Tuesday, August 31, 2010

Wealth Tax

By Mike Dorf

The recent Jane Mayer expose on the billionaire Koch brothers has been understandably garnering considerable attention. Mayer documents the extent to which said brothers have been bankrolling the Tea Party movement to advance both their economic libertarian ideology and  their business interests.  The article is a useful antidote to the view that the only serious threat to democracy from concentrated wealth derives from corporations.  That view, fostered by the Citizens United case, misapprehends the real problem: concentrated wealth itself.  Corporations are merely one vehicle for aggregating enormous wealth.

Thus, anyone concerned about our political economy ought to be no less concerned about giant pools of money in the hands of natural persons than in the hands of corporations.  Indeed, the former is arguably a greater threat; diffuse corporate ownership makes it less likely that corporate treasury funds will be used to fund an idiosyncratic political agenda than will the funds of an individual.

Here I'd like to suggest a politically infeasible response, mostly to explore what constitutional reaction it would trigger.  The response I have in mind is a wealth tax, the goal of which would be to reduce individual fortunes. The core idea would be to forbid fortunes from growing so large as to permit anyone to use that fortune to rig the political system in his or her interests.  I'm not sure what the largest permissible fortune ought to be, atlhough something on the order of $10-20 million strikes me as plenty high enough.

Now a few thoughts:

1) Yes, I get that this is a non-starter politically.  But at the same time, if the right is going to label even tepid regulatory measures as "socialist," there's really no political harm in enacting actual socialist programs.

2) A wealth tax of the sort described would make the NBA salary cap unnecessary.  Let's go Knicks!

3) A federal wealth tax could well be unconstitutional as a "direct tax" that is not apportioned by state, although it is not clear whether current Supreme Court doctrine is as restrictive of such direct taxes as the old jurisprudence per Pollock v. Farmers' Loan & Trust Co..

4) Even assuming a federal  wealth tax would not run afoul of the apportionment requirement, I worry that the Court that gave us Citizens United might strike it down as a violation of the First Amendment.  After all, a law that does not facially discriminate on the basis of content or speaker can nonetheless be invalidated as content-based or speaker-based if it is motivated by content-based or speaker-based concerns.  More broadly, I worry that in the future, other facially content-neutral and speaker-neutral measures adopted for the purpose of curbing the distorting influence of money on politics could be struck down on the grounds that they discriminate against the views of the rich.  I would hope to be proven wrong, but one never knows.

5) Perhaps the strongest policy argument against a federal wealth tax is that it would drive capital to other countries.  Assuming we could get solid information on overseas accounts, super-rich Americans seeking to avoid payment of the wealth tax could still do so simply by becoming citizens of countries that do not have a wealth tax or, for that matter, an income tax, rubbing elbows with tennis greats on the streets of Monte Carlo.  But even that would have an upside, as the First Amendment may tolerate greater limits on the political speech of foreigners than of U.S. citizens.

13 comments:

Sam Rickless said...

Re (3), didn't the 16th Amendment and later cases take care of the apportionment worry?

Re (4), if the tax were facially neutral but ended up applying to individuals of a particular political persuasion, then it might be found unconstitutional in its application. But if one adopted a severely graduated income tax, the highest bracket would apply to Bloomberg and Gates, as well as to the Koch brothers. Moreover, because the highest bracket would surely still leave the super-rich with a great deal of money, I can't imagine that SCOTUS would find a problem related to "silencing".

Re (5), I doubt that the super-rich would actually move to Monaco. There are many advantages to living and working in the United States, and it would shock me to learn that the Koch brothers had moved to the Isle of Man or the Seychelles merely in order to save money.

One thought, though. It's not clear to me that a 10-20 million dollar fortune is enough to "rig the political system" in one's own interests. It might in a small State, but I live in California, where 20 million dollars is political peanuts.

Michael C. Dorf said...

Sam,

--The 16th Am exempts an income tax from the apportionment requirement for direct taxes but does not otherwise eliminate that requirement. A wealth tax is not an income tax and so would be subject to the requirement if deemed "direct."

