Elizabeth Warren’s wealth tax, and constitutionalizing the progressive agenda
Last week, Democratic presidential candidate Senator Elizabeth Warren unveiled a new proposal to levy a wealth tax on the ultra-rich. Beyond the merits of the policy, Warren’s proposal is a fitting reminder to progressives that we need to begin the work of getting the Constitution on our side, now.
Under Warren’s plan, Americans with over $50 million in total assets would pay a 2 percent annual wealth tax on assets over that amount, and 3 percent on assets over $1 billion. Economists project that the new tax would raise about $2.75 trillion over ten years, drawn solely from the wealthiest 0.1 percent of households.
Warren’s proposal breaks new ground in American politics. The federal government has long taxed personal income, but aside from taxing multimillion-dollar inheritances, it has never taxed accumulated personal wealth. (Another way to put it: the government taxes the flow of new money people take in, but does not tax the stock of old money sitting in their coffers.)
That has allowed wealth inequality to fester. For all that’s been written about income inequality, we at least have the progressive income tax to somewhat lean against it. Wealth, on the other hand, has been allowed to pool in the hands of the few unchecked. According to a recent study by the Institute for Policy Studies, between 1983 and 2016, the average American family saw their wealth decline by 3 percent; meanwhile, the richest 0.1 percent — the segment of the population that would face Senator Warren’s wealth tax — saw their wealth jump by 133 percent over the same time period.
Taxing massive levels of wealth would slow the build-up of gigantic fortunes, generating revenue that could be used to help more Americans purchase affordable homes, attend college, or do other wealth-generating things. But soon after Warren announced her plan, some began to ask whether it was dead on arrival. Not because of any political constraint, but a much more insurmountable one: the U.S. Constitution.
Skeptics don’t argue that a wealth tax is per se unconstitutional, but that it is a “direct tax” subject to the Constitution’s clunky apportionment requirement. That means that the total revenue of a wealth tax would have to be drawn proportionately from each state based on total population, not each state’s wealth. For example, consider the states of Missouri and Maryland. The residents of Missouri, which has a slightly larger population, would have to pay a larger share of a direct tax, even though Maryland is a significantly wealthier state. The absurdity of results like that, these skeptics posit, essentially renders a wealth tax constitutionally unworkable.
However, another school of thought points to that same absurdity to argue that a wealth tax is permissible under the correct reading of the Constitution. Legal scholars Dawn Johnsen and Walter Dellinger argue that the current legal understanding of what a “direct tax” is under the Constitution is far too regimented. That understanding is drawn from the 1895 case Pollock v. Farmers’ Loan & Trust Company, which invalidated a national income tax on the grounds that a “direct tax” under the Constitution — i.e., a tax that must be apportioned — includes any tax on real or personal property, plus any tax on the income earned from that property.
Johnsen and Dellinger argue that Pollock is a wrongly-decided relic from the Court’s largely-repudiated Gilded Age Lochner era. It was a time when a conservative Supreme Court was wielding the Constitution as a bludgeon for the rich and powerful. Pollock itself was inflected with the justices’ visceral opposition to government redistribution. In a concurring opinion, Justice Stephen Field wrote: “The present assault upon capital is but the beginning,” foreseeing a “war of the poor against the rich[.]”
More significantly, Pollock also reversed course from the 1796 case Hylton v. United States, decided less than a decade after the Constitution’s drafting, with several of its Framers on the Supreme Court. In that case, the Court upheld a federal tax on carriages (a tax targeting the wealthy imposed on the luxury vehicles of the day), taking a more more practical view of what should be considered a “direct tax” subject to apportionment. As Johnsen and Dellinger put it, Pollock stood for the “principle that ‘direct’ should be construed narrowly to apply only where apportionment would work in practice and not for any form of tax for which apportionment by state population . . . would not be sensible or just.”
Indeed, the Court faithfully applied Hylton for over a century. In the 1881 case Springer v. United States, the Court upheld an unapportioned national income tax. The key consideration of what constitutes a “direct tax,” the Court held, was whether apportionment among the states would lead to inequality and injustice, for “where such evils would attend the apportionment of a tax, the Constitution could not have intended that an apportionment should be made.”
Pollock reversed course from this precedent. The case inspired such outrage that its holding — prohibiting federal income taxes — led to the passage of the Sixteenth Amendment. However, while that Amendment overrode Pollock to permit a federal income tax, it did not affirmatively do away with the decision’s standard for which other taxes require apportionment, nor did it lend clarity to the Constitution’s use of the phrase “direct tax.”
