people in those private jobs will be picked up by the government and what the pay difference will be.
There are other major problems with Medicare for all, and I have no confidence that either Warren or Sanders will get it right.
We would be by far the largest nation to socialize health care. Other nations needed both humongous taxes on everyone, middle class included, and a nationwide VAT, in addition to state and local taxes.
The fight to socialize medicine, would doom any effort to seriously tackle climate change.
7
@Mike I don't see that in Federalist 68. That deals more with the Electoral College. Can you show the reference on that? While I agree with your point, I'd like to see the reference you make so that we always discuss facts.
4
@kate it was actually federalist 29, I was too lazy to google it. :)
The Big Problem is collect ability, not law.
In the real world, it can not be collected. Thus, Sweden eliminated the wealth tax 2007, France eliminated the wealth tax last year under Macron, non - movable real estate, being the only exception
And in either case. it was not for a lack of effort
2
We already have an easy way to tax wealth without requiring any (un)constitutional wrangling - the inheritance tax. Making it more progressive - and finding better ways to remove loopholes like those used by Fred Trump - would fix wealth inequality over time without penalizing those who actually earn their money the old fashioned way.
I still fail to understand how so-called conservatives can champion individual enterprise and denigrate the poor as unworthy of government help while treating parental lottery winners as somehow above the need to earn their own way.
7
@Ken Agreed. Raise the Estate Tax to 70% on all estates worth more than 50 million dollars. I bet that would raise if not all, a significant portion of the money that Sanders and Warren would need to fund their proposals.
3
@Ken ... As part of any revision of the inheritance tax, the provision for "stepped-up basis" of assets owned at time of death should be eliminated. That loophole allows built in capital gains in those assets to escape income taxation altogether..
2
@Ken
That is not a wealth tax. The Inheritance is INCOME to the beneficiary. That is the theoretical basis for that tax.
5
Several commenters cite state/local taxes on property value as evidence that Congress could enact a federal tax on property. The powers of the federal government to levy taxes are different from the states’ powers. Warren and Sanders are proposing a federal tax on property (wealth). The authors of this article are talking about the feasibility of these proposals based on what the Constitution says about powers of taxation of the federal government. What states and municipalities do regarding taxes is irrelevant to this argument. The authors’ argument on why a wealth tax may not be constitutional is rational and well laid out.
While I am in full support of increasing taxes on the wealthy to help pay for health care and other programs, I do not believe the wealth tax is right path. A wealth tax would be incredibly difficult to administer and enforce. In the 1990s, 12 developed countries had a wealth tax; today only three have one. The others abolished their wealth taxes because they were too difficult to administer and/or did not raise the expected funds. We point to other developed countries for model health care; we should also look at how these countries pay for it. We have an existing system of federal income taxation that could be used appropriately. Reverse the Trump tax cuts, increase the top marginal income tax rate, increase taxes on capital gains and dividends, eliminate the mortgage interest deduction, etc. I would also be in favor of a financial transactions tax.
10
@DM I'm not taking a position on whether the USA should have a wealth tax, but the reasons other developed countries abandoned wealth taxes were not quite as you describe. The fundamental problem those countries found was that wealth was too mobile, that those who had a lot of wealth promptly moved next door to a country without a wealth tax - and since tax liability in most of the world follows residence, not citizenship (as in the USA), their high net worth individuals found the tax easy to avoid. There is a reason Monaco is packed with tiny dusty apartments in which very rich people allegedly "live." Would the US ultrafiche prove as willing to renounce citizenship and exile themselves?
In other countries in income tax crackdowns have used wealth, especially wealth with record title - real estate, cars, boats, aircraft, horses as a way to infer or attribute an income for income tax purposes (against ludicrously understated incomes) - and despite howls of protest that the analysis was unreliable, rarely found that those dunned for that hypothetical income chose to go through a full audit.
3
Left out of this analysis is the arithmetic: This proposed source of new revenue will not provide nearly enough money to do what senators Warren and Sanders want it to do.
Two percent? Six percent? Why stop there? If you were to confiscate the entire wealth of "the wealthy," 100 percent of it, the resulting pool of dough might fund federal initiatives for a few months. Then it would be gone.
Except maybe that's the real point, eh? These plans appeal mainly to people who don't care about the numbers. "We're gonna stick it to people I resent? Sign me up!"
13
@Jim D. Exactly! A simple analysis shows that even at best this would not raise more than half what she says it will, even if you assume all the Billionaires stay in the US and don't re-domicile (which of course many would). This is about creating a narrative - not serious policy.
5
This could be fixed with an amendment allowing wealth taxation.
However, I would oppose such an amendment, because I think it opens Pandora's box. It is good that there exist limits on the power of government, and specifically on the power of any single administration.
Income taxes provide for a gradual way of taxing your lifetime earnings. It is possible to have confiscatory rates only if there is broad enough consensus in society to maintain them for a long time. By contrast, wealth taxes allow a single hostile government to take everything from you overnight.
Of course, for people who want a confiscatory government, this is a feature rather than a bug. Get elected once and you can retroactively raise taxes on all the income that people have been earning for the last 30 years.
7
I hope after this piece that Warren and Sanders will address this serious issue. The fact that they must have known it, opens up a can of worms for their credibility.
In any case we need a fair tax system regardless of where the money goes.
8
@sapere aude , what credibility? you make a good point.
fair tax system? The wealthy pay nearly all the taxes already, actually. Dems da facts.
1
This seems like hammering another 2x4 onto an already over complicated system. Why not remove deductions, simplify brackets, tax different forms of income under generally the same rules, and most importantly — bring back the inheritance tax in full force. The rich disproportionately benefit from a complex tax code.
20
Then how do you address the ever-expanding spiral of income inequality?
The "American Dream", is rapidly becoming a nightmare, and ruse.
This very publication yesterday published a figure that a minimum wage worker has to work 79 hours a week just to afford rent for a one-bedroom apartment in LA County.
How about publishing informed ideas around a solution?
We don't need smart people to tell us why a wealth tax won't work, all of Wall street is perfectly able to take on that role.
7
@Spatchcock Perhaps move to a more affordable area.
Then why not just use the income tax, increasing the top rates? Congress'authority and ability to tax is broad enough that some formula can surely be found. The real issue is that without taking the Senate, it is dead.
2
Everyone seems to be saying it will not work in some fashion, especially the wealthy. If one looks at the tax cut initiated by Reagan Bush II and no trump will show why the rich have accumulated all the money that the middle class lost. Just roll back all of the previous tax cuts.
4
It's opinions like this that contributes to the wealth gap in America. The rich will always have some argument in order to hold onto every penny of their wealth.
5
I generally like Elizabeth Warren, and I don't oppose a wealth tax on principle, but my biggest question is: how, in practical terms, would it be implemented and enforced?
If someone owns valuable pieces of art, how often must they be appraised? Is the same appraisal used for insurance purposes acceptable as a declaration on one's taxes?
If someone owns real estate, what happens when the market rises or falls? How would market drops affect Senator Warren's ability to fund the programs whose viability depend on collecting her wealth tax?
Finally, how would a wealth tax work with an individual like Donald Trump, who inflates or reduces the worth of his reported holdings depending on the benefit to him? How much latitude would someone have in stating the worth of his/her assets, and by what mechanism would the government corroborate or question the accuracy of someone's figures?
A wealth tax seems okay in theory, but it seems like it might be messy to implement in actual practice. If any other readers can answer some of these questions (in 1,500 characters!) I'd be very curious to learn the answers.
7
Thank you very much professors.
This is turning into an election based on emotion alone, with reason not taking a part to play in this drama.
If enough people would read this assessment they would see what some of us have been saying for a while, that the proposed tax on rich people will never happen.
Warren based her entire litany of freebies on a tax on the rich, and as per your assessment, that is not possible. Thus all her campaign is nothing more than pie in the sky, some more change you can be dupped into.
Thank you so much for reviewing and offering your informed assessment.
7
What’s the difference between a wealth tax and an estate tax?
5
@Xander Patterson
An estate tax applies to property being transferred from one person to another, which can broadly qualify as a form of "income" for the person inheriting it.
2
An estate tax is actually a transfer fee assessed by Fed and state governments to move asset ownership,from one person to another. An action occur, i.e., death, assets pass to someone else, and governments record the transfer, something done by governments for thousands of years. Wealth taxes get assessed on assets that are part of no action, simply sitting there. Wealth, as far as the Fed Government is concerned, does not exist unless some transfer occurs and then only the part that actually moves. Sovereign states, not restricted by US Constitution, can assess property taxes.
2
It is not income at Fed level because the estate, not the heir, pays it. It is a transfer fee for the exchange to happen.
I would love to see a wealth tax in place, but the authors do raise a valid point of Constitutional law. I doubt we have the votes for a new amendment.
We may want to re-examine other taxes. Perhaps it's time to put capitol gains income taxes pegged to earned income--and perhaps even a surcharge of 1-2% for everything above, say, $250,000 a year. We need to repeal certain tax cuts aimed at the wealthiest among us, both individuals and business entities. A small transactions tax on stocks, bonds and futures trading could help close the gap a little more.
Supposedly fiscally responsible Republicans borrow and borrow and borrow some more, driving up both deficits and debt, all while spending trillions.
The dirty little secret of Republicans who lambaste "tax and spend Democrats" is that at least some of that Democratic-backed spending is dedicated to paring down our debt.
Would that Republicans could be so... what is the term... oh, yes: fiscally conservative.
5
@Jacob Sommer Democrats are as responsible as Republicans, tax cuts vs massive social spending gets you the same end result.
1
Thank you for shedding light on the realistic chances of Warren's wealth tax actually passing the inevitable legal challenges she will face, and likely lose. People need to wise up and see that Warren's plans are built on a house of cards that will collapse under it's own weight. Big promises mean big failures and Warren, for all of her moxie and intelligence, seems oblivious to these massive challenges.
4
Things we could do about income taxes while we fight over wealth taxes:
1. All trust income is income to the controlling party.
2. All gifts and inheritance (beyond some modest exemption) are income for taxation purposes. No more fighting about the estate tax.
3. All income is taxed as part of one pool, no matter whether the income is earned or investment.
4. The top tax rate should be in the 50% range.
5. Replace business income taxes with gross receipts taxes or VAT.
Separately:
6. End the cap on payroll taxes, include income from options from the employer in the payroll tax.
7
So to have a wealth tax we must first amend the constitution?
Ok, if you insist.
1
@JMM
If Liberals amend the constitution every time it suits their needs, then why can't conservatives do the same?
That's why it's the constitution and not some one's play thing to change the law as they please.
@JMM
Which might work, but is leagues away from Senator Warren's "on day one we're gonna..." depiction of how it would go. Do you understand how long it takes for an amendment to take effect?
@JMM
Except that Amendment will never gain the necessary number of states in favor.
One can debate whether a wealth tax is or is not constitutional but as one who has struggled with the ever- changing tax code I can see numerous methods of evasion, not to mention extensive and expensive conflicts over valuation of assets. There are many ways of amending the tax code to increase the tax burden of the wealthy starting with repeal of the Trump tax law. I am sure the authors can provide a road map that, not only would be constitutional but would also raise more revenue.