--I agree that under existing doctrine, the wealth tax passes muster as content-neutral, but Citizens United and other cases suggest that laws must also be "speaker neutral" and I worry that at the end of that road lies a willingness to treat the singling out of the super-rich as speaker-based.

--Much would depend on what it takes to count as living in Monaco, etc. Apparently the pro tennis players who do it find it hard, but many of them do it anyway. My point was simply that if the wealth tax sufficiently changed the mix of advantages and disadvantages of living in the U.S. to motivate emigration, that would have an upside.

--Yes, I agree that $10-20 million is not enough to rig politics. That's why I would set the cap there. Anyway, this is just a thought experiment. If it turned out that $50 million or $100 million was the largest fortune one could have w/o being able to rig politics, that wouldn't change the analysis.

michael a. livingston said...

I think a wealth tax is a useful proposal on its own merits; many tax scholars have proposed one. I'm less sure what the relevance of the Koch Brothers "expose" has to do with it. The Tea Party movement isn't driven by Wall Street any more (and perhaps less) than Obama was by his moneyed contributors: indeed, one of the reasons such taxes are politically difficult is that liberal and conservative money can always agree on one thing, that is, their right to pay low taxes and indeed to receive tax subsidies for their "charitable" activities

Bob Hockett said...

If I remember my history aright, the Roman republic, and Florentine civic republican thinkers nearly 2000 years later, acted and advocated along lines like these, and on grounds much like those to which Mike appeals. Wealth's concentration in few hands, they observed, is inherently corruptive of the res publica - the 'public thing,' the polity. The res publica in these circumstances morphs into a res plutica - a privately held instrumentality of the few very rich. These thinkers were, and Mike is, quite right imho - especially in light of the fact that a well functioning res publica was prerequisite to these people's amassing such wealth in the first place.

There is of course also great irony to be found in the name of today's American 'Republican' party in light of these considerations. There is nothing republican about today's party that goes by that name. But scarce surprise here, one supposes, when we consider the antifederalist views of the 'Federalist' society, the anti-Keynes views of latterday 'Keynesians,' the anti-Marx views of many 20th century 'Marxists,' and so forth.

egarber said...

This might be a question for Neil:

Has the estate tax ever been challenged on constitutional grounds? What makes it an indirect tax (like the income tax) -- the transfer of the estate to heirs?

egarber said...

Also, my understanding is that the 16th Amendment didn't create a new type of tax (a non-apportioned direct tax); it simply clarifies that any kind of income tax is indirect, not subject to apportionment.

Is that how the SCOTUS has read it over the years?

michael a. livingston said...

I think the estate tax is in theory an excise tax on the act of dying and leaving property to one's heirs This is although it functions like a "snapshot" property tax, albeit one easily avoided in some cases I'm sure that it and every other tax have been constitutionally challenged at one point or another but it has obviously survived

Neil H. Buchanan said...

The doctrine regarding what constitutes "direct" and "indirect" taxes is so convoluted that I despair of ever understanding it (and certainly will not try to explain it here). If the Supremes ever decided that they wanted to do real mischief with the tax system, they could do literally anything they wanted (even beyond their usual boundless ways in other areas of law) by arbitrarily designating taxes any way they like.

Brian said...

The Court held that the estate tax is not a direct tax in 1900, in Knowlton v. Moore, http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=us&vol=178&invol=41.

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DThom said...

This is typical liberal silly-speak. Your view of the big picture is completely wrong and naive. While a reasonable wealth tax makes some sense, what you propose is just short-sited and ridiculous.

Which such an onerous tax, the world would be without Microsoft, Facebook, Apple or Google; there would be no cable TV or newspapers, and there would be no owners for professional sports teams.

Steve Jobs would not just go to live in the isle of man, he'd be working for a foreign company, as would every other visionary who drives the US economy. Why would these people bother to build better mousetraps when the government would take away the fruits of their work?

This kind of stupidity is why progressivism must be completely crushed, and why you can't "compromise" with ideas that are patently destructive to what this country is all about.

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