Hamilton is easily read to say that wealth taxes, as such, are indeed direct. The Supreme Court has embraced that position.
The defining case dates back to 1895. In Pollack v. Farmers’ Loan and Trust Co., the justices struck down a national income tax.
The court began by noting that ordinarily, “a tax upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided, are direct taxes.” It added, “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 within any State through a majority made up from the other States.”
The court’s logic plainly prohibits wealth taxes, unless they are apportioned. And while the 16th Amendment overruled the court’s decision in Pollock, it is limited to income taxes, and does nothing to validate wealth taxes.
Defenders of such taxes insist that the court was egregiously wrong in Pollock. Yale law professor Bruce Ackerman, an expert on the issue, so argues. He points to a 1796 ruling in which the court, upholding a national tax on carriages, seemed to give a lot more flexibility to Congress than the court did in Pollock.
Ackerman thinks that the court’s reasoning in Pollock was “radical” and “murky.” Like many others, he believes that the better approach, vindicated by history, is a “rule of reason,” which allows Congress to dispense with apportionment when it has compelling reasons for doing so.
Maybe he’s right. But the court has never overruled Pollock, and if wealth taxes really do count as direct, the Constitution says that they have to be apportioned. So the constitutional objection is far from crazy. There’s a good chance that a majority of the current court would accept it.
Sure, enthusiastic defenders of a wealth tax might want to urge Congress to move forward anyhow, and hope that the court will ultimately find a way to uphold it. But there are many ways to reduce inequality while raising revenue, and from the legal standpoint, a wealth tax is the most vulnerable. Do progressives really want to roll the constitutional dice?
This article was provided by Bloomberg News.