Below is my column in the Hill on the renewed effort to pass a wealth tax by the Biden Administration. The effort to tax “unrealized capital gains” has been growing for months as an alternative to Elizabeth Warren’s wealth tax.
However, it raises similar constitutional questions. What was most notable is that the new tax was simply put into the Senate bill with the support of the Biden Administration without a single hearing or debate. That led to objections from figures like the Chair of the House Ways and Means Committee Rep. Richard Neal who noted that it was not vetted or studied. It is not part of the House bill.
However, many are still pushing the concept despite the significant questions over its constitutionality.
Here is the column:
President Joe Biden has struggled to get the massive new spending bill through Congress with a pitch that would make Joe Isuzu blush: “We talk about price tags. It is zero price tag” and “My Build Back Better agenda costs zero dollars.”
The trillions in spending is “free” — according to Biden — because others will pay for it. It’s like claiming your college tuition was free because your parents got the bill.
Biden is hardly the first politician to shrug off spending by saying “the rich will pay for it.” Indeed, during the Democratic primary, the candidates lined up behind figures like New York Mayor Bill De Blasio declaring “we will tax the hell out of the wealthy.” Of course, the “eat the rich” mantra has been part of politics for over 200 years. What is different now is that President Biden has embraced a plan to tax the rich that is not just unworkable and unprecedented but likely unconstitutional.
The Biden administration appears ready to give up on a massive tax increase — but intends to keep its “freebee” pledge by taxing the “super rich.” However, it is not the target but the tax that is different. The administration wants to tax “unrealized capital gains,” a term akin to oxymorons like “exact estimate,” “openly deceptive,” or — perhaps more apropos with the Biden tax — “going nowhere.”
Biden is suggesting that he will pay for the new spending by taxing people not on what they have earned but what they could earn from selling assets. Most people have assets that increase in value over time. Consider a family home. Over the course of many years, it can easily double in value, but you do not “realize” that money unless you sell it. Biden is suggesting that the government should start taxing you based on any increased value of the things you own, even though you have not actually made that money. It doesn’t matter that the home or stock or art could ultimately go down in value after you are taxed on the higher value. Indeed, if you tax some unrealized gains, you could in extreme cases force people to sell assets like a home to pay the tax on income that they did not make.
The administration has started where few would object: billionaires.
The proposal would apply to fewer than 1,000 individuals who are worth more than $1 billion or have annual incomes above $100 million for three consecutive years. Taxing the appreciating asserts of a bunch of fat cats is hardly a rallying cry for street protests.
The “Wyden plan” would allow for a one-time tax on unrealized gains, with an annual tax on each billionaire’s gain in net worth. Initially, it is expected to address losses, illiquid assets and enforcement; however, the limitations to the super-rich is politically rather than constitutionally driven.
And, if successful, it is unlikely that this untapped source of money would be confined to the Bezos class. It would allow the government to tax wealth.
The point is that the Biden administration is seeking to tax the value of assets rather than income.
In many ways, this is a more creative way to achieve Sen. Elizabeth Warren’s (D-Mass.) long-standing dream of a wealth tax. As I have addressed earlier, the wealth tax runs counter to constitutional limits on the taxation authority of Congress. Article One permits Congress to “lay and collect taxes, duties, imposts and excises.” However, it requires that these “be uniform throughout the United States.” 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.”
There are arguments that a wealth tax would be constitutional, and there are cases on both sides of that issue. Advocates cite estate taxes and other forms of taxation. However, there is then the small problem of the 16th Amendment, which states “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” The 16th amendment was passed after the Supreme Court struck down an income tax as an unapportioned direct tax. The amendment was passed to allow for an expanded federal tax authority, but it was specifically limited to “income.”
While Warren thrilled liberal audiences by promising to go after the “Rembrandts … diamonds and … yachts” of the wealthy, it was practically and constitutionally dubious. Now however, the Biden administration wants to take a less direct and smaller step toward the same such tax. If successful, there would be little to stand in the way of a full wealth tax on all Americans.
Such a tax, however, would have to pass constitutional muster with the Supreme Court, which would have to accept the oxymoronic notion of non-income income. It would also have to sign off on the idea of the government taxing the value of assets that continually fluctuate or change. It is like waiting for a gambler to win a hand at blackjack in Vegas and taking 37 percent of his chips before he can play the next hand.
Underlying this push is the notion that the wealth of individuals is really “our” money being kept from us. That was born out during the last primary debates when Warren made a show of gleefully rubbing her hands together after saying that she would take some of the wealth of her opponent John Delaney, a self-made millionaire worth $65 million. People pay taxes on income when it is earned. They also pay taxes when assets are sold. Now the Biden administration wants to tax assets before they become income — imposing a continual taxation of wealth.
Even law professors pushing this tax admit that it is not clear that it would pass constitutional review. If it didn’t — with Biden’s “free” trillions already spent — the public, already saddled with a deficit in the trillions, could find itself the recipient of a bill for trillions more for what they thought was free tuition, day care and other programs.
Some lies can be harmless, even charming. When Joe Isuzu promised customers that a new car “has more seats than the Astrodome,” you did not have to buy the car. With this new tax, Joe Biden is promising a free car that the public may have to buy whether they like it or not.