Calvin Johnson and Kennerly Davis on the Constitution and the Wealth Tax
Michael Ramsey

[Senator] Warren’s wealth tax would be constitutional.   The defining characteristic of a “direct tax,” according to the Founders, is that it is the kind of tax in which apportionment among the states by population would be appropriate and reasonable.    If apportionment among the states by population is not appropriate and reasonable, the tax is not a direct tax.

 

The original meaning of “direct tax” was a tax directly on states, that is, requisitions.  The term “direct tax” expanded, as language often expands, to include the kinds of state taxes that could be used to satisfy state requisitions.  But if a tax could not be reasonably and appropriately apportioned among states by population, the tax does not sufficiently resemble a state requisition and so the tax is not direct.  Thus, for example a tax on imports was not a direct tax because it could not be known in which state the goods would settle and which state should get credit in its quota under a requisition.  Excises, duties and carriage taxes were once considered direct taxes because they were part of the system of requisitions upon the states, but they were excluded from the definition of “direct tax” once it was known that they did not have the necessary reasonable and appropriate apportionability.

 

Today, apportionment of a wealth tax by population is not reasonable or appropriate.   Wealth per capita in poor Mississippi is just over half of wealth per capita in rich Maryland.  Apportionment by population would mean that tax rates in Mississippi would have to be almost twice the rates in Maryland.  The result has no policy justification, but would simply arise by necessity from the fact that Mississippi is such a poor state that is has so little tax base over which to spread its quota.  Because apportionment would not be reasonable, a tax on wealth today would not be viewed as direct using the Framers’ original reasoning.

 

At the Federalist Society Blog, J. Kennerly Davis (former Deputy Attorney General of Virginia):  The Many Issues Raised by Senator Warren's Wealth Tax.  The post does not come to a firm conclusion but makes this suggestive point:

 

Thus, the Framers divided federal taxes into two mutually exclusive categories: direct taxes subject to apportionment, and all other non-direct taxes such as duties, imposts and excises subject to the uniformity requirement. Non-direct taxes generally fall on commercial transactions and related activity such as imports, exports, manufacturing activity, sales and consumption. The Framers considered non-direct taxes to be a relatively safe form of taxation because they tend to be self-limiting for reasons related to basic economics. If Congress raises non-direct taxes, that will increase the cost of the commercial activities being taxed. The commercial activity will decrease as a result of the greater economic burden, and so will government revenue. Congress has a real incentive to be reasonable, as well as a requirement to be uniform.

Direct taxes, by contrast, are not self-limiting in the way that taxes on commercial activities are. The Framers were more concerned that taxes levied directly on individuals might be increased to abusive levels, so they sought to limit the potential for abuse with the rather cumbersome apportionment requirement.