Below is my column in The Hill on Elizabeth Warren’s Wealth Tax Adoption. The bill includes two notable additions: a massive expansion of the IRS and a so-called “captivity tax” to try to prevent the rich from fleeing. Chances are the democratic leadership will see some of the same problems with this law, but the danger is that it will be difficult to oppose such laws because of its public appeal. In addition, there is a lack of honest constitutional and practical issues related to a “wealth tax”. Such details are lost when Warren promises to investigate the “Rembrandts … diamonds and … yachts” of the rich.
Here is the column:
For the suppliers of identity politics, there is no safer bet than to lead the masses against the “super-rich”. Ever since the philosopher Jean Jacques Rousseau spoke of “eating the rich” before the reign of terror began, politicians have had an insatiable appetite for class war politics.
Senator in her “wealth tax” legislation Elizabeth Warren insists she only nibbles on the rich but can still seize $ 3 trillion over the next decade, a figure even a Biden government economist has questioned. Warren also introduced an “exit tax” to keep the wealthy from fleeing. Unsurprisingly, it is hugely popular outside of super-rich circles. It is also arguably unconstitutional and obviously impractical. In Washington, however, bad politics often lead to good politics.
Warren would impose an annual tax of 2 percent on the net worth of households and trusts over $ 50 million and a surcharge of 1 percent on the net worth of households over $ 1 billion. She’s not the only politician committed to watering the rich. Some state lawmakers have proposed their own versions. The difference between the federal and state proposals is that the express language of the constitution appears to prohibit a wealth tax. Article 1 allows Congress to “collect and collect taxes, duties, levies and excise duties”. It does, however, require that these be “consistent across the United States”. The next section states: “No capital or other direct taxes may be levied unless it is proportionate to the census or enumeration contained herein before it is so arranged.
A wealth tax is a “direct tax”. While James Madison and Alexander Hamilton disagreed on the constitutionality of such a tax, they agreed that a direct tax under the Constitution would include a property tax. Hamilton agreed with Madison that a direct tax could be a tax “on an individual’s entire property, or on all of their real estate or personal assets.”
There are good faith arguments that a wealth tax would be constitutional and there are cases on both sides of the issue. Estate taxes and other forms of taxation can be cited to challenge the clear meaning of these terms. However, the problem does not end with Article 1. When the 16th Amendment was ratified, it allowed federal income taxes and only income taxes: “Congress has the power to impose income taxes, from whatever source, regardless of state or state to collect and raise census or enumeration. “
Aside from the dubious constitutionality of Warren’s tax, there are bigger practical problems. Valuating assets from real estate to luxury goods would require a massive increase in the Internal Revenue Service and a huge increase in reporting requirements. Warren seems to acknowledge the amount of bureaucratic increase that is required: the bill calls for a staggering $ 100 billion increase in IRS funding over the next decade.
Even with a massive spike for 2021, the IRS annual budget is just over a tenth that number at $ 11.92 billion. Warren is also committed to running a greater number of annual audits for this engorged IRS: each year, a third of the audits covered are audited for everything from automobiles to art. For such calculations, not only the purchase price but also the current market value would have to be determined.
Then there is the practical problem that billionaires are mobile – not fixed – sources of taxation. Simply put, you can go. This happened in other countries where a wealth tax was sought, and the practical enforcement of these taxes was more difficult than assumed. France lost 12,000 millionaires a year and later reversed course with tax cuts to lure the rich back. Only a handful of countries are still trying to make such taxes work.
Warren thinks she has a solution for that too. It’s a different tax, of course. Let’s call it a “captivity tax”. If you choose not to be the subject of what liberal tax expert Josh Bivens calls the “very big experiment,” Warren threatens to hit you with a confiscating tax of 40 percent of your net worth (over $ 50 million). So if you had $ 500 million worth of things accumulated, Warren would get you to leave more than $ 180 million as the price of being exempt from your tax regime – it’s payment or prayer.
Of course, not only will many consider leaving before such a tax is levied, but many billionaires will likely consider coming to (and investing here) in the United States if they are like a monetary mastodon at the Warren Tax hold on in a tax tar pit. The promise that everything you own will be checked every three years until your last Cartier watch isn’t very appealing.
The captivity tax underscores the wealth redistribution mindset that underpins Warren’s “experiment”. Warren delighted audiences for years by telling the wealthy that she would come after “your Rembrandts, your stock portfolio, your diamonds, and your yachts.” In a Democratic debate, she received applause by rubbing her hands together after saying she was taking part of the fortune of contestant John Delaney, a homemade millionaire worth $ 65 million. She has done well with this threat now.
Warren and most of her colleagues, of course, did not make such fortunes. But where others create prosperity, their ability decreases others prosperity, and she believes she has reached the holy grail of the tax rate: preventing escape with a captivity tax. She hopes to haunt Delaney and others for her art and diamonds, and they will not be able to escape even on her now fully vetted yachts. It’s like a tax version of a canned hunt.
Biden administration officials like Treasury Secretary Janet Yellen recently said they are considering this option and other tax increases to pay trillions in new expenses. The problem with a Rousseau diet, however, is that it is as addicting as it is rich. It relieves politicians of responsibility for uncontrolled spending by fueling a kind of class struggle. It may all collapse in court, but that’s years – and trillions of dollars – down the street.
Jonathan Turley is Shapiro Professor of Public Interest Law at George Washington University. You can find his updates online at JonathanTurley.