4
Tax financial transactions and transfers of wealth.
5
Constitution aside, I wonder who will be counting wealth and provide the information that leads to wealth taxation. The vision of federal employees valuing art collections would seem highly questionable for instance, and easily attacked in court.
I see lawyers for the very very wealthy challenging wealth counting in court leading to expense by the federal government and " settlements."
And if there is a wealth tax on total assets above 50 million, I bet we have the largest growth of 49 million dollar households on the planet as well as a new wave of "friendly divorces" among those with assets in the 60-100 million dollar range.
Oh, and farmland will be excluded, so we will have a bunch of new " farmers" as well.
In the end, it just isn't going to work.
8
@Mark
Bravo. This is about right.
also this:
'The vision of federal employees valuing art collections would seem highly questionable for instance, and easily attacked in court'.
When I went to register my car, a 10+ year old family car, the tax assessment was about $15K. I asked the lady who in their right mind would pay $15K for a 10+ year family car, she told me this is the government assessment, and I had to pay taxes based on their assessment. I did.
My car is nowhere near $15K, more like $1K by now, but not according to the government. Wonder if they would buy it off me for $15K but I doubt it.
Yet some one with money could fight that in court and make their Mercedes be valued at $1K and avoid the wealth tax I am sure.
3
@Mark
Think of all the thousands of new IRS bureaucrats needed to value all the wealth.
That's all we need... a huge new government bureaucracy.
@Mark, not advocating for a wealth tax, but surely this is already done for estate taxes?
1
These arguments are fundamentally weak. The money that the rich take in comes from business in every state. The legal theory here is that if the rich don’t live in those states they can’t be taxed. That’s the kind of logic that made the Middle Ages so wonderful for the masses - amazing to see this stuff in The NY Times.
2
@Gary
'These arguments are fundamentally weak'.
Reads a tax asssessment by law professors.
Decides they are wrong anyway.
That's what am talking about when I say this election is based on emotion, and reason took a holiday.
4
Did you read the op ed? It is all about the Founding Fathers intentionally creating very strong restrictions on the practical imposition of national taxes on citizens yet reserving to the states the ability to tax practically anything from their citizens. It is a bedrock principle, shown in numerous sections, throughout the entire document. The only exception is the Sixteenth Amendment drafted for a specific situation so it would not violate the bedrock principle.
"We are tax law professors who identify as liberal Democrats, donate to Democratic candidates, publicly opposed the Trump tax cuts and strongly support higher taxes on the affluent." The difference between a lawyer and a law professor is that the former figure out a way to make the law fit their narrative. I don't find this analysis disheartening at all because it makes no effort to imagine possible arguments to the alternative. I would also say one is not credibly liberal after writing an article like this.
2
@Daniel L. So well said! These two tax law professors who claim to be Democrats and who donated to Democratic candidates should find a way to raise the money to benefit everybody to be at par with other developed nations. This should be their new research area with the federal dollars they receive in the form of grants!
@Daniel L.
There are no arguments in the alternative. None that are intellectually honest, anyway.
1
@Daniel Bloom How can simply making an argument based entirely upon Constitutional law make someone “not credibly liberal”?
Are FACTS now to be as irrelevant to liberals as they appear to me to be to conservatives?
Billionaires will buy Congress and no taxes on great wealth will make it out of committee. This is government on the American plan.
2
Those pushing the wealth tax would also have to contend with tax experts finding ways for the moneyed to shelter wealth.
We already have byzantine rules that enable wealthy to carve out chunks into trusts that are effectively tax free.
Does anyone think that billionaires won't find ways to legally avoid paying? Bono, who positions himself as a progressive, has aggressively found loopholes to shield his income from taxes. What makes anyone think the Koch empire won't do the same.
https://www.theguardian.com/commentisfree/2017/nov/07/tax-bono-harming-world-poorest-glastonbury-avoidance-paradise-papers
2
The constitutional barrier to the wealth tax is joined by an equally formidable barrier of measuring the wealth of the very wealthy. There is no mechanism now in place for calculating the value of such assets so that they can be taxed. How much is the mansion really worth, in spite of its appraised value for local taxes? And that Matisse or Picasso? I agree strongly with the Hemel and Kysar that the appropriate way to tax the wealthy is through progressive tax on income. We have effective mechanisms in place now to capture income data on wages, other earnings, dividends, and capital gains transactions through mandatory reports to the Treasury such as W2s and 1099s. Reporting could easily be strengthened to cover gaps that exist presently. It makes so much more sense to use the existing data collection than to try to enumerate assets, while raising a constitutional challenge as well.
7
If "hiking the rate on top earners" is constitutionally kosher but a wealth tax is not, I wonder if the same revenue objectives can be achieved with the former as with the latter. If so, then as far as revenue is concerned it's a distinction without a difference, and the Sanders/Warren proposals aren't really affected.
2
The problem with wealth taxes is that we did away with them.
Bring them back.
They were not unconstitutional.
Perhaps one could argue that one form or another of suggested alternatives would have legal problems. So what? There are many forms.
We used many before the Republicans swept them away (with a LOT of help from "centrists"). We could use them again.
This argument against wealth taxes takes our current tax environment as the norm. It is anything but normal.
It has resulted in huge problems of economic injustice, all up and down the system. These proposals seek to fix what was broken.
It is just not true that we cannot undo what was so deliberately done to break our tax system of so many elements of economic equity.
If you don't like one proposal, there are a hundred more to do the same things. Just do them.
4
When did the US ever assess wealth taxes? You are confusing higher marginal rates on income, allowed by the Sixteenth Amendment, with prohibited direct taxes on wealth.
1
Elizabeth will demand a constitutional amendment to get the wealth tax authorized.
2
@Mike Ransmil Which will then be up to two-thirds of the entire United States to ratify. If two thirds of states could not ratify the ERA, what makes anyone think two-thirds (many of which are red) will advocate something so outside the basis of the foundation of our country?
I agree - in the current societal and regulatory climate, the astoundingly rich who do next to nothing to hive back as compared with even the robber barons of the late 19th and early 20th centuries MUST experience a huge tax increase. However, there are many many Constitutional ways to go about it (some expressed in these opinion pages) which would be faster and easier to implement, and more efficient and less expensive to administer. And - bonus - they are Constitutional.
@ejones
It takes 3/4 of the states to approve an amendment to the Constitution, not 2/3. It's a very high bar... an amendment like this would never pass.
Property taxes are imposed by state governments on property within the state. Presumably the federal constitution prohibition does not prohibit such an intra-state direct tax.
But how is the federal estate tax not a direct tax? The Supreme Court held it was a tax on the passage of wealth, not a direct tax on property.
A wealth tax probably be constructed in a manner that would withstand constitutional challenge under past precedent. But the conservative Supreme Court may be less receptive than past courts.
Luckily, the Constitution provides a mechanism to rectify this, the Constitutional Amendment.
1
Taxing capital gains income at the same rates as earned income including with payroll taxes, removing the income cap and applying social security taxes on incomes above $250k, and a financial transactions tax on the wealthy should be more than enough to help us address the deficit, fund affordable health care, infrastructure, etc.
8
How about a tax on the buying and selling of listed securities? A fraction of a cent for each share bought or sold would be meaningless for long term investors although it may have an impact on those high volume/high speed traders (but so what). All the online discount brokers have reduced their transaction fees to $0 so at least the small investors would still be ahead.
9
Confused.
According to the terms laid out here, isn't property tax unconstitutional? Or is it apportioned by population in some way that I'm not aware of?
3
@Diego I’m not an expert or a lawyer but I believe property taxes which are collected by individual states are not considered here. The clauses would only apply to federal property taxes. States have property taxation authority in their own constitutions and they aren’t shared outside of their borders
3
As sovereign entities, states do not have restrictions imposed by the US Constitution unless not specifically listed in the document. The Tenth Amendment therefore allows states to assess property taxes. The Fed Government specifically does not have that power to do the same.
3
@Diego Property taxes are done at the state level, not the federal.
2
It is really sad that everyone seems to have a reason why we can't have health care on par with the rest of the developed world. We could let taxes go back to where they were in the 1960s (you know, back when America was great again). It is just that we have this attitude that to make any change is just impossible and that to do anything is just out of the question. Well, the rest of the developed world has figured out how to provide health care to their citizens, to their societies. We fail because the individual is so much more important than the group.
18
@tom , interestingly, folks flock to US hospital from around the world. Maybe your view is skewed when you say "on par".
what do you mean by that?
1
With no bias one way or the other on Warren or Sander's programs (I'm a far left Democrat) -- I applaud the Times running a piece that seems to objectively define one particular obstacle that their proposal could face if either were elected. Too many "opinions" are merely rants or scattershot emotional reactions to "what-ifs" that reject their ideas out of hand. Thanks for countering with some rationality -- and long-standing Constitutional issues.
37
There is a larger problem with a wealth tax---forget about the legalities of the proposal, the cultural problems would doom, not only the proposal, but the electability of the candidate proposing them. Yes, Americans are feeling the pain of income inequality, but, believe more in the freedom to earn as much money as you can. Although this deep Horatio Alger belief has proven to be a giant myth, it is a truth to most Americans---Added to this belief, will be Trump's feasting on these obvious communists proposals---Yes, I believe Warren and Sanders war on the corrosive impact of wealth inequality, but America is just not ready yet for the plans of both candidates.
14
For years, Florida had in place a tax on Intangible Assets - essentially all holdings of financial assets (stocks, bonds, mutual funds, etc.) excluding plain vanilla savings accounts. Would this approach meet the professors' constitutional objections?
2
@PaulB Florida is a state, not the federal government. The constitutional barriers are at the federal level.
3
Its a sad day when the excitement of fiction runs head first into the cold hard facts.
Better it happens now rather than during the presidential debates.
Darn Constitution always showing that the best way to do things is the less radical way.
Public option and if it wins then Medicare for all by popular demand.
3
@Jose
I disagree that the Constitution is some all-knowing document but where do you expect funds to come from for public option/Medicare for all?
@DRM Like it or hate it the constitution or some interpretation of it has been what courts have relied on to decide on these kind of issues so in a way it is that all knowing document.
As to the provenance of the funds, I make no judgment call here but if the population wants a constitutional amendment similar to 16th authorizing income taxes without apportionment then the population by ratification can enact such an amendment authorizing taxation of wealth without apportionment.
How that kind of taxation would be enacted fairly or unfairly with threshold or without and ice cream on top is left to your elected officials.
My comment solely has to do with the constitutionally acceptable way to fund a medicare for all program since it seems that the editorial argues that taxation of wealth in the US does not pass constitutional muster.
@Jose And that would be the position of Biden, Klobuchar and Buttigieg.
Click on the hyperlinked "much" toward the end and go to page 25, bottom. There you'll see a far, far, far more nuanced discussion of the constitutional question than you'll get here. I'm sure the authors presume no one will click: the mere appearance of hyperlinks, like footnotes of old, is meant to pretend to Substance in order to inspire Trust.
