Monday, October 15, 2018
Ari Glogower (Ohio States) A Constitutional Wealth Tax at Loyola-L.A. today as part of its Tax Policy Colloquium Series hosted by Ellen Aprill and Katie Pratt:
A wealth tax could address rising inequality and more accurately tailor the tax system to taxpayers’ economic differences. These reasons to tax wealth may not matter, however, if a wealth tax is unconstitutional. This Article considers the possibilities for the design of a constitutional wealth tax. In particular, this Article argues that, if the Supreme Court were to find a traditional tax on wealth is foreclosed under the Constitution, Congress could instead tax wealth indirectly, by adjusting a taxpayer’s income tax liability on account of her wealth. This Article describes three methods for making this adjustment (collectively, “Wealth Integration” methods): A taxpayer’s wealth could affect her base of taxable income (the “Base Method”), the applicable rate schedule (the “Rate Method”) or the availability of credits against tax (the “Credit Method”).
This Article first describes the economic effect of these Wealth Integration methods and why they may be more versatile than previously appreciated in the literature. As under a traditional wealth tax, Wealth Integration methods will account for a taxpayer’s wealth in determining her tax liability. At the same time, Wealth Integration methods would not generate a tax liability based solely on a taxpayer’s wealth.
The constitutional analysis of Wealth Integration methods, however, would be intrinsically different from that of a traditional wealth tax. While the Supreme Court could find grounds for striking down a traditional wealth tax based on prior precedent and reasonable interpretations of the constitutional provisions, a Court could only strike down Wealth Integration methods by upsetting continuous prior precedent, invalidating many current features of the income tax, and significantly restricting Congress’ power to tax income under the 16th Amendment. Ultimately, the possibility that Congress could tax wealth through Wealth Integration methods rather than through a traditional wealth tax—despite their economic similarities—suggests why a Court should not interpret the constitutional provisions to impose any significant restraint on the federal power to tax wealth, regardless of the form.
Eric Rakowski (UC-Berkeley) is the commentator.