The wealth tax that wasn't a wealth tax isn't even a tax, now. The Democrats had a meticulously constructed 107-page proposal to pay for a large chunk of their spending plans with a tax on billionaires, but it died ignobly on Wednesday, the same day it was unveiled.
Why it matters: The dream of a wealth tax will never die as it so neatly generates revenue by reducing inequality. But there are three main reasons why that dream is likely to remain just a dream for the foreseeable future.
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1. The Constitution:
Article I of the Constitution, Section 9, bars any "capitation, or other direct, tax" — unless such a tax is levied in direct proportion to the number of people who live in each state.
The Supreme Court ruled in 1895 that a federal income tax was therefore unconstitutional. The 16th Amendment, ratified in 1913, made income tax constitutional, but many scholars believe it doesn't cover a wealth tax.
An outright tax on wealth, as proposed by Sen. Elizabeth Warren (D-Mass.), would face a massive obstacle in the current Supreme Court.
The billionaire tax proposed this week didn't tax wealth directly — billionaires would owe nothing if their wealth was falling rather than rising. But it would still have faced a stiff legal challenge.
2. The billionaires:
The world's richest person, Elon Musk, opposed the tax in public; it's reasonable to assume that the overwhelming majority of the 700 or so other billionaires affected by the bill opposed it in private.
Those billionaires, collectively, have enormous political power — and they also have the best legal advice that money can buy.
It's hard to tax illiquid wealth, but if you try to carve out exceptions for illiquid assets then the private-wealth industry will always try to find a way to turn liquid assets into illiquid ones, for tax purposes, or to create structures that otherwise seek to avoid the tax.
The billionaire-tax proposal attempted to close the loophole that allows the ultra-rich to borrow against their appreciated assets instead of selling them, thereby avoiding a taxable event. When one loophole closes, however, another tends to open.
The American Dream envisages accumulating wealth through hard work, while a wealth tax — almost explicitly Marxist, in the sense of "from each according to his ability" — cuts in the exact opposite direction.
Many Americans, including Sen. Joe Manchin (D-W.Va.), who killed the billionaire tax yesterday, see something unfair about singling out billionaires for extra taxation — especially when many of them dream of one day joining those ranks themselves.
The bottom line: A wealth tax, or even something like the billionaire tax that's wealth-tax adjacent, carries an unmistakable aroma of socialism. And America isn't (yet) a socialist country.
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