A Constitutional Wealth Tax
65 Pages Posted: 8 Feb 2019 Last revised: 28 Feb 2019
Date Written: January 24, 2019
Policymakers and scholars are giving serious consideration to a federal wealth tax. Wealth taxation could address the harms from rising economic inequality, promote equality of social and economic opportunity, and raise the revenue needed to fund critical government programs. These reasons for taxing wealth may not matter, however, if a federal wealth tax is unconstitutional.
Scholars debate whether a tax on a wealth base (a “traditional wealth tax”) would be a “direct tax” subject to apportionment among the states by population. This Article argues, in contrast, that this possible constitutional restriction on a traditional wealth tax may not matter. If the Court struck down a traditional wealth tax, Congress could instead tax wealth by adjusting a taxpayer’s income tax liability on account of her wealth. This Article describes three general methods for making this adjustment (collectively, “Wealth Integration” methods). A taxpayer’s wealth could affect her taxable income base (the “Base Method”), the applicable rate schedule (the “Rate Method”) or the availability of credits against tax (the “Credit Method”).
Wealth Integration methods could replicate the economic effects of a traditional wealth tax, but with an intrinsically different constitutional analysis. The Court could strike down Wealth Integration methods only by overruling settled prior precedent, invalidating many current features of the income tax, and fundamentally restricting Congress’s power to tax income under the Sixteenth Amendment.
Finally, this Article considers the broader implications of Wealth Implication methods for the constitutionality of a traditional wealth tax. The possibility that Congress could instead tax wealth through Wealth Integration methods provides a new argument why the Court should uphold a traditional wealth tax as well. Otherwise, the Court would have to choose between restricting the Sixteenth Amendment or introducing a formal distinction between economically similar taxes that would still diminish the effect of the apportionment requirement as a restraint on Congress’s taxing power.
Keywords: Wealth Tax, Inequality, Constitutional Law
JEL Classification: K34
Suggested Citation: Suggested Citation