Reality: "Finally, a wealth tax could be struck down as unconstitutional on the grounds that it is a “direct tax,” which must be apportioned among the states on the basis of population under Article I, Section 9. We think a wealth tax is not a “direct tax” as a matter of law, and should therefore be upheld as constitutional (see, for example, Johnsen & Dellinger, 2018; Ackerman et al., 2019; Johnsen et al., 2019; Feldman, 2019; for a contrary view see Freeman, 2019; Khan, 2019). But the Supreme Court as currently constituted may nevertheless disagree.
"What is clear is that any legal risk associated with enacting a wealth tax could be reduced if it were understood as a refinement to the income tax. [Three possibilities presented.] While some suggest that the Supreme Court as currently constituted might also strike down a mark-to-market tax on capital gains, this seems far less likely. The constitutionality of the income tax is enshrined in the 16th Amendment."
Their conclusion is that the devil is in the design-details of each proposed policy. Including Warren's wealth tax.
Always check citations.
43
In the last election, Bernie had an idea for a limited tax plan that would pay for universal college education: a transaction tax. It makes a lot of sense for all federal taxes. We simply take a very small percentage of every financial transaction right off the top, electronically. it would be fair because those with lower incomes would pay a very low overall rate. Those dealing in large financial transactions, or purchasing luxury items—in other words, the wealthiest—would pay the most. The actual percentage required to fully fund our healthcare, education, infrastructure, etc. would amount to a fraction of 1% of every transaction. Also, can you imagine how much money, time and effort we'd save, not having to calculate and pay, or avoid paying Federal taxes? Tax lawyers, hedge fund managers, and tax accountants might not like this approach too much, but the rest of us would be far better off.
6
@Jon P
What's in a name? Plenty. So let's quit calling it a transaction tax and go for something everyone can relate to - a sales tax. Most of us pay sales taxes on goods and services, in some cases up to about 10%. It would be very hard to be sympathetic to financiers complaining about a rate of 0.1 or 0.2%.
09:10 EST, 11/07
1
It is called a transaction tax because the action, not the size of the order, sets the fee. My guess is the brokerages will simply bundle transactions for account holders and then distribute the shares or funds in set periods. One transaction for 5000 buyers generates one micro charge. The numbers cited of huge revenues result from computer generated high frequency trading. If costs rose per trade, another pricing method, not taxed, would arise. Those people are pretty smart.
@Jon I'm rather sure that transactions would vanish at the speed of light to foreign exchanges, London, Frankfort, etc. Capital migrates where it's appreciated.
Alexander Hamilton's implicit assumption when ordering direct taxes according to state population figures (rather than wealth figures), was clearly that "all men are created equal".
If I inherit a billion dollars ($1,000,000,000) and my neighbor inherits $1,000, let's, for the sake of argument, call into question Mr. Hamilton's premise.
Somehow my state and town find a way to tax my property, both real (house & land) and personal (automobile). I am required to pay real property tax each year and my automobile is taxed each 3 years when I pay for its registration.
Currently the property tax is a flat percentage of house and land value, but what is there to prevent making the tax rate progressive? If I owned a multi-million dollar estate, I could probably afford to pay a higher rate. Likewise if I owned a luxury automobile.
As for my other wealth in the form of stocks, bonds & investments, it might be sufficient at the outset to tax the annual income that they yield, at an appropriately progressive rate. Later, if a federal wealth tax were problematic, the federal government could encourage the states to expand the property tax to other wealth, at a progressive rate. The incentive could be to make federal aid contingent on an adequate and equitable property tax system.
I'm sure there are superior solutions out there among the tax-savvy, but that one only cost me 10 minutes and a cup of morning coffee.
I think the authors of this piece lack imagination.
8
Many states, like Texas, have constitutional provisions that bar different tax rates on different properties within same property type. They exist to prevent local authorities from ganging up on select unpopular property holders. If your property is worth more, you pay more at the same rate. Also each parcel gets a separate tax. Your total tax is the sum of the individual assessed taxes, not on the total value of property in the state. As another protection, all assessed values are the jurisdictions of the courts.
Progressive property tax rates would not work in many states. States may alter their laws, but I would expect a lot of negative feedback, and not just from millionaires.
Property taxes are a direct tax on wealth.
2
As sovereign entities, states do not not have same restrictions as Fed Government unless specifically listed in the US Constitution. Therefore states have a wide area of tax possibilities not allowed to Fed Government. Also a state assessing its taxes per se would apportion all taxes collected in a state to itself.
1
This argument ignores the fact that marginal income tax rates on high incomes used to be much higher during the mid-20th century than they are now, yet somehow the Supreme Court didn't stop the rates in their tracks.
6
At the very least we need to quit allowing the wealthy to pay lower rates than the rest of us (when all state, local, and federal taxes are included), and, as Elizabeth Warren has proposed, we need to quit letting them avoid taxes altogether on the biggest part of their incomes: unrealized capital gains.
Compounded earnings on untaxed capital gains are a major contributor to the rise of our new plutocracy. And in a political system deformed by the Citizens United decision, the plutocracy will almost always write the rules to benefit itself.
10
@Green Tea So, would the government be required to pay rebates in the event of a market downturn resulting in unrealized capital losses? This is a "heads I win, tails you lose" situation.
If you think a wealth tax is politically feasible, consider the carried interest tax loophole. It exclusively favors the very wealthy, is patently unfair, and has no public support, yet there it remains.
Obama didn’t close it. Chuck Schumer won’t close it. And those are the liberal democrats who shrank from the challenge.
18
The politics of envy didn't work in Mao's China; it ended in the Cultural Revolution, and genocide.
The politics of envy didn't work in Stalin's Russia; it ended in starvation.
The politics of envy didn't work in Venezuela; 20 years from prosperity to starvation.
The politics of envy didn't work in Cuba, nor anywhere else.
Capitalism is not perfect, but its far better than any alternative.
Meanwhile, around the world, in the last 20 years, literally hundreds of millions of people have been lifted out of poverty. It's working.
Inequality is not our biggest problem; growing the economy, the jobs market, education and inner city violence - those are worthy of focus.
10
@Joe Yoh
It's not envy to suggest that the uber wealthy pay taxes on par to what middle class Americans pay. I'm talking percentage of income/asset. The percentage should not be LESS for the uber wealthy and that is not out of envy but fairness.
5
@Joe Yoh nice post, very unusual for the NYT comment section. I have never seen any evidence that income inequality has any affect on the poor, it's mainly a progressive shibboleth, endlessly repeated. It is usually a sign of a very productive economy. Try removing the highly productive individuals and see what happens. Check out Cuba, etc. for the results.
Even the hated "Robber Barons" built the industrial powerhouse that created the middle class.
1.) I would be interested in knowing the rationale for that proportional taxation provision in the Constitution. It just seems peculiar in modern times where the federal government is so much stronger than it was envisioned to be in the 18th century.
2.) Speaking of the 18th century ... really? A court case about a tax on carriages blocks rational tax reform in the 21st century? Absurd!
1
If a court case case so brilliantly sets parameters of the issue that 200 years of legislators have followed it, why wouldn’t you cite it?
We have wealth taxes for the middle and lower class - its called property taxes. I say that because the majority of wealth held by Americans is in their home equity. For 40 years we have been cutting wealth taxes of the very wealthy that is clearly seen in the rising wealth inequality that occurred over that period. If we can lower taxes we can raise them. In fact we should claw back the excessive enrichment provided to the super wealthy at levels higher than proposed by Warren because people having estates in excess of 100MM can afford it and because we would likely be able to reduce public debt faster such that marginal tax rates for 99% of the population could be minimized. And just like in the 1930's there will be those who will fight such policies. We locked up people then when they refused to pay their taxes and we can do so again. Maybe that would sound harsh but irresponsible people, people who should and do know better, will stop and think before they produce budget busting decisions on the revenue side of the equation which accrues benefits only for the few.
5
@Mark The politics of envy didn't work in Mao's China; it ended in the Cultural Revolution, and genocide.
The politics of envy didn't work in Stalin's Russia; it ended in starvation.
The politics of envy didn't work in Venezuela; 20 years from prosperity to starvation.
The politics of envy didn't work in Cuba, nor anywhere else.
Capitalism is not perfect, but its far better than any alternative.
Meanwhile, around the world, in the last 20 years, literally hundreds of millions of people have been lifted out of poverty. It's working.
Inequality is not our biggest problem; growing the economy, the jobs market, education and inner city violence - those are worthy of focus.
3
The states, as sovereign entities do not have any restrictions on them unless specifically barred for them in the US Constitution. Therefore states can assess any number of taxes, including property taxes, not allowed to the Federal Government.
2
"No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken."
This is neglecting to mention the reason behind the apportionment provision on direct taxes: the three-fifths compromise. Essentially, it was this: if you use the census data and count slaves as three-fifths people for voting, any taxes must also use that same number. So, if you have 100,000 residents represented in your state, taking into account the three-fifths compromise, those people must be represented both in legislation and in taxation - you cannot tax a state, for instance, by only its free population. The crucial language is "No capitation, or other direct, Tax" - so a capitation tax is a direct tax. A capitation tax is a tax that states pay proportionally to their populations - the goal here is for the taxing population to be the same as the population that gives legislative representation; things like wealth taxes did not figure into this.
4
A Simple Solution. Your federal tax rate on income will be calculated according to your overall wealth. It’s a tax on income that goes up as your wealth increases. That’s a progressive tax rate that is perhaps fairer in its incremental increases than today’s formula that only considers income.
6
The problem could be easily solved by making the net worth cutoff vary from state to state such that the proportional direct tax clause is not violated.
Not so easy. This means the cutoff in CN would be 20x the cutoff in WV. If the cutoff in WV is $2.5 million vs. $50 million in CN, a portion of the affluent will migrate to a higher cap state.
Or if the cap remains $50 million in WV, then it will be $1 billion in CN. The spread will get even worse over time.
2
It gets further out of whack if 150 billionaires move to WY. While wealthy have problems transferring income streams, transferring stocks, bonds and anything besides real property is easy and very legal. The wealth tax rate that WY imposes to collect its tax total portion by population drops to almost nothing while CA and NY, with no billionaires, but lots of people, increases dramatically.
As a blissfully retired CPA, I wholeheartedly agree with these law professors. Just close the loopholes, make the rate schedule progressive again, and enforce the law. And while we're at it, tax capital gains the same as earned income. That together with antitrust enforcement will, in time, repair the system.
26
@Michael as a CPA, you surely understand the time value of money. Capital gain calculations are not indexed to inflation. A dollar today in earned income is far more valuable than a dollar in 10 years. Unless we're willing to adjust taxes based on real (inflation adjusted) dollar gains, it's only fair to have capital gains taxes at a lower rate.
2
Remember the famous adage 'From those with the talent and resources, to those with the needs'? This would be taken for granted in a true social democracy. Why shouldn't the 'rich and powerful' not want to save this democracy by cutting down the current odious inequality (social, economic, ethnic, genre, you name it)...by paying their fair tax 'burden', just like the rest of us? Otherwise, the rich shall be considered the problem, by stealing from the poor (reversed socialism?). In brief, taking from the rich what's fair in a democracy (and not a pluto-klrptocracy of sorts) is justice in action. And the right thing to do.
3
@manfred marcus " save this democracy"?
