Paul L. Caron
Dean


Saturday, June 13, 2020

The Wealth Tax: Apportionment, Federalism, And Constitutionality

Alex Zhang (J.D. 2021, Yale), The Wealth Tax: Apportionment, Federalism, and Constitutionality, 23 U. Pa. J. L. Soc. Change ___ (2020):

Proposals of wealth taxation — as a mechanism to combat economic inequality and raise revenue for welfare programs — have dominated recent political debate. Despite extensive academic commentary, questions surrounding the constitutionality of a wealth tax remain unresolved. Previous scholarly approaches have drawn a dichotomy between two key cases. Supporters of the wealth tax emphasize Hylton’s functional rule for identifying direct taxes, which must be apportioned under the Constitution, and reject Pollock, which invalidated the federal income tax on the grounds that it was a direct tax. Opponents of the wealth tax, in contrast, argue that Pollock, rather than Hylton, was correctly decided.

This Article examines the inequitable results of apportioning the wealth tax and argues that both Hylton’s rule of reason and the underlying, federalism rationale of Pollock disfavor classifying the wealth tax as a direct tax. Using IRS personal-wealth data, I estimate the wealth tax rates as apportioned in accordance with the geographic distribution of wealth among the states. The disparate impact of apportionment — imposing tax rates ranging from 2% in D.C. to 40% in West Virginia — provide strong support for the constitutionality of wealth taxation at uniform rates.

https://taxprof.typepad.com/taxprof_blog/2020/06/the-wealth-tax-apportionment-federalism-and-constitutionality.html

Scholarship, Tax, Tax Scholarship | Permalink

Comments

Concerning the legitimacy of the Hylton case in light of the following from The Supreme Court in the Early Republic, the Chief Justiceships of John Jay and Oliver Ellsworth, University of South Caroling Press, at p. 102 by William R. Casto (who, when I last spoke with him was a Professor of Law at Texas Tech University). Professor Casto footnotes the following to, 4 Hamilton’s Law Practice, 311-14 and to the Hylton case itself, 3 U.S. (3 Dall.) at 171.

“At first glance, Mr. Hylton seems to have been a bizarre character. He waived a trial by jury and stipulated that he had not paid taxes on ‘125 chariots, for the conveyance of persons, and … that the chariots were kept exclusively for [his] own private use.’ In reality, however, everyone knew the case against Hylton was feigned, that he actually owned only one chariot, and that the taxes and penalties due were only sixteen dollars. The problem was that the Supreme Court’s appellate authority over the circuit courts was limited by statute to cases in which the amount in controversy exceeded two thousand dollars. Thus a suit for the actual amount due would not have been appealable to the Supreme Court. To avoid this technical problem, an informal committee consisting of Alexander Hamilton, the Attorney General, and the commissioner of Revenue came up with the idea of claiming for the purposes of litigation that Hylton had 125 chariots.… Mr. Hylton also wanted a Supreme Court determination of the issue, so he agreed, with suitable protection against actually having to pay the two thousand dollars, to stipulate to his ownership of a gigantic fleet of phantom chariots.”

Professor Casto’s concluded that “(t)he case was an obvious sham….” and it is hard to imagine Professor Casto was incorrect in so concluding.

It is interesting to consider how much authority any doctrine arising from such a case and from cases that have relied upon it should carry into future cases?

Posted by: Joseph W Mooney | Jun 14, 2020 7:01:14 AM

"The disparate impact of apportionment — imposing tax rates ranging from 2% in D.C. to 40% in West Virginia — provide strong support for the constitutionality of wealth taxation at uniform rates."

I honestly have no idea whether Pollock or Hylton was correctly decided, but the foregoing does not strike me as true constitutional jurisprudence.

