Schizer Presents Wealth Taxes Under The Constitution: An Originalist Analysis Today At Duke

David Schizer (Columbia) presents Wealth Taxes Under the Constitution: An Originalist Analysis (with Steven Calabresi (Northwestern)) at Duke today as part of its Tax Policy Seminar hosted by Larry Zelenak:

A federal wealth tax is high on the wish list of progressive icons like Elizabeth Warren and Bernie Sanders, but is it constitutional? This Article shows that it is a “direct tax,” which must be apportioned among the states. This means that the percentage of revenue collected in each state must match its percentage of the population. For instance, if two states each have three percent of the population, each must provide three percent of the revenue from a wealth tax. This leads to an unappealing outcome: if one state is less wealthy, it needs a higher tax rate to supply its share. To rescue wealth taxes from apportionment, distinguished commentators have offered a range of theories. For example, some treat apportionment as a mistake, while others dismiss it as a shameful protection for the institution of slavery.

But these commentators do not give the Framers enough credit. 

The taxing power was too important for them to be sloppy or to prioritize the institution of slavery over getting it right. In response, we offer an interpretation of the taxing power that is unconventional, but also unsurprising: it was shaped by the same influences, and expressed the same values, as the rest of the Constitution. Like the new national government itself, the taxing power was supposed to be effective, but limited. The Framers wanted to solve the fundamental problem under the Articles of Confederation (insufficient revenue), without recreating the fundamental problem under imperial rule (taxation without representation). Specifically, they sought to prevent what we call “fiscal raids,” in which states join forces to enact national taxes that mostly burden other states. This risk could arise with a tax not just on enslaved persons, but also on other economic activity that was concentrated in particular regions, such as tobacco or undeveloped land in the South and ships and manufacturing in the North. 

In pursuing these various goals, what did the Framers mean by “direct taxes”? These taxes are imposed directly on taxpayers—that is, because of what they own (e.g., real estate and other wealth) or where they live (e.g., head taxes). In contrast, taxes on what they do–that is, on transactions (like buying imported goods) or activities (like transferring money to an heir)–are indirect (and thus not subject to apportionment). Although some courts and commentators have argued that there are only two types of direct taxes–head taxes and real estate taxes–the category actually was much broader in early America, reaching livestock, loans, business assets, and other personal property. Yet since the Framers called these broad levies “land taxes,” some commentators and judges have misinterpreted early references to “land taxes” as covering only real estate. Dicta in an early case, Hylton v. United States, offers this narrow reading of “direct taxes.” Yet the holding is (largely) consistent with our interpretation, as are most other Supreme Court cases construing the direct tax clause.