Progressives' power grab: Why Democrats' proposed 'billionaires tax' is unconstitutional

·4 min read

Democrats are frantically trying to find ways to raise taxes to pay for their mammoth, multitrillion dollar reconciliation package. But the need to keep the proposal “revenue neutral” is leading them down strange, potentially illegal pathways.

Senate Finance Committee Chairman Ron Wyden of Oregon is pitching a “billionaires tax” to close the budget gap. Under Wyden’s plan, people with $1 billion in assets or $100 million in income for three consecutive years would have to pay a “one time” tax on the value of all their tradable assets, including cash and securities. This same wealth would then be taxed annually depending on gains or losses, and billionaires would face penalties if they tried to convert securities into other types of assets such as real estate.

Wyden is open about the class-envy angle of his proposal, since billionaires do not generate much sympathy these days. Democrats think this is good politics.

Maybe so, but there's a problem – it is unconstitutional.

Article 1 Section 9 of the Constitution forbids the government from laying a “capitation, or other direct, tax” unless in proportion to the Census. According to Alexander Hamilton, this comprises “taxes on lands and buildings. General assessments, whether on the whole property of individuals, or on their whole real or personal estate.”

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This ban was the basis for the Supreme Court declaring income taxes unconstitutional in Pollock v. Farmers' Loan & Trust Co. in 1895. Chief Justice Melville Fuller noted that “nothing can be clearer than that what the Constitution intended to guard against was the exercise by the general government of the power of directly taxing persons and property.”

Amendment allowed federal income tax

The Pollock case gave rise to the 16th Amendment, ratified in 1913, which carved out an income tax exception from the general ban on direct taxes. But the income tax amendment cannot be read to authorize a federal wealth tax, even on those nasty billionaires.

The federal government simply lacks the power to take your property directly. Chief Justice Fuller cautioned in the Pollock case that without the direct tax ban, “the rule of protection could be frittered away” and with it “one of the bulwarks of private rights and private property.”

Progressives probably agree and would like to see it frittered away as soon as possible.

Wyden’s anti-billionaire rhetoric also opens him to the charge of seeking to pass a bill of attainder, which is forbidden under Article 1 Section 9, and denied to the states under Section 10.

According to Chief Justice Earl Warren in United States v. Brown in 1965, this ban was intended by the Framers to bar “legislative punishment, of any form or severity, of specifically designated persons or group." Even the poor billionaires.

Tax may spread beyond the wealthy

Americans should as well be concerned that once Democrats establish the principle of federal wealth taxation, it would spread like wildfire. Proponents say the billionaire tax would apply only to 600 or 700 Americans. But when income taxes were introduced in 1913, it was said they would affect only a small percentage of top income earners. We saw where that went.

Recall also that the term billionaire is flexible. Sen. Elizabeth Warren, D-Mass., proposed a “wealth” tax in her campaign for president that would have targeted anyone with a net worth of more than $50 million.

And if “tradeable assets” can be taxed, there is no reason a future Democratic budget measure might not extend that tax to all forms of property. Plus, a one-time tax on personal asset value might be so popular with the big spenders that it becomes “one time” every 10 years, five years or 12 months.

The good news is that as congressional negotiators pare back the total cost of President Joe Biden's extravagant bill by jettisoning programs, the less additional revenue will be necessary. This should dampen the temptation to invent more punishing forms of taxation to meet the Inside-the-Beltway accounting gimmick of a “zero cost” budget bill.

Wyden’s plan is a recipe for unlimited government. The power to tax is still the power to destroy, which is the reason the Framers put property off limits from direct taxation.

Americans may rightly be alarmed about a government that feels it has a right to take any property you have, simply because you have it and they want it.

James S. Robbins, a member of USA TODAY's Board of Contributors and author of "This Time We Win: Revisiting the Tet Offensive," has taught at the National Defense University and the Marine Corps University and served as a special assistant in the office of the secretary of Defense in the George W. Bush administration. Follow him on Twitter: @James_Robbins

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This article originally appeared on USA TODAY: Democrats' 'billionaires tax' is an unconstitutional power grab

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