Posted by: Mike Petrik | Jun 15, 2020 4:37:57 AM

I think this issue about a “wealth tax” is much ado about nothing. I’m not as sophisticated as you folks are, in the weeds regarding Federal taxes -- but I seriously doubt if a small so-called wealth tax will alter anyone’s lifestyle, if they are wealthy enough to be on that list! As a wealthy friend of mine once said – they’ll still be eating ion the same restaurants! Bill Clinton’s 1% wealth tax placed this country into surplus status. And this conspiracy myth about a wealth tax paying for welfare… That is complete nonsense. This is not tethered to reality. If we want to look at the government paying for welfare – let’s look at corporate welfare in this country – now that is welfare for real. When did any other administration ever put us into s surplus economy? Especially the GOP – who literally triple the national debt every time they get in power. And the Dems not much better.

Instead of whining and moaning about a tiny wealth tax for people who have way more money than they know what to do with – we should be fighting for property tax relief, for the middle class AND the wealthy! Now that’s a realistic problem we all face every year, and generally it’s way too high. The government has enough cash around, that they really don’t need to be squeezing us with high property taxes every year like they do. Let's face it, wealthy Americans get more breaks in taxes in every state in the union, especially these days -- except in California for wealthy and middle class heirs and beneficiaries of estates and trusts, with respect to CA's 1978 Proposition 13 property tax transfer, when you transfer parents property taxes upon inheriting property, with the transfer of property between siblings, and with CA Proposition 58 parent to child exclusion, namely parent to child transfer or property transfer from parents, and of course Proposition 193, grandparent to grandchild property transfer ; where Prop 13 gives middle class property owners the same tax break as rich residential and business property owners, capped at 2%. Every state in the union should have similar property tax breaks for property owners, for business property owners, and home owners. Why only one state in America provides this sort of property tax relief is beyond me! It makes no sense when you think about it. Forget that California is expensive -- other states are pricey also, but provide no tax relief at all as California does.

Moreover, heirs or beneficiaries in California who are declined for a trust fund cash advance or probate loan from an inheritance cash advance assignment company can always, if they're inheriting property from parents, turn to a loan to an irrevocable trust, from trust lenders... and can buyout other beneficiaries, plus keep inherited property they often can't afford to take on in normal circumstances. Plus save tons transfer of property, AND keep parents property taxes, at a low base rate thanks to Proposition 13, basically forever, saving tens even hundreds of thousands of dollars as the years go by. Great playbook, right?

And yet California, since 1978, is the only state where you can avoid property tax reassessment at current rates; plus Californians get to keep parents property taxes on secondary properties as well... plus transfer parents property taxes as well as inheriting property taxes at that low base rate for that secondary or non-primary residence. Seriously, property owners in every state should be banging away st their political representatives to start passing bills that provide property owners with the same benefits that Californians get with Prop 13 and Prop 58! But first study up on these property tax breaks on Websites like https://cloanc.com/category/prop-58 Every property owner should know what's involved with the ability for beneficiaries to sell shares of inherited property, called a beneficiary buyout of sibling property shares, or as realtors call it, “the transfer of property between siblings”, and “lending money to an irrevocable trust“ – typically from an irrevocable trust loan lender. Every American over 25 should know how to buy out beneficiaries' shares of inherited property; and how a sibling-to-sibling property transfer works; how loans to irrevocable trusts can help co-beneficiaries get cash while avoiding selling their share of an inherited house -- keeping yearly taxes on property at parents rates, forever. No other state allows this. If you question any of this, which some critics do -- just read up on the official Website managed by the CA State Board of Equalization, at https://www.boe.ca.gov/ or research some informative, well researched blogs like https://propertytaxtransfertrusts.com We should all understand what property owners are getting in California -- and what all Americans should have as property tax breaks, in every state -- like the rich guys enjoy in every state, with expensive tax lawyers helping them at $1200 per hour! We can figure it out for free on these Websites, and start bugging those do-nothing politicians in Wash DC! Something we should all face and fight together.

Posted by: Geoffrey Sadler | Jun 15, 2020 3:56:57 PM