This democracy, and capitalism, is actually working fine. Despite the media fear mongering, even those in poverty in the United States have much higher quality of lift than 90% of people around the world. Those are the facts.
4
@Joe Yoh
It is also a fact that the median taxpayer is lots worse off than the median worker in Western Europe, despite the fact that the US is much richer.
2
@Joe Yoh These United States are extremely wealthy but with glaring injustice for it's inequities...by taking the world's resources and the exploitation of their people...while imposing the prices unilaterally. But allowing poverty in our midst? Tragic, right? Certainly not a sign of a healthy democracy...that demands a fair sharing of the 'pie'. Incidentally, capitalism without ethics has allowed selfishness and greed the upper hand. Is that what you mean, by suggesting we are better off than other countries?
I wonder why the authors of this essay prefer to curse the darkness to light a lamp?
It beggars belief that it is not constitutionally possible to require the wealthy to shoulder their social obligations as the rest of Americans do with respect to their vast holdings.
Surely we are clever enough, and more importantly honorable enough, to find a way to make this happen.
4
@jmgiardina They say it can happen here: "Fortunately, there is much that Congress — in cooperation with a progressive president — could do to combat wealth inequality without running afoul of constitutional limitations. By closing loopholes and hiking rates on top earners, Congress could reduce inequality and raise trillions of dollars without a constitutional hiccup." Just not a direct wealth tax.
4
This can be avoided by imposing the income tax on the unrealized income gained when the value of an asset appreciates on a year over year basis, not just on when it is sold. So if your stock portfolio or home goes up $10,000 in 2019, you owe income tax on an additional $10,000 in income.
1
What happens when you have losses? Does the government cut you a check? I have a hard time believing the government will be cutting huge checks to the richest people that will have proportionally the biggest losses in a market downturn.
4
@John Graybeard --But, that could result in middle class or even poorer people also being taxed on their homes. People who have lived in their homes for 30 years and seen the value appreciate in that time could still be living on fixed incomes and not be able to afford the tax. Losing the family home because of taxes is a problem that many families have faced already. Your suggestion is likely to compound it, won't it?
3
Would you get those taxes back if/when your portfolio lost value?!?
Warren needs to appeal (as any candidate) to enough of the Center and Moderates to get elected before she reinvents the financial structure of the Nation. The Imperative is to replace Trump.
5
@APatriot
The problem is not only to replace trump, but to remove the stain on the office made by him and men like him. We indeed do need a bold statement of policy, such as Sanders is making. He has enunciated every item of his policy since his first days in office and, as he has proven as senator, will live up to them. To put in another moderate, such as Obama, is to set the stage for another trump.
1
@JFP . Sanders has been all talk and no getting things done—-called getting incremental change done by passing laws .
@JFP I agree, there is so much that needs to be rebuilt and if he stays 5 years from now the destruction could be irreversible. We need to remember that tax rates in the Regan era or even the Clinton era were MUCH higher, and still they prospered.
All of this is, of course, purely academic. Those further to the left are preaching their ideals, which they believe can become reality. In truth, getting any of those ideas including Medicare-for-all, free college, universal pre-school, through even a Democratic controlled Congress would be a Herculean task. And, that assumes that the Dems can hold the House and take the Senate - a very big assumption.
Many Republicans who are appalled with or even just exhausted by Trump will still vote for the GOP candidate in down-ballot races. We all seem to like divided government. Even if the Dems win the White House, it is likely that the GOP will hold at least one chamber on the Hill. Going for the brass ring will likely end up with nothing but 4 more years of non-productive grid-lock.
While I actually like many of Warren/Sander's visions, I think not much of it is doable in the near future. Dreaming is lovely, but making progress is, IMO, better.
15
@Anne-Marie Hislop "It always seems impossible until it is done." - Nelson Mandela
1
Yes, there is inequality.
Yes, we need to focus on policies that provide education, jobs, income, future security - as well as motivation to work and not just get handouts from the government.
No, we do NOT need to follow the policies of Hugo Chavez, Fidel Castro, Mao and Lenin. This has always led to disaster. Always. Economic history is clear. Incentives work.
Buying votes with handouts, taking from the producers doesn't work.
Capitalism ain't perfect but it is FAR better than any alternative.
15
@BlackMamba Yes Free Enterprise is the best way, but unabashed, unrestrained, naked capitalism results in Oligarchy. It is unstable, and eventually results in Violent Revolution.
1
The big problem with capitalism is that sooner or later the rich end up with all the money.
3
@gratis , actually, in the last 30 years, hundreds of millions of people around the world have been lifted out of poverty by capitalism. That is the fact. Please research trends in the world.
Yes, there is inequality.
Yes, we need to focus on policies that provide education, jobs, income, future security - as well as motivation to work and not just get handouts from the government.
No, we do NOT need to follow the policies of Hugo Chavez, Fidel Castro, Mao and Lenin. This has always led to disaster. Always. Economic history is clear. Incentives work.
Buying votes with handouts, taking from the producers doesn't work.
Capitalism ain't perfect but it is FAR better than any alternative.
8
@BlackMamba
No, people have been lifted out because of industrialization. They were not lifted out because of capitalism, which was around long before industrialization. Even people in the countries you mention got lifted out of poverty. Economic history is clear.
@gratis where do you think the capital for building factories came from? Wasn't the government.
When government does control the means of production, productivity and individual wealth declines.
It's so obvious that proponents of socialism typically say things like the Soviet Union, Maoist China, and Venezuela were just doing it wrong.
2
For decades, money has been "redistributed" from the working and middle classes to the very rich by means of tax laws, wage suppression, and wage inflation for top executives. The public debt has sky-rocketed, leaving even less for the public sector.
Now, suddenly, there's a problem with money, and it seems so "unfair" to simply go where the money is (the top 10% of the wealthy who own and control about 75% of everything).
And workers' wages are not "income" in the sense that they get something outright. It is rather compensation for time, effort, and expenses paid to receive "compensation" in the form of salaries and wages.
Real "income," on the other hand, is profits made AFTER everything else has been paid, including inflated salaries and benefits, and perks. It's pure income (money coming in) and should be progressively taxes at a very high rate, much, much higher than money received in exchange for time, effort, and even risk of life.
People who work for a living know the difference.
14
Warren’s wealth tax is not true tax reform. True federal tax reform would involve:
1. Elimination of income taxes, both personal and corporate. Income is often arbitrary and manipulated.
2. Elimination of capital gains taxes. This will free individuals and companies to invest and divest without tax friction and will unleash vital capital.
3. Elimination of the estate tax, allowing all to pass their estates as they see fit.
Instead all of this would be replaced with a progressive wealth tax (gross of debt so that people cannot lever their way out of taxation). All assets would be annually marked to market, just as local property tax assets are. As individual wealth increases, higher tax brackets would trigger. Private and government loan industries would develop to finance taxes assessed on illiquid assets.
If it requires a constitutional amendment, so be it - it’s worth it to fix our country’s economy and finances.
1
The practical problem with a wealth tax is that it would require an army of appraisers to assess the value of the property to be taxed, and would lead to endless litigation over those assessments, which the wealthy could afford to initiate (given the money at stake in a potentially massive tax bill) but the government could not afford to defend.
I really admire Elizabeth Warren but her wealth tax is not going to work, for practical, political and constitutional reasons, and her proposed financing for Medicare for All does not stand up to close scrutiny. It lumps all the health insurance payments by employers into one big lump sum available to underwrite MFA, but there are great disparities among how much employers currently pay, from nothing to expensive gold-plated plans. For them simply to have to redirect those payments to the government would be rife with unfairness, and probably unconstitutional under the Equal Protection clause.
I do not support Mayor Pete, because he lacks the experience to be president, but I believe his MFA Who Want It is the best way to move forward toward universal healthcare.
4
Don’t rule Pete out. He has more public experience than the buffoon currently in office! And by your own words he presents decent ideas.
Recent history has shown that the courts and the government are able to twist the wording of the Constitution as they see fit, so this mumbo jumbo about direct taxes and such is hardly a concern. In 1950 we had a federal tax rate of 91% on incomes over $200,000, tell me again why we can't repeat that. If Mitch McConnell can refuse to have the Senate even consider a presidential appointee for the Supreme Court, what does that say about the efficacy of the Constitution ? If the president can violate the emoluments clause at will, what does that say about the Constitution ? Certainly the Constitution can be seen to allowing progressive taxing. Mr. Hemel's argument only serves to prove that Shakespeare was right about lawyers.
3
@eclectico
Deductions and exemptions were much looser in the 1950s and no one actually paid 91 percent of their income to Washington. Liberals who insist on repeating this misleading factoid are counting on people's ignorance.
@eclectico
91 per cent on 200 k? Why work?
@pamela $200k is the 96th percentile of income.
Most people who actually work won't be affected by this.
No doubt the moderate democrats will pounce on that in a week or so at the debates and kill the campaigns of Warren and Sanders.
Absent constitutional amendment which would be a pipe dream in this political environment wealth tax is not going to happen. Not with this Supreme Court.
Originally I thought inheritance tax would be a tax on assets and would open an avenue to tax assets but turns out its a tax on benefits conferred upon beneficiaries . So that approach is dead in the waters looks like
I seems the constitution is hinting that the best shot at universal health care is Mayor Pete's public option buy in and have it compete with private and if that option wins the citizens' approval and as a result kills the private insurance business then a constitutional amendment allowing tax on wealth to pay for medicare for all would be a walk in the park. Will of the people so to speak.
Until then income inequality is here to stay as the richest among us can increase their wealth considerably and minimize their taxes by minimizing their income to wealth ratio.
1
Interesting perspective. How do estate taxes, which have been collected by the federal government for years, avoid being classified as direct taxes? To me these proposed wealth taxes seem like estate taxes of course the wealth holder is still alive.
1
Estate taxes are actually a transfer fee for the government recognizing the new ownership,of the assets by the beneficiary. A specific action occurs, once in a lifetime, and the government participates. Never questioned on constitutional grounds because colonies and states long had similar transfer fees. Wealth taxes are taxes on assets just sitting there with no action by anyone. As far as the powers allowed to the Federal Government, wealth does not really exist until you do something with it. States, not limited by the US Constitution, can and do assess property taxes.
Why a new kind of tax when we already have plenty of other ways to make taxation more progressive. For example, we could remove the cap on social security taxes. We could reduce tax for lesser brackets by increasing deductions. Also, a new tax is bound to have unintended side effects we haven't thought of.
Personally, I'm for reinstating an estate tax, say starting at , say, $5M and skewing sharply the top end. We know how to calculate it. We know what side effects are. And we know how to administer it. And we avoid taking money away from people who make it or already have it by focusing on people whose money simply falls in their laps.
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There is another reason a wealth tax won’t work: the people who owe it won’t pay it. The wealthy will move their fortunes off shore, leaving the rest of us to shoulder the burden. Look at New York and New Jersey, with their confiscatory state taxes which aren’t even deductible at the federal level any more. People have been re-domiciling to Florida for years. Now that Trump’s done it, tax migration will increase.
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@Larry "Tax migration" - is that another term for "Soaking your country parasitically, then leaving it for a new host"?
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@Larry You're right. We should stop taxing the rich. It's dumb.
