Paul L. Caron
Dean




Wednesday, October 27, 2021

Hemel: A Wealth Tax Is A Good Idea — If We Had A Different Supreme Court

Washington Post op-ed:  A Wealth Tax Is A Good Idea — If We Had a Different Supreme Court, by Daniel Hemel (Chicago; Google Scholar):

Senate Democrats and the Biden administration are reportedly nearing a deal on a new “billionaire tax” to pay for the package of spending programs that is stalled in Congress. The tax — which would apply annually to the increase in the value of stocks and other assets held by taxpayers with a net worth of $1 billion or more — appears to be one of the few revenue-raising measures that Sen. Kyrsten Sinema (D-Ariz.), a key swing vote, is willing to countenance. But there is a potentially fatal flaw in the proposal that should cause progressives to view it as a Trojan horse: The current Supreme Court is quite likely to strike it down as unconstitutional.

To be sure, the constitutional case against the proposed billionaire tax isn’t open and shut. If I were on the Supreme Court, I would say that the tax is constitutional and ought to be upheld. But I’m not on the Supreme Court — and six conservative justices appointed by Republican presidents are. Faced with a genuinely unresolved legal question for which there are plausible arguments on both sides, those justices would not have a hard time saying that the billionaire tax flunks the constitutional test.

For Democrats, that’s a real problem. President Biden has promised a “serious piece of legislation” that ensures that “the very wealthy … begin to pay their fair share.” If the billionaire tax is axed by the Supreme Court, it won’t accomplish the goal of making the very wealthy ante up. Biden also has vowed that his overall plan won’t “add a single penny to our deficit.” If the budget bill is passed and then the billionaire tax is struck down, the overall package certainly will increase the deficit. ...

The justices could certainly find ways to uphold the tax, if they wished. Law professors Jake Brooks and David Gamage have argued, for example, that when a tax can be characterized as either direct or indirect, courts generally have construed it as indirect and should continue to do so to give Congress wide latitude in the exercise of its revenue-raising power. But it’s far from clear the current Supreme Court would agree with that reasoning. Note that the constitutional arguments against the Violence Against Women Act, the Obamacare Medicaid expansion and Section 5 of the Voting Rights Act were considerably weaker than the arguments against the billionaire tax — yet the court had no qualms about striking down those progressive legislative achievements.

[T]he Democrats have an exceedingly rare opportunity to enact meaningful progressive tax reform. They can choose from a menu of constitutionally secure options, including raising rates on high-income earners and corporations, ending tax-free stepped-up basis at death and closing loopholes in the partnership and trust tax laws. Instead, it looks like they may waste this opportunity on a measure that, after years of court battles, ultimately accomplishes nothing. If that happens, conservative justices on the Supreme Court will deserve some of the blame. But the Democratic lawmakers who sent us down that dead end will too.

https://taxprof.typepad.com/taxprof_blog/2021/10/hemel-a-wealth-tax-is-a-good-idea-if-we-had-a-different-supreme-court.html

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