Notre Dame Law Review

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Will Clark*

Over the last few years, several high-profile politicians have pushed to impose a federal “wealth tax.”  For example, a recent bill introduced in the Senate would create a two percent tax on the value of assets between fifty million and one billion dollars, plus a higher percentage on wealth valued over one billion dollars.[1]  The proponents of the tax argue that it would reduce the growing wealth inequality in the United States,[2] while opponents say that it would disincentivize investment in the American economy.[3]

Policy arguments, however, are only relevant if the federal government has the authority to institute such a tax.  Under our Constitution’s limited grant of authority to the government, there exists an intricate framework of how the legislature may impose certain taxes.  First is the broad grant that “Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises . . . but all Duties, Imposts and Excises shall be uniform throughout the United States . . . .”[4]  This broad grant, however, is subject to the caveat that “[n]o Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”[5]  The direct tax carve out is reiterated elsewhere in Article I, as “Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union . . . .”[6]  Exactly what qualifies as a “direct” tax has long perplexed scholars and judges.[7]  There is another grant of taxing authority in the Constitution, which allows the government to impose an income tax—even though it has historically been considered “direct”—without meeting the apportionment requirement.[8]  Most, if not all, commentators have conceded that a tax on property could not be considered an “income” tax, so that issue will not be addressed here.[9]

This Note will argue that any wealth tax will necessarily qualify as a direct tax under Article I.  Therefore, although Congress does have the capacity to levy a wealth tax, the requirement that it be apportioned among the several states renders it economically and politically infeasible to actually enact the tax.[10]  To bolster this conclusion, it will look into preratification practices of the colonies, which will help to inform the original public meaning of “direct taxes.”  The word “direct” to describe a tax was essentially invented by the Founders, so that phrase in isolation does not provide much meaning.  However, the Note will assert that only a narrow class of taxes were regularly “apportioned” before ratification, so the historical practice should therefore give meaning to the public understanding of “direct taxes”.  Second, it will analyze the debates surrounding ratification of the relevant constitutional provisions.  These statements shed light on the distinction between direct and indirect taxes that the Framers intended, and further elucidate the original meaning.  While there was no one definition of “direct,” the Framers consistently used the term to describe taxes on the value of property.  Lastly, in light of ambiguous text, it will seek to determine whether postratification practice by the legislature and courts effectively gave the provisions a definite meaning.

There have been a number of articles written about the original meaning of a “direct” tax.  However, there is a surprising dearth of scholarship about the public meaning of the tax.  The originalist-focused articles seem to center around the Framers’ intent (Federalist and Anti-Federalist papers, ratification debates, etc.) surrounding the Direct Tax Clause.[11]  While this is relevant for constitutional purposes, this Note aims to add to the existing research by highlighting the distinctions between direct and indirect taxes in historical practice, both before and around the time of ratification.

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         *      J.D. Candidate, University of Notre Dame Law School, 2024; B.S. in Accounting, Purdue University, 2017.  I would like to thank my wife, Bailey, for being such a positive and supportive partner throughout law school.  And thank you to all of the members of the Notre Dame Law Review for editing this article; my apologies that it is about taxation.  All errors (of which there certainly are some) are mine.

[1]      S. 510, 117th Cong. § 2901 (2021).  Senators Elizabeth Warren and Bernie Sanders are the “chief proponents” of this tax, which is supported by a number of politicians in the House and Senate.  Danielle Kurtzleben, How Would a Wealth Tax Work?, Nat’l Pub. Radio (Dec. 5, 2019, 5:00 AM), https://‌www.npr.org‌/2019‌/12‌/05‌/782135614‌/how-would-a​-wealth​-tax-work [https://‌perma.cc‌/PME2-757A]; see Greg Iacurci, Elizabeth Warren, Bernie Sanders Propose 3% Wealth Tax on Billionaires, CNBC (Mar. 1, 2021, 5:18 PM), https://​www​.cnbc​.com/2021/03/01/elizabeth-warren-bernie-sanders-propose-3percent-wealth-tax-on​-billionaires.html [https://perma.cc/93GM-GMUF].

[2]      See generally Dawn Johnsen & Walter Dellinger, The Constitutionality of a National Wealth Tax, 93 Ind. L.J. 111 (2018). 

[3]      See Kyle Pomerleau, A Property Tax Is a Wealth Tax, but . . ., Tax Found. (Apr. 30, 2019), https://‌taxfoundation.org‌/property-tax-wealth-tax‌/ [https://‌perma.cc‌/U5Q5​-QZLD].

[4]      U.S. Const. art. I, § 8, cl. 1.

[5]      Id. art. I, § 9, cl. 4 (the Direct Tax Clause).

[6]      Id. art. I, § 2, cl. 3.

[7]      See, e.g., Joseph M. Dodge, What Federal Taxes Are Subject to the Rule of Apportionment Under the Constitution?, 11 U. Pa. J. Const. L. 839, 847, 871 (2009) (saying that “[t]here is no definition of ‘direct tax’ in the Constitution, and none was offered to the delegates in the 1787 Constitutional Convention” and that “[t]he conclusion that best matches the historical data is that there was no clear consensus view of ‘direct tax’”).  This has been the position of academics for over a century.  See J. H. Riddle, The Supreme Court’s Theory of a Direct Tax, 15 Mich. L. Rev. 566, 566 (1917) (“[O]nly one thing is sure, namely, that no one knew exactly what was meant by a direct tax, because no two people agreed.” (quoting Edwin R. A. Seligman, The Income Tax: A Study of the History, Theory, and Practice of Income Taxation at Home and Abroad 569 (2d ed. 1914))).

[8]      U.S. Const. amend. XVI.  Specifically, the government may “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States.”

[9]      Some commentators have called for a creative combination of wealth and income taxes, whereby the government would use a citizen’s wealth in order to trigger a higher income tax rate, while staying within the bounds of the Sixteenth Amendment.  See generally Ari Glogower, A Constitutional Wealth Tax, 118 Mich. L. Rev. 717 (2020).  This solution, however, is beyond the scope of this Note.

[10]      As a simple example: If two states have the same population, but one state has twice the “wealth” of the other, the “poorer” state will pay double the tax rate of the richer state in order to reach the constitutionally required equal amount of both states.  See Dodge, supra note 7, at 845.

[11]      See Erik M. Jensen, The Taxing Power, the Sixteenth Amendment, and the Meaning of “Incomes,” 33 Ariz. St. L.J. 1057, 1066–80 (2001).