Simplifying the tax code has always been the answer but consistently is ignored. Adding more taxes to a flawed tax code makes it worse and Constitutionally questionable.
Our tax code is supposedly based on the more you make the more you pay. Enforce it.
Corporations find too many loopholes allowing them to not pay taxes. Why do they exist?
Tax shelters for the wealthy abound to hide income. Same question.
On the other side of the coin, clearly define income. Why are capital gains and inheritance considered income? It is really double taxation. A simplified tax code can correct double taxation.
The tax code needs to be fair and equitable. It cannot discourage corporate and individual investment but must be predictable and transparent for all.
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@ArtM
I agree with a simplified tax code you proposed... until you carve out non-wage income like cap gains and inheritance.
I propose restoring the short term cap gain and eliminating carried interest and other tax dodges which add no value to GDP or prosperity of the country, but serve to churn markets and enrich the computer bit bandits.
Inheritance taxes are as old as the country, and serve to prevent a return to "royalty" of multi-generational enrichment.
And neither cap gains nor inheritance is double taxation. That is a myth. Both are a tax on the increase in value and not on the original invested capital (which presumably was taxed when it was earned or created).
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@Kami Kata
Thanks but we do disagree on inheritance and cap gains.
The deceased paid taxes on the income earned that become inheritance. The one who inherits pays tax on that again. Double taxation. I understand your comment on why but it clearly has not worked to prevent multi generational "royalty". Instead it hurts everyone but those wealthy enough who can afford to pay the tax or hide the funds with little to no impact on the next generations. Plus I'm not sure what is so wrong with multi-generational wealth. I suspect the issue really is the level of wealth being passed to the next generation.
Similar with cap gains but I understand it is more complicated. I'm not well versed enough to offer a solution but my family was the victim of significant capital gains because they were lucky enough to purchase a home in an area that was not wealthy but became outrageously so as the years went on. They were not speculating nor doing anything other than purchasing a secondary residence and were clobbered by cap gains simply because they were in the right place at the wrong time. It was hugely unfair. There has to be a fairer system recognizing speculation vs simple home ownership.
Overall, I'm simply sick and tired of inequality of the haves vs the have nots. Everyone is equal under the law except for those who are not and there are more and more "nots" in many situations.
The one thing that we do know is that supply-side tax policy does transfer the nation's wealth to the already wealthy and the tax cuts do not pay for themselves. While we are determining how to pay for what government programs, maybe we can all agree to not do sepply-side tax policy any more.
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I believe the unconstitutionality of the argument is intended to highlight the unfairness inherent in the system.
Apportionment makes most taxes on wealthy individuals impractical. In order to tax property, you effectively need a head tax. That doesn't make any sense. By definition, extreme wealth is concentrated in few hands. The enumeration of the census has nothing to do with taxing property ownership because you're only talking about a few individuals. The framers made a mistake. Fortunately though, pencils come with erasers.
Congress did in fact change the Constitution to address the mistake. That's what the 16th Amendment is about. However, lawmakers stopped short of fully removing apportionment. They decided you can tax income from property without apportionment but not the property itself. That's a pretty clear road map on how Congress intended future law makers to tax wealth.
Property becomes a store of value, nothing more. You're taxed at the transactional phase of any store of wealth because liquidation (or rents or interest) determines your income on the property. In theory, the wealthy don't want their assets sitting around doing nothing. However, if you do something with your assets, you're subject to non-apportioned taxation.
For the odd scrooge who hoards his or her gold, death is the great equalizer. The property necessarily changes hands (transaction) and has to be assessed for value (income). Ta-dah. We can tax wealth. Just not directly.
5
Good, but what about corporations that live forever?
@Rachel Doughty
Fair question. Implicit in my explanation is ownership of a company is property. If you own shares, an LLC, or some other financial device to obscure liability but retain ownership, you own property. A share is financial representation of your stake in the assets and profit generated by a corporation.
As property, we can therefore tax the income generated by said ownership. Capital gains come to mind. However, the transfer of ownership is also a transaction. When you die, someone takes control of your corporate assets. That's taxable even if the corporation continues to exist.
The authors' point is well taken, in so far as applied to the specific form of the argument.
There are other ways to close the cost gap. Account the value of health insurance provided to employees as taxable income. Eliminate the corporate tax deduction for health insurance provided to employees as a deductible business expense. Then much of the gap between our current patchwork of health care coverage and universal care disappears. Destroying the profits made by insurers who provide health care coverage is a bitter pill to swallow … for insurance companies and the executives who profit from squeezing money from people. Not having to squeeze money from those who cannot pay for their medical care and therefore raising cost of medical care for those who can, will soften the economic blow for providers, corporate and individual.
Once, medical providers were professionals. Healthcare institutions were public services. There was a higher calling than maximizing income. Too often this ideal has been cast aside in favor of optimizing profit from machines that go "ping". If medicine cannot attain our higher calling through self discipline, perhaps it must be imposed from outside.
Universal healthcare is more than a goal. It is a necessity.
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It's regrettable that these scholars did not choose to explain some of the archaic bases that they quote, such as the requirement for "apportionment" and what that has to do with taxing "wealth".
Were there even states when these Federalist Papers were being circulated? I really have not generally conceded any special intelligence to fops who have claimed status because they have read these Papers.
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What about structuring the wealth tax as estimated tax payments against the eventual estate tax? Perhaps the IRS could enact this directly as an administrative concern without involving Congress, though it would be more effective with more impactful estate taxes.
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Individuals do not pay estate taxes. The estate, a short lived entity that only exists after the death of asset holder, pays the taxes. You would be assessing transfer fees, what the estate tax really is, against an individual that are truly owed by a legal entity that does not exist.
Property and excise taxes are not apportioned among states based on population. Actually there are vast discrepancies in how much is paid from one state to another.
In addition, the notions of income and wealth are intimately related. Income is essentially the increase in wealth during the year, without regards to personal expenses. We are already taxing wealth when we tax capital gains.
Notice how their arguments are limited to a debate that occurred two hundred years ago!
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@DM You note that property and excise taxes vary by state because you are thinking of state and local taxes, not federal taxes. This issue is about the Federal government's ability to levy a direct tax. As the authors note, historical precedents show that when Congress has passed property taxes, they have done so according to the direct tax clause.
In addition, the author's provide a clear definition of wealth and income. These are related concepts, in that income is often generated through wealth (or the selling of labor).
Finally, the author's cite several references to how this debate has unfolded up and to John Roberts' ruling on the ACA. In any case, constitutional law absolutely depends on debates that happened over two hundred years ago-that's when the bulk of the constitution was written, after all!
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Elizabeth Warren’s first responsibility as a candidate is to be truthful and honest about her healthcare platform. Even if a wealth tax was deemed constitutional, there aren’t enough billionaires to finance national healthcare. We will all pay for national healthcare.
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@Jake sure we will pay for national health care with the money we no longer have to pay to insurance companies. Duh. No more wasted money on duplicate paperwork and ceo salaries.
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@Jake
We all pay for healthcare today. (except for those who can't afford it and die from the lack of health insurance).
And we pay an extra burden (overhead and profit) to the companies who provide health care and health insurance. And we pay far too much for our health services and drugs.
National health care would cost less and provide improved service for all people.
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The most complete solution would consist of the seizure by the Government of ALL assets owned by wealthy people - and to then rely on Government to (a) fairly and equitably distribute the money and (b) generate the wealth that will continue to be re-distributed in the ensuing years.
After all, there is such a great track record for countries where this approach has been implemented. Some people have noticed, somewhat uncharitably, that in such countries the ones at the top of the Government live like billionaires and reside in palaces (paid for by the State, which is even better than privately-owned palaces, which are expensive to maintain).
In the end, that's the choice.
A society where billionaires earn their wealth by virtue of talent, work, risk or inheritance, on the one hand.
And, on the other hand, a society where billionaires control the levers of a Government that takes everything and live in palaces that are paid for by the State.
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@Maurice Gatien Until someone cures all cancers, there is no one on earth with talent valued in billions of dollars. Laws allow this accumulation - and laws could prevent this accumulation, it's not some natural system. That's the premise of your argument and it's invalid circular logic.
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@Maurice Gatien pretty simplistic. I dont buy the idea that bilionaires come by their loot via"hard work". Luck and treachery are in the mix as well.
People are getting all wound up because 2 tax professors claim wealth taxes will be held to be unconstitutional.
Ok, so tell us how we can make it constitutional.
The wealthy seem to be able to get tax advisors that enable them to doge paying their fair share. Perhaps we should pay for some better tax advice for the government.
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To have decent public services (schools, roads, medical care for the poor, and an effective military), our government must spend money. Taxes raise money.
In the United States, the wealthy have most of the money in proportion to the rest of the population.
The wealthy should pay most of the taxes because they have most of the money.
The alternative is not having decent public services.
Not having decent public services causes instability and revolution. Is anyone in government paying attention to the urgent needs of the working poor?
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@Boethius
The wealthy do pay most taxes. The top 1% pays 37%. The top 1 % pays more than the bottom 90% combined. The top 50% pay 97% of taxes. The bottom 50% pays 3%.
Democrats keep moving the bar for Wealth. First it was billionaires they were after. Now its households at 200 k or so who they think should pay 90% taxes over and above. Why work for a raise?
It really amounts to academics and "intellectuals " who hate it that people who work in financial services , for example, earn more than they do. Therefore, tax them to a lower socioeconomic status. And free college with unlimited spending but cut doctors down to size with a 40% pay cut for M4all.
It's all envy.
As to the working poor, There are opportunities for them to rise up. And many of them will.
Another hypocrisy: I can tell you for a fact that my progressive neighbors are against raising the minimum wage to 15 an hour for their employees but they want free everything for themselves.
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Excellent piece. We need to hear this now and come up with more practical plans.
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There are many constitutional avenues that can be taken. Reverse the Trump tax cuts,increase the minimum wage, decrease the number of tax loopholes, decrease healthcare costs, and tax”economic rent” not productive labor.
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If a wealth tax is clearly unconstitutional, should Elizabeth Warren, a former Harvard law professor, understand this? I think of myself as a supporter of Elizabeth Warren but this article makes me disappointed in her, assuming this is all true.
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16th amendment - “taxes on INCOMES” - she has no interest in discussing legal precedent, nor does mr. Sanders, Otherwise how else would they be able to present their ridiculous plans that in the end will be paid by the middle class.
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@CT
It really all depends on how the Courts interpret the term "direct tax." Even if it is determined to be unconstitutional, there's nothing preventing us from pushing for an amendment as was done with the income tax. We sometimes forget that the US had income taxes prior to the 16th amendment (the Civil War was so financed). The 16th was ratified just to protect the income tax from the vagaries of Court opinions, which can change as justices change.
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@DS and benefit the middle class. No more medical bankruptcy at the mercy of medical industry plutocrats.
Raise the top rate rate back to 90% then, and enforce it.
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@CV Danes And redefine capital gains to be included in "income" to stop treating it as some specially blessed thing - it's income.
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If the right-wing, Republican Supreme Court won't approve a wealth tax, we can always tax billionaire income up to 90%, like we did in the aftermath of World War II. Is that acceptable?
