Wealth Tax: The Marxist Taxman Cometh

The toxic idea of a wealth tax has raised its ugly Marxist head yet again.

It is a depressing truth that Marxist ideas never die in this country.  They simply go into hiding inside academia, waiting to metasticize and arise again when the Overton Window has shifted.  Then, what was once considered beyond the pale becomes our modern reality.  This has been a truism among American Marxists for well over a century,

And there is little more Marxist than a “wealth tax.”  Such a tax does not focus on profits or salary, such as an income tax or capital gains tax, nor is it tied to consumption like a sales tax.  Nor is it limited to ownershp of real estate, a basis for taxation with a long history.  Instead, a wealth tax looks at the entire value of a person’s property and says that the individual must transfer the value of some portion of that property to the state.  It is, taken to its logical conclusion unlike taxes on wealth creation or on spending, A wealth tax is a means by which to transfer all private property into government hands.

Within the last few years, we’ve seen Liz “Lie-awatha” Warren propose a wealth tax at the federal level.  And most recently, we’ve seen a California politician propose a wealth tax for state residents, one that would also have a provision punishing them if they moved from California and that would require any such people to continue paying the wealth tax to California for some period of years after they left the state.  All of this is unconstitutional, but for a variety of different reasons.  It is important to understand the how and the why.

Much of what our Founders wrote in the Constitution was a masterpiece of clarity, but not what they wrote about taxation.  That was muddled.  But what they wrote was not so muddled as to leave it an open question that a federal or state “wealth tax” could possibly be deemed constitutional given any fair and legitimate reading of our Constitution.

The U.S. Constitution grew out of a war fought in large measure to limit the right of the government to tax.  After they achieved victory, our Founders then had to balance limiting government taxing authority with the reality that they needed to fully fund a federal government.   As such, our Founders created a government with explicit taxing authority subject to several limitations.

Art. I § 8 cl. 1 specified different types of taxes and their limitations:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, . . . but all Duties, Imposts and Excises shall be uniform throughout the United States;

To define the above terms:

  • Duty – A tax on foreign imports or on a specific type of transaction, such as a duty on the transfer of an estate at death.
  • Impost – Import duty is another name for a tax collected on imports and some exports by a country’s customs authorities.
  • Excise –  An excise, or excise tax, is any duty on manufactured goods that is levied at the moment of manufacture rather than at sale.

The Founders then referred to other taxes that might be levied, placing limits on how they must function.

Art. I § 1 ¶  3 cl. 1 provides:

. . . direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, . . .

Art. I § 9 cl. 4:

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

This entire scheme is, as I noted earlier, incredibly muddled.  Indeed, at the Constitutional Convention, not one single delgate rose to answer when one of their number asked that any of them define a “direct tax?”  In response, there was silence in Constitution Hall.  And still . . . these provisions passed into Constitutional Law in 1787, leaving to future Americans the task of defining a “direct tax.”

And future American have done so, in fits and bursts.  A host of laws and Supreme Court decisions have imposed some clarity.  Courts in the 19th century held that both a federal income tax and a real estate tax were direct taxes and thus they could only be imposed if “apportioned.”  That, though, led to a politically unpalatable result.

If an income tax were subject to apportionment, a state with one-tenth of the nation’s population, for example, would have to bear one-tenth of the aggregate tax liability, regardless of the state’s financial condition. Suppose the populations of Iowa and Maine were equal, but Iowa’s per capita income were twice that of Maine. The rates for an apportioned income tax would have to be twice as high in Maine, the poorer state, as in Iowa. . . .

The “apportionment” rule, though, did not stop politicians from trying to enact such direct taxes.

National real estate taxes were enacted in antebellum America, with complex rules for apportionment—the Founders intended direct taxes to be difficult, not impossible—but, at the Founding, no one was thinking about an income tax.  . . .

Indeed, Congress passed an income tax to fund the Civil War, then tried to keep it afterwards when they found that they were hooked on that sweet, sweet taxpayer cash.  But at the end of the 19th century, the Supreme Court struck down a federal income tax as an unapportioned direct tax.  Progressives in Congress responded in 1909 when they passed the 16th Amendment:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

This was ratified by 3/4ths of the states in 1913, and the income tax as we know it today was born.

The long and short of this history is that any wealth tax, to pass Constitutional muster, like a federal real estate tax or an income tax prior to 1913, would be something that would have to be apportioned among the states.  That would certainly be void in the modern era under the 14th Amendment as creating unequal application of the laws, should the people of one state be subject to a federal tax that differed from the rate applied to people of a different state.

But that is federal law.  What of the laws of the state of California?  Why can’t they vote for a wealth tax?  This from Jonathan Turley discussing the proposed law:

The new bill introduced by Democratic Assemblyman Alex Lee would impose an extra annual 1.5% tax on those with a “worldwide net worth” above $1 billion, starting as early as January 2024.

The law has a cynical bait-and-switch provision. The billionaire tax is just meant for the initial packaging and passage. It can therefore be sold as a “billionaire’s tax.” However, in two years, the threshold drops to a worldwide net worth exceeding $50 million. While billionaires would stay at 1.5%, those in the lower tax bracket would be hit by a 1% added rate on worldwide assets. . . .

The new tax would arrange for payments to California’s Franchise Tax Board for years after a departure for those assets which are not easily converted into cash. . . .

Under the existing exit tax, businesses and individuals must pay a one-time tax to leave based on the value of the business or individual’s assets, including property, stocks, and other investments. For those who have earned more than $30 million, you can continue to pay for years after fleeing the state. The current exit tax is 0.4% of an individuals’ net worth over $30,000,000 in a tax year, including assets located outside of California other than real estate.

Whether or not this is sane policy is irrelevant.  It fails under any of several federal Constitutional provisions.  One, the Constitution protects private property.  While it is well settled in the history of this nation that federal and state governments have a right to tax economic gains and to tax real estate, a wealth tax is a tax on the totality of private property.  Such a tax has no historical basis in English or American law, To the contrary, taking private property based on its mere existence would be a government taking without a return of fair value, something that runs afoul of the Fifth Amendment’s Taking Clause, a clause that applies to state governments.   Moreover, any attempt to punish a person or entity for merely moving out of state would be to place a burden on the Fourteenth Amendment’s fundamental right to interstate travel.

Bottom line, though a wealth tax would be unconstitutional at the state or federal level today, that does not mean that we will not see it raised again by the Marxist vipers in our midst.  We most assuredly will.  I suggest you know what your rights are under our Constitution and be prepared to defend them.

Header image made using a picture from Freepik.