The Founding Fathers believed in a wealth tax

Sen. Elizabeth WarrenElizabeth Ann WarrenNewsom endorses Kamala Harris for president Constitutional conservatives need to oppose the national emergency Poll: Sanders, Biden seen as most popular second choices in Dem primary MORE (D-Mass.) has proposed a tax on wealth. It would be constitutional. Opponents claim a wealth tax is unconstitutional because it is a direct tax that must be apportioned among the states by population. 

Apportionment by state for a wealth tax is a fatal requirement. Tax rates on wealth of Mississippi residents would have to be twice as high as tax rates on Connecticut residents because Connecticut citizens have twice the wealth of Mississippi residents.

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The result is forced because Mississippi has too small of a tax base over which to spread its quota. The opponents of a wealth tax cackle at the absurdity, but it is not what the Founding Fathers intended.

The term “direct tax" was coined in America to refer to a direct tax on the states, that is, a requisition on the states, under a pre-Constitution, 1783 proposal. Requisitions have to be apportioned by some formula or other.

The Articles of Confederation had determined the quotas by value of real estate, including improvements, but the states cheated on their assessments. The 1783 proposal used population within a state, on the logic that people move to cities and fertile bottomland, so that population would always be a fairly rough measure of underlying wealth and less subject to manipulation. 

The only indirect tax in the 1783 proposal was the custom tax called the impost. The impost was indirect because nobody knew in which state the imported goods would settle nor which state should get credit for paying the tax.

The term "direct tax" expanded, as language often expands, to include the state taxes used to pay the requisitions. The Treasury 1796 inventory of “Direct Taxes” made to prepare for a proposed requisition is nothing but a listing of every existing state tax.

No one in the constitutional debates knew the exact content of state taxes, but they had a functional definition that direct taxes included the state tax used to satisfy a requisition.

Requisitions were the only way for Congress to get revenue under the Articles of Confederation, and the Founders assumed that apportionment worked all right. It did not.

Apportionment is absurd whenever the tax base per capita is unequal across states. Take the example of carriage taxes at issue in the 1797 Supreme Court case of Hylton v. United States.

Under Hamilton’s hypothetical, New York had 10-times as many carriages per capita as Virginia. So Virginia rates under apportionment had to be 10-times higher than N.Y. rates to satisfy apportionment by population. 

Carriage taxes were a common colonial luxury tax, and they were listed as a direct tax on the Treasury inventory. Apportionment would have been a fatal blow to the carriage tax.

The Supreme Court responded to the absurdity of apportionment by holding that the carriage tax was not a direct tax. The Hylton rationale with the most "cogency and force," as Justice Joseph Story put it, was that "no tax could be a direct one, in the sense of the Constitution, which was not capable of apportionment according to the rule laid down in the Constitution."

Any tax base not equal per capita across the states, including carriage taxes, cannot be considered a direct tax because it did not share the characteristic of the original direct tax, requisitions upon the states, that is, it was reasonable to apportion the tax.

The Justices of Supreme Court in Hylton had all participated actively in the originating debates on apportionment. They were the Founders, still walking upon this Earth.

Requiring apportionability as the defining characteristic of direct tax was also the good sense reflected in the English language at the time.

Early in the debates, important speakers like Brutus and the Federal Farmer used “excises” and “duties” as examples of direct tax — they would be used by the states to satisfy requisitions and they were not indirect imposts.

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But the Constitution itself required that excises and duties must have uniform rates across all states, and one cannot both comply with uniform rates and apportionment. So the language adapted, and as the debates went on, excises and duties ceased to be direct because they could not be apportioned.

The Founders believed in the wealth tax. The core of the colonial taxes were taxes on real estate. Apportionment was designed to reach wealth by taxing states according to relative wealth by the best measurement of wealth that they had available.

To turn a requirement reaching wealth into a rule exempting wealth from tax is to turn the Founders’ meaning upside down.

Calvin Johnson holds the John T. Kipp Chair in Corporate and Business Law at the University of Texas at Austin School of Law.