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@Richard Cohen
This certainly seems like a tempting option, but we need also to look at this in the light of history since then.
First thing to remember is that the highest marginal tax rate applies to the income above a certain amount. When taken in combination with the rest of the brackets, any person pays (overall) less than the highest rate at which their income is taxed.
Therefore, even in the environment where the highest marginal rate was 91%, the effective tax rate (everything combined) for those people was about 42%. Why? There were MANY brackets, and lots of deductions and loopholes. There was an entire industry dedicated to tax avoidance. There still is, of course, but "back in the day" it was much larger.
So... A higher marginal tax rate won't yield the revenue many think it would, the tax legislation would be chock-full of loopholes (because lobbyists), and there would be a need to revise the Alternative Minimum Tax (which was not indexed for inflation, and ended up hitting many middle-class earners). I'm betting that it would be revised to take in even more people.
Progressive taxation is difficult to achieve, but I don't believe it is impossible. What does NOT help is presenting plans which could very well be unachievable. Let's study what other countries do (wealth taxes are being discarded because they don't work).
Above all, let's change the culture to see taxes as something which gives the whole people collective benefits we need.
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There is a trivial work-around: tax capital gains and dividend income. Suddenly the wealth tax is protected by the sixteenth amendment since it taxes realized income from an asset.
This is equivalent to taxing the value of the asset because the value of capital comes from its ability to generate income.
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@Lindsey This is why Berkshire Hathaway and Apple never pay dividends.
Real tax professionals paid lots of money have thought of many more anti-tax strategies you or I ever could. Why are so many companies resident in Ireland? They have the lowest tax.
3
You should check your sources of information and reconsider your thinking here. Apple pays a dividend and has done so since 2012. Decisions by companies to pay dividends are based on whether or not the company can efficiently deploy the cash in growing the business or not. The personal tax consequences of shareholders have no weight in this consideration.
I think the real problem is some politicians think misleading the American people to enact their agender is OK because they know what's best. Bush fell for this with his "no new taxes" and Obama with is "you can keep your health plan if you like it". I am a center DEM who will vote for anyone running against the GOP and trump. That said warren and sanders sound like film flam artists who will say anything to enact their agender. Tell the people the truth with a plan that will work and see if they vote for you. As a side note I am really tired of this bad mouthing the wealthy. We ARE a capitalist country, the goal is to get wealthy, its not bad.
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@Thomas Renner who said we are a "capitalist" country. The word wasn't even invented when the constitution was written. The fact that trump is wealthy soley because he was born to a rich father may help you understand. Not all wealth is earned.
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@Thomas Renner "The goal is to get wealthy" seems like the empty dream and life wasted of any now in a society that worships money. Yet we all die at around age 80 and generational wealth disappears in about 3 generations.
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@Thomas Renner yes, we are a capitalist country, where the average person works to earn money to buy what they want. I believe the average American wants to earn a better life style than their parents and see their children have a better one than they do. That's called amassing wealth, its not bad and evil and its not worshiping money.
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I remember that when I was young many decades ago my parents spoke disparagingly about “unearned income,” in contrast to their respect for wages that one worked for, described as “earned income.” They did not admire those who hit a jackpot, by circumstance of their birth or otherwise, and then “clipped coupons” off their large bond holdings for income. Somehow the wealthy have hijacked our society such that our tax system honors (with a lower tax rate) income from “deals,” capital gains, real estate development, etc. and punishes (with a high tax rate) those who work very long hours at highly skilled and/or very difficult work. This problem, which must be addressed, is corrosive.
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@Edward C Weber
Our tax system reflects a Reaganite idea that investors, entrepreneurs, and business owners are better people than ordinary labourers.
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@Edward C Weber Income is income is income. It spends the same and should be taxed the same.
3
By the time the next president is sworn in, the constitution will have been rendered meaningless at this rate of its shredding. So, why worry about a proposal's constitutionality?
5
Let the machinery whir on in seeking Constitutional approval for a wealth tax. But before we let that worm loose in the arcane halls of Washington, first re-balance the income tax with a large thumb on a progressive rate schedule with a significant rate, say over 60%, on astronomical incomes coupled with a definition of capital gains as ordinary income. Furthermore, tax corporations on the basis of the locus of sale of their products and not the flimflam attribution of income to tax havens through the electronic movement of patents as now occurs.
Use the proceeds to start the process of helping the largest number of Americans possible with a living wage and a more livable planet for the foreseeable future.
22
Excellent summary of the constitutional issues by experts. Hard to disagree with the legal analysis. As to the problem of wealth in equality, here is “my plan”: 1) tax interest and dividends at the same rate as wages; 2) raise the corporate tax so that undistributed corporate earnings are taxed at approximately the same rate as top incomes; 3) eliminate the carried interest loophole; 4) eliminate 1031 exchanges; 5) eliminate the foundation loophole by setting a maximum; 6) eliminate step-up basis on death.
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@Masked Man Thanks. All good ideas, though I haven't thought through your suggestion #2.
Ridiculous to tax income derived from capital higher than labor. I would add addressing "payroll tax." It is a disincentive to hiring. Taxes are to fund the commons and protect citizens. Social Security and other payroll taxes should be no different. They should not be assessed solely on payroll but funded by tax on all income, including interest, dividends, rents, capital gains and inheritance.
A tax of 15% on the first dollar earned that goes away over $128K is absurdly regressive. I suspect funding social security with an across the board tax and removing the cap on income subject to the tax could vastly lower tax on workers and increase retirement income.
I'd also like to see tax brackets on any flavor of income over high numbers- say income tax brackets $5 mil - $15 mil, $20 - $30 mil, etc. with rates ncreasing to 95% over some number.
The wealth tax is politically and legally dubious. We have other means to level the field, address income inequality and fund a myriad of American needs.
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@JT - John Tucker WHOOPS! 1st sentence was meant to suggest labor should not be taxed higher than capital
5
@JT - John Tucker
Fully agree. ALL income or transfers of money into one's ownership should be taxed at the same rates, whether it is dividends, capital gains, wage income, gifts, inheritance, etc etc. No more payroll only taxes.
And we need many more brackets. It makes absolute sense that someone making $500k pays much higher taxes than someone making $50k. But no sense at all that someone making $5M or $500M is taxed the same as the person making $500k.
I actually think that if there were many more brackets, it would take away a lot of the unease of the affluent but not rich professionals, since really it is unfair that they are taxed at the highest possible rates while millionaires and billionaires pay the same or less.
1
The big problem is that the wealthy don't like it - are greedy - and have the money to stop it - to buy immunity - follow the money.
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Religious people demonstrate great fluidity when interpreting their holy books, politicians show great fluidity when interpreting the constitution. It's all up to interpretation. The real battle is convincing the people that your interpretation is indeed what a select group of rich, white males actually intended when the constitution was written and ratified.
6
@Mike B The country created by those hated rich white males is the most successful the world has ever known, with the overwhelming majority of its citizens living in comfort, safety, and material wealth unimaginable when they wrote our Constitution.
1
Interesting that the majority of comments aren't about "should we provide health care for everyone" but how should we pay for it. My company and I pay 12-18K a year to insure my wife and I and I still have a 6K deductible (3K each). I lose my job? All gone. This is a bad system that we should fix.
So I'm glad the debate is "how do we pay for it"? We are already paying for it, but many people are adding no value except processing forms and claims. The insurance companies and all that administrative staff in your doctors office? The drug companies that charge more in USA than anywhere else?
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@Jerry
Yours are well-known and justified complaints. The story goes back much further. I retired from active medical practice in early 2007. When I quit, I lost access to a medical plan subsidized by the state medical society (via BCBS). Due to some preexisting conditions (mine and my wife's) I would have had to pay about $24,000 a year with a cumulative deductible of about $4000, without controls on future plan costs. We got out of the mess by my wife working part time for a county school system that gave access to another health plan for those employees who were not full time. Medicare was, admittedly, a relief.
Had we left the existing system to its own devices I can just imagine where things would be today. We can and should cut those out-sized administrative costs, just as a starting point: https://www.help.senate.gov/imo/media/doc/Cutler.pdf .
We cannot do what we need without federal government involvement. That does not mean a complete federal takeover with all its attendant problems and unpredictable and hidden costs.
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@JSK
Yes, exactly and good for you. Your wife went out to work for pocket money and stiffed the local education authority with a huge healthcare liability that could have been spent on education.
That is eaxactly what is wrong with healthcare in America. An employer can be duped into taking on a huge liability without knowing.
4
There is a reason every other industrialized country in the world has a VAT. It raises incredible sums of money. Why not a Federal VAT?
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Even though sales taxes are regressive, voters have an affinity for them. I suspect that a VAT dedicated to universal government health insurance would be acceptable.
3
@Frank the reason not to have a VAT is that it falls mostly on the people who can least afford it. It raises incredible sums of money, but it reduces the incomes of the poor, working and middle classes. A high, progressive income tax, on the other hand, reduces the incomes of the fabulously wealthy, which need to be reduced. That, too, raises incredible sums of money. But, of course, those in power don't like it, because they are rich.
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@Frank I agree but you can imagine how people will stop spending when they have to pay 20% more for everything they buy other than food? It will not bode well for our consumer driven economy.
5
The constitutional way to effectively tax wealth is to more broadly define what constitutes income. You simply mark all assets to market, with a default rise in basis of, say, 3%. (And, of course, eliminate the insane death re-basis.) If you now tax income at, say, 66% for incomes over $5M, you have effectively instituted a constitutional, 2% wealth tax that doesn't eat away capital, and doesn't discourage investment,
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Does the Fed Government then send huge checks to big investors with losses in market downturns? You cannot do one without the other. I think that is why we have not heard any more from Senator Woden on this subject after he made his proposal months ago.
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@Ernie Cohen
See Internal Revenue Code § 475, Mark to market accounting method for dealers in securities.
Enact a new § 476, Mark-to-market accounting for certain non-dealers.
1
As the op-ed clearly states, it is a horrible shame to waste so much time and energy on proposals that would have tangled--perhaps impassable--roads through Congress and the courts.
Like so many other centrist Democrats, I hope the party does not choose this particular turn. There are other ways to get to the ultimate goals of universal access and affordable care: https://www.help.senate.gov/imo/media/doc/Cutler.pdf ("Reducing Health Care Costs: Decreasing Administrative Spending," by David Cutler, 2018).
We cannot do much without federal government involvement. A huge factor in all this is to decrease crushing administrative costs. From that essay by David Cutler (someone who knows a bit about all this):
"There is only one organization in health care that is large as the Federal Reserve or Walmart, and that is the federal government. The federal government is the largest buyer of medical care... if the federal government is not involved in administrative reform [however problematic past behaviors have been], it simply cannot happen....
The Department of Health and Human Services, working with health care organizations, should develop and implement a plan to reduce administrative costs in health care by 50 percent within five years. The plan should include payment simplification, standardized pre-authorization policies, and integrated medical record and billing systems."
14
Governing an early 21st century nation with a late 17th century Constitution is sort of like trying to cure cancer with leeches and bloodletting. So maybe we just amend the darn thing.
