Billionaire Wealth Tax Raises Legal Questions

A “billionaire” wealth tax proposed by Democrats is likely to fail in the legislature, but it has also raised legal questions as to how constitutional such a measure would be.

Earlier this week, Senator Ron Wyden (D-OR) proposed a “Billionaires Income Tax,” which “would apply to roughly 700 taxpayers and raise hundreds of billions of dollars.”

Wyden noted that “Only taxpayers with more than $100 million in annual income or more than $1 billion in assets for three consecutive years would be covered by the proposal.”

The proposal would involve taxing “gains and losses from assets like stocks,” essentially taxing investments before a person sells an asset.

The policy idea has been pushed by Wyden for years, but it has raised concerns about the legal hurdles such an initiative would face, and the reasoning behind such a measure.

The 16th Amendment to the Constitution 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.

As reported by The Wall Street Journal, the bill would probably face immediate legal challenges as billionaires would be willing to pay millions of dollars to fight such a proposal that could cost them billions of dollars in tax payments.

The Journal noted:

The likely argument: Taxing capital gains that haven’t been realized yet falls outside the income taxes allowed by the 16th Amendment that don’t have to be apportioned based on state population. Under current law, individuals pay capital-gains taxes only when the gain is realized, typically when they sell an asset, such as a stock, closely held business or painting.

“Anything that involves a large amount of dollars and has some non-frivolous angles to challenge it, you’ll see a challenge,” Joseph Bishop-Henchman, vice president of tax policy and litigation at the National Taxpayers Union Foundation, told the Journal. “To the extent that it’s unapportioned and on unrealized income and mandatory, it’s going to raise serious constitutional questions.”

The wealth tax has been attempted in other countries in the past, but it has largely been unsuccessful, and thus, often repealed.

A 2019 report by the Cato Institute noted that “[m]ore than a dozen European countries used to have wealth taxes, but nearly all of these countries repealed them, including Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden. Wealth taxes survive only in Norway, Spain, and Switzerland.”

When countries have imposed a wealth tax on citizens,

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