Is Elizabeth Warren’s wealth tax constitutional?

Photo by Gage Skidmore/Creative Commons.

by Andrew Callahan, Forum Contributor

A RealClearPolitics poll recently showed there is a new front-runner in the race for the Democratic presidential nomination: Massachusetts Sen. Elizabeth Warren. To be fair, there are a number of polls indicating that former Vice President Joe Biden is still holding onto his lead. However, that lead has been shrinking for months now.
With her newfound position as perhaps the “favorite,” Warren’s policies are open to more scrutiny. As her opponents try to make up ground, criticism is almost sure to come her way over the next few months, especially if she ultimately becomes the nominee.

Warren, who claims to have a “plan for everything,” is not short on ideas. One of her more identifiable plans is her hotly debated “wealth tax” plan, which, in her words, would only apply to the “tippy-top” of wealthy individuals. Households with a net worth of $50 million or more would pay an annual tax of 2 percent on every dollar of net worth above $50 million, and 3 percent on every dollar above $1 billion.
It sounds fair—and after all, it’s just a few pennies, right? As every Democratic candidate—sans John Delaney and perhaps Tom Steyer—would agree, no one needs all that money. But is Warren’s “wealth tax” constitutional?

Without getting into an economics redux, which could fill an entire newspaper, there are two types of taxes that affect us as United States citizens in our daily lives: direct and indirect taxes. Indirect taxes, such as a sales tax, are quite simple. I purchase a commodity and on top of the price advertised, I pay an additional tax.

On the other hand, direct taxes—essentially, taxes taken from one’s person—have been generally ruled to be unconstitutional. However, there is an exception under the 16th Amendment, which grants Congress the power to collect taxes on incomes, whatever their form. There is wide consensus amongst scholars—rare these days—that the government can indeed tax your income directly, as well as earnings made on investment accounts upon withdrawal. The question then becomes whether Warren’s “wealth tax” policy requires an indirect or a direct tax.

Unlike the consensus reached amongst the experts on the 16th Amendment, no such luck here. On the campaign trail, it seems Warren has trouble differentiating her “wealth tax” from its direct nature. How can you tax capital that individuals already have? That seems more like confiscation. However, I suspect as the campaign rolls on she will also “have a plan for that.”

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