Of course one possibility might be to have a higher income tax on the wealthy with an alternative minimum tax that calculates the minimum based on a presumed minimum return on wealth over $1 billion. So your income tax on your wealth over $1 billion would be the greater of 60% of the actual return or 6% of the value of your assets.
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@617to416 The Constitution was created near the end of the 18th Century, but you're right otherwise. 😁
@DMC
Oops. So easy to do that :-) Thanks for the edit!
The clearest method to resolve the wealth inequality is to tax all forms of income, earned, (wages, salaries, bonuses, commissions, etc) and unearned,(rents, capital gains, dividends and interest), etc, at the same rates. As the tax code is currently structured, working Americans earned income is taxed at much higher rates than unearned income.
If this occurs all tax rates can be lowered and simplified.
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@Coolhandred Rents and interest, and in many cases dividends, are taxed at ordinary income rates.
2
@Jsailor : Qualified dividends are taxed at a 20%, 15%, or a 0% rate, under current law. This is the same rate as capital gains.
1
@Jsailor Landlords are afforded absurdly generous deductions prior to figuring any tax...folks brag about their ‘no tax’ on investment property. It stinks.
1
Flat taxes, no deductions, no loopholes. One page tax return. Everyone other than those making under poverty, pays a set tax rate. Voila, problem solved. No different rates for capital gains or carried interest (shooting my own foot on the latter). The only problem would be how to find jobs for the legions of tax attorneys.
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@DS
Progressive rates probably still are necessary to raise the needed revenue without unduly burdening the poor and lower middle class. But other than making the flat rate progressive, I'm fine with the no deductions and no alternative lower rates for capital gains or investment income.
7
"... publicly opposed the Trump tax cuts …"
Tax cuts?
Can we please use correct labeling here? I generally use labels that best describes the impact of the tax bill the GOP passed in December 2017.
I'll accept:
1) "upward wealth redistribution" bill
The bulk of the 'savings' goes to the richest people.
2) "deferred taxation" bill
The bill for huge govt borrowing will eventually come due. Who does one think is going to pay for that.
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@oldBassGuy I call it "The Tax Cuts for Wealthy Donors and Jobs Act"
2
Are we talking here about pure legality, fairness, viability of a society, or what?
Somehow I am sure that tax lawyers and accountants, if pressed, could find some loophole for taxing wealth -- calling it something else, finding a way to tax it indirectly, or requiring some go-around. Haven't you all see what they can do to protect wealth? Just apply that craftiness to the right side this time.
And whether taxes are "fair" depends on what you mean by "fair". You could say fair means a flat tax, or it means paying back according to how much of society's benefits you control, or "fair" as in "fair price"-- meaning whatever the parties making the deal say it is -- in this case, what the voters say it should be.
The rich are not the only ones able to play around with definitions: "personhood", "death taxes", "death panels", "socialist", "quid pro quo" or whatever.
7
It seems likely that there was a lot of 'family money' behind (in the background of) those great authors of our Constitution. Allowing family money to build and build through privilege, and pass down from generation to generation is . . . so English.
Maybe the authors weren't perfect. Maybe they - overlooked this. We can ammend the Constitution.
15
We don't need a lengthy op-ed to know a wealth tax is unconstitutional. The sixteenth amendment is quite clear - Congress can levy taxes against income, not assets. Setting that aside, we also know it's been tried often in Europe and it's failed every time. Why bother here? Does anyone else find it bothersome that we actually have academics with advanced degrees specializing in teaching law students how to expropriate money from their fellow citizens?
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@Once From Rome — How else would you prefer to pay for the public goods that allow a nation to “establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity”?
Don’t all of the foregoing make possible the accumulation of wealth?
And don’t we all, therefore, owe an obligation to one another to contribute to the cost of providing them?
And, lastly, isn’t it fair that our contribution to them be in proportion to the benefit we’ve derived from them?
I wouldn’t call that ”expropriation...”
2
It would appear, on the face of it, that going the route of closing loop holes, taxing all private Universities and private schools, Religious Institutions, off shore income, non-profits, and Foundations could just as easily be instituted and not found to be Un-Constitutional, as going to a Wealth Tax. Let's face it getting any tax changes through Congress will be a Herculean task, but it needs to be started. And while Congress is at it, no more subsidizing any Industries. If we are a truly Capitalistic society, businesses need to stand on their own.
But perhaps the simpler tax reform would be to go straight to a flat tax, no loophole for any one or any , no subsidies for businesses.
Not only will this be simple to administer, but it really is the only fair tax.
11
A wealth tax is problematic. It erodes capital rather than taking a percentage of economic activity which is what most taxes do - Income tax, excise tax, sales tax , even tariffs. The core issue has been and remains. The income generated by rents , capital gains, interest income, private equity devices, trusts and inheritances which convey income and asset appreciation among the wealthiest at a far lower rate of taxation than the working stiff pays.
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@Suburban Cowboy
Maybe some erosion of huge fortunes isn't a bad policy goal in itself. While I believe that large concentrations of wealth in one individual's (or corporation's) hands do have some social benefits (mostly the ability of individuals to take big risks on ideas that they might not be able to get collective financing for), there probably is a point where tying up so much capital in one individual's hands is inefficient and stifling to creativity. Better to redistribute some of that money to others. Of course, this is merely my intuitive feeling. I haven't researched this.
There is, of course, the other problem of the undue political (and economic) power that tends to come with having an outsized fortune. That too may be socially undesirable.
1
Strictly partisan policy proposals, like Medicare for All and the wealth tax, that are oblivious to the concerns of Republicans are a formula for failure in the fall. They appear to be simplistic solutions that are easy to propose but hard if not impossible to enact and administer.
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I doubt there were as many apologists for billionaires paying lower tax rates than the poorest earners in 1960. First, there weren't as many billionaires. Secondly, maybe it's because marginal tax rates ran about 90 percent for the highest incomes. I'm not a fan of a "wealth tax" either. I think they should pay higher - MUCH higher - marginal tax rates. Maybe not 90 percent, but not too far under that.
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@TommyTuna It needs to be repeated again that virtually nobody paid a 90% marginal rate in the 1960's. The IRC had so many loopholes for deductions that most adjusted gross income could be easily sheltered from taxation. The fact that it was so easy to do is why Congress created the alternative minimum tax.
Since WW-II, the nation's effective tax collection rate has run at about 16% of GDP. Pass a flat consumption tax of 15%, close the IRS, and go to lunch. We'll all be better off.
15
Another problem with the wealth tax is how do you prevent the wealthy from manipulating the value of their illiquid and/or privately held investments to minimize the wealth tax liability? I’m referring to assets such as art, stock of privately held companies, cars/yachts, etc. Appraisers can be bribed. So I’m not convinced that the wealth tax would be successful in raising revenue as estimated.
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@Topaz Blue
I suspect we may soon see an example of that artfulness when Trump's income tax returns are released.
1
The logic here seems a bit odd. From an economic standpoint, wealth is simply the present value of of current and future income. For example, the value of a stock is the present value of the future earnings of the company. So, the authors are saying that although it is constitutional to tax all income flows, now and in the future, it is not constitutional to tax the present value of those income flows. This is a distinction without a difference, based solely on the timing of the receipt of the income. Perhaps they are right from a legal interpretation perspective, but the basis of the underlying argument is suspect at best.
5
Cannot share so readily your definition of wealth. If one owns real property or a factory or a farm that is wealth too. One need not earn money on that wealth. However that wealth has value in terms of its function. It is shelter, it is a car on the assembly line, it is food grown on the plains.
This big problem with wealth taxes is that they would make big people, important people, even people who own national newspapers pay their fair share.
The article uses a lot of words to try to claim that a constitutional tax couldn't be crafted but somehow, my city, county and state manage to tax me every year on the value of my house and my cars and together, these represent the bulk of my “wealth”.
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State governments are permitted to tax wealth, but the US Constitution bars the federal government from taxing wealth without apportionment of the tax amongst the states.
We need a constitutional amendment for a federal wealth tax on individuals.
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Um, the point is exactly that your city, county and state are not the federal government and that the federal government is prohibited by the constitution from raising wealth taxes.
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The constitutional provision this essay discusses applies only to the federal government, not the states.
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If there is one thing that Wall Street and Politics has taught the country it's that there is always a way to legally skirt the intent of the law. If the constitution prevents direct taxes on the value of property, it wouldn't take a genius to devise a scheme that has the same effect and still passes constitutional muster.
8
If Congressional Democrats were in a position to seeking a workaround the constitutionality of a wealth tax, the tax attorneys of the large corporations and billionaires would be finding workarounds the workaround. This notion of a wealth tax is DOA. The Republicans won’t have to worry about facing off against Elizabeth Warren next year. The dark money on the Democrats’ side will never let her nomination see the light of day. Ibid for Bernie Sanders.
3
I agree with this op-ed's assessment. The way out, obviously, is to pass a Constitutional amendment which allows a wealth tax.
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@Quelqu'un
There are four ways to amend the constitution. All require super majorities of Congress and/or the state legislatures. Very unlikely in this very divided country.
(1) Both houses propose an amendment with a two-thirds vote, and three-fourths of the state legislatures approve. Twenty-six of the 27 amendments were approved in this manner. (2) Both houses propose an amendment with a two-thirds vote, and three-fourths of the states approve the amendment via ratifying conventions. Only the 21st Amendment, which repealed Prohibition, was passed in this manner. (3) Two-thirds of the state legislatures call on Congress to hold a constitutional convention, and three-fourths of the state legislatures approve the amendment. (4) Two-thirds of the state legislatures call on Congress to hold a constitutional convention, and three-fourths of the states approve the amendment via ratifying conventions.
This reminds me of the story of two people stranded on a deserted island. One suddenly proclaims, “I have a plan for escape!” “What, what,” asks the other. “First, imagine a boat...”
2
@Quelqu'un :
Your proposal for "a Constitutional amendment which allows a wealth tax" reminds me of the engineering professor's advice to the man stuck in a 100 foot hole:
"First, assume a shovel."
3
But our laws are subject to interpretation and to modification! Look at how the word "militia" is interpreted in the Second Amendment. Look at the push to overturn Roe vs Wade. Look at the trend toward an Equal Rights Amendment. If 80 or 90 percent of the people in the U.S. feel they are unfairly treated versus the extremely wealthy, the Supreme Court will yield. I think a wealth tax as described by Warren and Sanders will result in sheltering even more wealth behind complex deals. Look at our own president's maneuvering.
3
It’s amazing how people become strict constructionist when it suits them. Since we’re talking about something that, simply out of greed, will likely never be enacted, let’s not limit ourselves in the discussion to the political and social climates of the 1780s and 1900s to determine what’s appropriate today. The real question ought to be: what works best for Americans now?
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The Founding Fathers agreed with your sentiment and included an amendment process. Your path, while difficult, is clear. Happy motoring.
3
Thank you for the detailed analysis. Very clear and compelling.
There may, however, be a way out for Warren. Combine the wealth tax with legislation to pack the Supreme Court with supporters who will turn a blind eye to the words of the Constitution and precedent!
2
@Stuck on a mountain And then when the next Republican President is elected, they will "pack" the Court further... And so on.
Packing the Court is a silly idea and not worthy in this discussion.
