Under every circumstance it’s deemed unconstitutional

A wealth tax, as proposed by Senator Warren and others, would be a tax not on accessions to wealth but wealth itself, and not at the time of realization but before it. Most court decisions and observers over the past two centuries have conceded that a tax on land and property would be a direct tax, and a wealth tax would encompass the unrealized gain in the value of land and property, such as homes, farms, and personal assets. Taxing wealth is not taxing income, as evidenced by the establishment of a separate tax regime that more resembles property tax assessment mechanisms, the lack of realization events, and that the legal and economic incidence of a wealth tax falls on the same person.

, the Ultra-Millionaire Tax Act of 2021, encompasses Warren’s wealth tax concept. Key provisions of the bill include:

Imposes a two percent annual tax on the net worth of households and trusts with more than $50 million in value, with a further three percent rate on households and trusts with more than $1 billion in value.

Raises the rate to six percent if universal health care is enacted.

Exempts the first $50,000 in household personal property.

Instructs the Treasury Department to develop valuation rules, “including formulaic approaches based on proxies for determining presumptive valuations, formulaic approaches based on prospective adjustments from purchase prices or other prior events, or formulaic approaches based on retrospectively adding deferral charges based on eventual sale prices or other specified later events indicative of valuation.”

Levies the tax in proportion to the number of days into the year for people who die during the year.

Directs the Treasury Department to require information reporting from taxpayers necessary to make valuations and collect the tax.

Requires at least 30 percent of taxpayers be audited annually.

Increase IRS funding by $100 billion a year.

Requires payment of a 40 percent “exit tax” on wealth above $50 million by any American who permanently leaves the United States.

Warren and her House co-sponsors, Rep. Pramila Jayapal (D-WA) and Rep. Brendan Boyle (D-PA), estimate the tax would raise $3 trillion over 10 years and apply to just 0.05 percent of American households.

If one concedes that an unapportioned direct tax would be unconstitutional as the precedents suggest, and assuming that a tax on land and real estate would be a direct tax as every court that has ruled on the topic has acknowledged, the analysis comes down to two questions.

First, does Warren’s wealth tax apply to land and property? If it does, it is unquestionably a direct tax under current precedents and would be unconstitutional if unapportioned. While Warren’s proposal does not specify land or real estate as part of “wealth,” it does specify that “personal property” is included (since the first $50,000 of personal property is exempted) and broadly taxes all “net assets” unless exempted. It is written broadly, and without any exemption for land or real property one must assume these are intended to be included.

Indeed, it would be hard to conceive of a tax on wealth without it applying to land and real estate owned by the taxpayer — both because those items represent a large share of most people’s wealth and because exempting such items would create a large loophole in the tax. Since every case opining on direct taxes has conceded that a tax on land or real estate would be a direct tax, that would apply to Warren’s proposal as well.

Second, would Warren’s wealth tax, or a wealth tax generally, be imposed in a way that resembles forbidden unapportioned taxes on capitation, land, or real estate? Wealth taxes clearly resemble those objects considered to be directly taxed more than those considered to be indirectly taxed. As observed above, a common feature of these subjects of taxation is the equivalence of legal and economic incidence: the taxpayer must pay it directly themselves and cannot pass the tax burden on via another transaction.

This is distinct from taxes on businesses or retail transactions, which may be collected by the taxpayer but the economic burden is ultimately borne by others, or from a transactions tax or a customs duty, where a taxpayer can adjust his or her tax burden by adjusting his or her activity. Is it a tax on a person for being who they are or what they own, or is it a tax on activity or that can be passed on to others by the one collecting it? Wealth taxes are on what people own and, as Warren and other proponents intend, are not meant to be passed on to others.

Under current precedents, Warren’s proposal (and essentially any proposal for a wealth tax) would be an unapportioned direct tax, and therefore unconstitutional. Imposing mark-to-market valuation on unrealized gains and subjecting them to immediate tax would face similar constitutional challenges, to the extent the tax is unapportioned and the mark-to-market valuation is mandatory.