Indeed, the ambiguity in the Constitution’s use of the phrase “direct tax” was deliberate. It is masking an ugly compromise over slavery embedded within the Constitution that brought Southern states into the fold. Delegates from the South, with its slaves and abundant land, feared that southern property would be targeted for taxation by the new federal government. Thus, the apportionment requirement ensured that any taxes on “real property” (including slaves) would be assessed based on state population, not the actual property holdings of the states.
Legal scholar Bruce Ackerman argues that the direct tax requirement ought to be considered a dead letter in the wake of the Thirteenth Amendment’s prohibition of slavery. At the very least, it would be wise for courts to strictly construe the direct tax provisions of the Constitution, given their legacy rooted in a compromise with slavery. Moreover, as Johnsen and Dellinger point out, slavery’s vicious legacy lives on today in a persistent and widening racial wealth gap. It would be a “terrible irony,” they write, “if Pollock’s misreading of the ‘direct’ tax apportionment limitation — the product of the Constitution’s ‘original sin’ in accepting slavery — were to hinder Congress in addressing a wealth disparity that today overwhelmingly disadvantages African Americans.”
What would the current Supreme Court would make of this tangle of old doctrines in a potential constitutional confrontation with President Warren’s wealth tax? The conservative justices, with their philosophical commitment to constitutional originalism, may find it uncomfortable to dismiss the functional approach of the 1796 Hylton Court, featuring a bench full of former constitutional framers in the flesh. However, this Court is predisposed to favor the interests of business, the wealthy, and the Republican agenda. It has old precedent on the books from its spiritual predecessors from the Gilded Age that it can point to as the binding law of the land, an easy leap back to the Lochner era. Conservative judges have endangered progressive legislation before with far less jurisprudential grist to work with. It’s all too easy to envision the Court’s conservatives spinning a wealth tax into an affront to liberty and a big government regulation of the “inactivity” of holding wealth.
This gets to a larger urgency for progressives that is bigger than just a wealth tax: the need to constitutionalize the progressive agenda. That doesn’t mean contorting progressive policy to fit within the four tight corners of what conservative judges say the Constitution means. Rather, it means anchoring the progressive agenda in core constitutional values. Too often, the left neglects to explicitly connect its agenda to principles that resonate in the Constitution and our founding. But the progressive agenda is more likely to succeed politically with the Constitution on its side. Constitutionalizing a policy goal helps to mainstream it within American political discourse.
Doing so also, of course, protects the legal standing of progressive policies. The right-wing Supreme Court must be made to understand that it does not have a monopoly on the Constitution. Progressives must offer a competing vision of the Constitution and how public policy can further it from the get-go, rather than argue from a defensive crouch. The Supreme Court must be put back on its heels so its conservative justices cannot position themselves as defending the Constitution from a-constitutional progressives.
This might mean reconceiving the Constitution as a class-conscious document, as legal scholar Ganesh Sitaraman has done. Sitaraman argues that the Constitution was created presuming that the relatively equal distribution of wealth and income that existed at the time would persist — and indeed, would be essential to the sustainability of our system of government. The Founders chose not to emulate the “class warfare” constitutions adopted in old Europe (think of Britain’s House of Commons / House of Lords system), instead creating a governmental structure that presumes a broad middle-class society, rather than one of polarized class hierarchy.
Massive inequalities upend this constitutional presumption, meaning that efforts to correct them — like a wealth tax — redeem the values of the Constitution. Indeed, Eric Levitz of New York and made and Jamelle Bouie of the New York Times started making this case in defense of the populist tax policies emanating from Warren and Rep. Alexandria Ocasio-Cortez — proposals grounded in the statements and beliefs of Thomas Jefferson and the political philosophers that guided the Founders.
Within the text of the Constitution, progressives could point to the Constitution’s Guarantee Clause as an anchor for anti-oligarchy policies like a wealth tax and new tax rates on millionaires. Article IV of the Constitution states: “The United States shall guarantee to every State in this Union a Republican Form of Government.” After the Civil War, slavery opponents like Massachusetts senator Charles Sumner argued that redistributive reforms like the Freedmen’s Bureau — which had originally contemplated distributing land to freed slaves — could be justified as “carry[ing] out the guarantee of a republican form of government.” As Sitaraman puts it in The Crisis of the Middle-Class Constitution, redistributive “[e]conomic policies . . . were constitutionally permissible, in part, to ensure that states reentering the Union were truly ‘republican.’” Today, similar logic could be used to justify policies meant to ensure that a gargantuan wealth gap between the rich and the poor does not swallow up our republican form of government.
Warren has put forward a worthy proposal to curb the forces of oligarchy that threaten our democracy. Perhaps the wealth tax is just a fleeting campaign statement meant to signal progressive populism. Or perhaps it will go on to become a signature priority of the next presidential administration. Either way, the legal debate surrounding it is a useful wake-up call for progressives to get serious about shaping a constitutional discourse around their agenda.