The estate tax is clearly a type of wealth tax. Why does estate taxation pass constitutional muster but the Warren/Sanders plans allegedly do not? This article would have benefited from an explanation by the authors on that point.
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Take it with a grain of salt, but a quick internet search says the estate tax is arguably unconstitutional but works because it is an “excise tax,” which Wikipedia defines as “an event tax (as opposed to a state of being tax).” So, if you could tie a wealth tax to other (life) events and call it an excise tax, maybe that skirts the issue?
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@Erik
"... The estate tax is clearly a type of wealth tax. …"
Yes, agreed. One of the justifications for the estate tax was to prevent the rise of an 'aristocracy' resembling that which existed in Europe. The estate tax needs to be put back to the way it originally existed. The GOP often make some kind of bogus claim of being Constitution 'originalists', but not when it comes to wealth.
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@Rachael Wilson
Tax every investment transaction—not just the gain by a percentage of the purchase/sale price. I think, in fact, that's already in Warren's plan (I'm too lazy to look it up right now)—but it's at a very low rate. If wealth taxes are impossible, raising that transaction tax could be an alternative.
35
I think it's very clear that if the rich do not start contributing in major ways (failing a wealth tax, at least through other means of shoring up the economically desperate and thereby increasing collective IQ), they will face the enmity of the global reform movement. The global reform movement is focused on corruption, and in the West on inequality and corruption. If the whole globe moves against the rich, there is very little they will be able to do about it. Then it won't be just a 6% tax, there will be calls for arrogation. Also, if collective IQ is not raised, we will miss out on opportunities for major innovation. If someone can teach themselves physics, for instance, while secured through basic income or a carbon tax dividend, imagine what millions to billions of people could do. There is an aura of mystique about ideation that needs to be debunked.
@David What "Global" police force you gonna use? Sorry, but our "global" world is made up of individual Nation States. There is not one government, enforcement agency or anything that travels across borders to even protect people.
And you want one to get taxes?
Tell me, how does this Global Force work?
1
@profwilliams You see protests around the globe and to be honest it has waxed and waned since the 2008 recession. The reason many social policies are enacted is to prevent revolution. If people are not sopped, the global force works through revolution and violence and has every time. See Peter Turchin's research and blog.
@David Oh, I get it. Like the protests against the elite we saw in American in 2016 when we elected Trump.
Be careful what you wish for.
It is the same test as reducing taxes for the rich. What is their fair share of paying for a government which exists for them as well as the rest of the population. If the rich can be happy with not paying taxes on money they actually most of, they can be happy paying taxes proportionately to the middle class.
@Ed Marth But the "rich" pay the vast majority of taxes anyway.
This "fair share" argument doesn't hold much water when you look at who pays taxes.
The better argument is that the rich should pay more because they have more.
Bringing fairness into makes some step back and say, but I already pay more than most.
Here: Top 3% of U.S. Taxpayers Paid Majority of Income Tax in 2016
https://www.bloomberg.com/news/articles/2018-10-14/top-3-of-u-s-taxpayers-paid-majority-of-income-taxes-in-2016
5
@profwilliams They pay more in dollars because a smaller percentage of a larger proportion is still more. You are right and I agree with the fair share argument; y point was that the rich have more and more due to a tax code that works in their favor...and in perpetuity for heirs while the rest of the country struggles from generation to generation.
1
Thank you for this very instructive essay. I learned a thing or two.
4
Just go ahead and apportion: the low-population states have an immense and unfair political advantage because they get as many senators as the populous states. They would simply have to pay for this advantage.
9
Rather than proposing a wealth tax, which may be ruled unconstitutional, why not simply increase the upper bracket of the federal income tax which we already know is a constitutional tax. If the object is to raise more money for the federal coffers, the value added tax (VAT), which has been very successful in Europe, is a possibility. The disadvantage of the VAT is that it taxes everyone, not just the wealthy.
2
As wealth continues to accumulate in the hands of the few, over succeeding generations this always leads to a fracturing and ultimately disintegration of underlying social order. Upward mobility in the middle and at the bottom becomes extremely difficult. Entry is rigged in favor of the oligarchic blood line by way of massive wealth transfer to succeeding generations, political advantage, inter marriage, education and medical care.
We see this today throughout most of the industrial world. And it is at the extreme. There is a wealth concentration at the highest level ever. And we are talking not about multi millions of dollars; we are talking about multi billions owned by a select group of plutocratic oligarchs controlling vast corporate interests.
Are you telling me there is no way that Americans can address this problem in their own country?
www.InquiryAbragam.com
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@David Anderson Intergenerational wealth transfers are no more important today than they were in the past. High earners today earn a larger fraction of their money in the labor market than their fat cat predecessors of the 20th century did.
1
@Jeff You should study the Scandinavian countries.
2
@Jeff We aren't talking about laborers, clerks or even rock stars and pro athletes. We're talking about the *real* high-dollar earners and the old money of the country. For example, let's say there's a quarterback who's well-paid for a pro. Impressed? Be more impressed at the tycoon who bought the team and runs it for a hobby, for fun, while his serious business makes his real money.
2
Putting aside constitutional issues, wealth taxes smack of unfairness. How many times does the same dollar get to be taxed?
Today, a dollar gets taxed when earned. Then, if what's left of that dollar gets invested, the investment gains on that dollar get taxed as income or capital gains. So wealth taxes would then, again, tax whatever is left.
Politically, it is just more palatable, and fairer, just to increase rates on higher levels of income. In other words, reverse what Trump and Bush II did.
21
@Jack Sonville
And don't forget on top of Federal taxes, people pay local taxes such as: State taxes, sale taxes, Real Estate taxes, excise taxes, taxes to register their cars.
7
@Jack Sonville
But it is also true that a dollar made from an investment, when reinvested, is also taxed at a lower rate. Its not just always dollars exclusively from ordinary work. And this is the case with most of the ultra rich who never gain their money from ordinary work. That is exactly why their money accumulates so quickly and it is at the root of the general income inequality.
8
Add to that all of the various taxes on utilities (electricity, phone, cable, etc), personal property taxes, tire taxes, etc. the list goes on and on. There also are all of the taxes paid by the companies to create their products to sell or services to sell that are built into their pricing.
2
I heard the Bill Gates argument on CNBC. Why does he want to hold onto his ostentatious amount of money? Part of it is conspicuous consumption, as described by Thorstein Veblen. Part of it is he doesn't understand collective IQ because he is not an idea person and gained his money from monopoly. Taxing wealth would apportion money to meet the needs of those who, without enough resources, live with constant anxiety and IQ-lowering effects. We could raise the collective IQ of the population, which would create more ideation.
3
@David . Gates is gradually giving away all his wealth in form of massive continuing contributions to help solve many problems in the underdeveloped parts of the world. I suspect he is doing things you would appreciate. And doing it more effectively than most governments.
1
I agree that a wealth tax probably is not going to work and their are other ways to skin a cat. But we have to do something in this country because the wealth inequalities in this country are spilling over into the politics of the country and we are fast turning into an Oligarchy
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@scott t The best way to tackle the influence of money in politics is with campaign finance reform.
Separately, there should be higher income tax rates on high earners, because the government needs more revenue to perform even its current functions, and it makes little sense to raise it from income brackets in which incomes aren't growing.
6
@scott t A use tax. The wealthy MUST spend their $$ - so tax at the VAT level wherever the money is spent, ie when it is withdrawn from their 'holdings'
1
@scott t We already are an oligarchy. That ship sailed years ago.
4
This assumes that the Senator even cares about the constitution. Note proposals to stack SCOTUS or end the electoral college. But Senator Warren likely understands the wealth tax proposal won’t stand constitutional muster, but knows it is a brilliant piece of marketing for a progressive base looking for reasons to take assets from a minority of voters, voters who are unlikely to vote for Warren in any case.
20
@LTJ If by “stacking” SCOTUS you mean increasing the number of justices, please be aware that is perfectly Constitutional. The number of Justices has varied over time and only been enshrined at nine since the famous “switch in time saved nine” opinion flip by Associate Justice Owen Roberts in 1937 on West Coast Hotel Corp v Parrish stopped FDR from deciding to increase the number of Justices.
1
@LTJ — Nothing unconstitutional about increasing the number of SC judges.
1
These Warren/Sanders proposals are bad ideas. What we really need to make the tax code fair is to tax capital gains (with an exception for primary residence sales) at the same rate as earned income. There is no reason a trustafarian (like Donald Trump) who inherited wealth and generates capital gains income should pay a lower tax rate than a hard working person who started from nothing. The system as it exists now is tilted toward the wealthy but the Warren and Sanders proposals are not the way to fix it.
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@optimist Warren’s plan does that too. Also important to do the same for estate taxes. Not sure what her plan is for estate taxes.
6
@optimist
Yes, all income should be treated the same for tax purposes. Plus, ALL deductions should be eliminated from the tax code so there is no way to reduce the amount of taxes owed.
8
@optimist Once you put in ANY exception the buildup begins. There should be NO EXCEPTIONS.
3
The most likely result of a wealth tax is a court decision that abolishes it. The second most likely result is a revenue stream far smaller than predicted, which is what happened in Europe. The real financial basis of Warren's schemes is massive borrowing, now and forever.
10
We don’t need to tax wealth. We need to tax income derived from wealth at the same rate as we tax wages, salaries, and tips.
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@Kevin Brock - the trouble with this is that it would take an immense amount of time before vast disparities in wealth would be attenuated.
8
@Kevin Brock: Agree. The top corporate and personal rates should rise right along with capital gains taxes, such as stock and other investment income. You could even graduate the cap gains tax so that middle class 401k holders weren't penalized. The problem, as always, will be convincing Congress to do right over the intense lobbying they would receive for trying.
12
@dave Income from 401K distributions is taxed as regular earned income. Those of us taking those distributions don't have to deal with all the capital gains and other calculations.
11
The federal government has no authority to confiscate property, it already taxes income on that property it’s called capital gains
The days of candidates making promises they cannot possibly keep are over, Trump changed all that.
10
@hawk
You mean the 3% or 4% GDP increase that he promised or that Mexico would pay for the wall?
2
The federal government confiscates property every day for things like oil pipelines.
"...cast doubt on the constitutionality of wealth taxation."
No worries on that score. Simply allow the Treasury Department and Internal Revenue Service to expropiate at their leisure. Just like they already do to regular people who might owe them, you know, $700 or so. That always seems to work "constitutionally" against the little people.
180
It is not a battle worth fighting. We can simply raise the marginal tax rates on income to the proper place ( spread over a few years) to approximate where we were before Reagan took office. Rich people did not decide to stay home and break even then and they won't do so now.
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@USNA73 those rates are applied to current income. Warren and Sanders are proposing to tax (i.e., confiscate) accumulated wealth.
7
@USNA73 :
"...before Reagan took office...Rich people did not decide to stay home and break even..."
Ironicaly, that is what made Reagan switch from Democrat to Republican. He made a lot of money acting in "B" movies in the '40s and '50s. He found that, after his first picture each year, he was taxed at 90%. He decided to make only one picture a year.
1
@USNA73 AND also eliminate ALL exemptions deductions exclusions.