For the purveyors of identity politics, there is no surer bet than leading the masses against great wealth. Ever since philosopher Jean Rousseau spoke of “eating the rich” before the Reign of Terror began, leaders have always had an insatiable appetite for class warfare politics in history.
For her “wealth tax” legislation, Senator Elizabeth WarrenElizabeth WarrenPoll: Harris, Michelle Obama lead for 2024 if Biden doesn't run Biden eyes new path for Fed despite Powell pick Equilibrium/Sustainability — Presented by Southern Company — Storms a growing danger for East Coast MORE insists she is just nibbling on the rich but could still seize $3 trillion over the next decade, a figure challenged even by an administration economist. She also included an “exit tax” to prevent the rich from fleeing. This is wildly popular among the masses. It is also arguably unconstitutional and manifestly impractical. But in Washington, bad policy often makes for great politics.
Warren would add a 2 percent annual tax on the net worth of households and trusts above $50 million, plus an extra 1 percent tax above $1 billion. She is not the only one promising to soak the rich. Some state legislators have pushed their own versions. The difference between the proposals is that constitutional language could bar the wealth tax. Article One allows Congress to “lay and collect taxes, duties, imposts, and excises.” But this mandates that they “be uniform” across the nation. The next section says “no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.”
A wealth tax is a direct tax. While James Madison and Alexander Hamilton differed on whether such a tax is constitutional, they agreed the direct tax would include any wealth tax. Hamilton agreed with Madison that a direct tax could be a tax “on the whole property of individuals, or on their whole real or personal estate.” There are valid arguments that a wealth tax could be constitutional, and there are cases on both sides of that issue. But the problem does not stop with Article One. When the 16th Amendment was ratified, it made for a new federal tax but just on our income.
Setting aside the constitutional issue, there are some practical problems. Valuing wealth from real estate to luxury items would mean a significant increase in the Internal Revenue Service and in reporting responsibilities. Warren appears to acknowledge how much of a bureaucratic increase is needed, as her legislation mandates a breathtaking $100 billion increase for Internal Revenue Service funding across the next decade.
Even with a massive increase this year, the annual budget for the Internal Revenue Service is just above a tenth of that figure at $12 billion. Warren also wants to mandate a greater number of annual audits for the agency workload. Each year, a third of the people covered would be audited, for everything from their art to cars. Such calculations would mean marking not just the purchase price but also the current market value.
Then there is the practical issue that billionaires are mobile tax sources. To put it simply, they can leave, which is what happened with other countries pursuing the wealth tax, which found the practical enforcement of such a tax was more difficult than assumed. France lost 12,000 millionaires a year and then it later reversed course with tax cuts to lure back the rich. Only a handful of countries are still trying to make a wealth tax work.
Warren believes she has a solution to that. It is what I call a “captivity tax.” If you decide you do not want to be the subject of what the liberal analyst Josh Bivens calls a very big experiment, Warren threatens to hit you with a confiscatory tax of 40 percent of your net worth above $50 million. If you accumulated the net worth of $500 million, then Warren would make you leave $180 million as the price to be free of such a tax policy.
Many will consider leaving before such a tax comes, but many billionaires are also likely to have second thoughts about coming to the United States and investing here if they will be subject to a captivity tax. A fiscal idea of being audited for everything you own, including your Cartier watch, is not appealing. This tax highlights the wealth redistribution mindset of Warren, who thrilled audiences by telling the rich that she was coming after “your Rembrandts, your portfolios, your diamonds, and your yachts.”
Warren and lots of her fellow lawmakers in Congress have not made such fortunes. But where others make wealth, her ability is taking it from them. She believes she has achieved the holy grail in our fiscal policy to prevent flight with a captivity tax. She hopes to pursue the rich for their mansions and diamonds, and they will not be able to escape from her, even on their fully audited yachts. It is like the tax version of a canned hunt.
Treasury Secretary Janet Yellen and others have looked at this option and other tax increases to help pay for trillions of dollars in new spending. But the problem with the diet for Rousseau is that it is as addictive as it is rich. It relieves our elected officials of the responsibility for unlimited spending by fueling a kind of class warfare. It may well collapse in federal court, but that still will be months and trillions of dollars down the road.
Jonathan Turley is the Shapiro Professor of Public Interest Law at George Washington University. You can find his updates online @JonathanTurley.