One of Sen. Elizabeth Warren’s first proposals upon joining the 2020 presidential field was a wealth tax. Warren would impose an annual tax of 2 percent on family assets in excess of $50 million, which would increase to 3 percent for assets above $1 billion. Overall, this tax would hit 75,000 families in the country, who make up 0.01 percent of the population but hold 10 percent of the nation’s wealth. Warren’s tax, if enacted, would be a major step in reversing the dramatic increase in the concentration of wealth that has occurred since the Reagan years.
Though clearly already popular, a wealth tax will face both political and legal challenges. Critics of the proposal, such as legal scholar Jonathan Turley, have argued that the Constitution itself bars the enactment of a Warren-style wealth tax. These assertions, though, cannot withstand serious historical scrutiny. If the Roberts court were to hold true to its purported originalist principles, it would have to uphold a wealth tax.
Critics assert that the tax is barred by a special constitutional exception, which requires that a “Capitation, or other direct, Tax” should not be imposed uniformly, but should be allocated on the basis of each state’s population. This proviso was part of the notorious Three-Fifths Compromise, in which the South agreed to pay a head tax on its slaves in exchange for gaining extra seats in the House of Representatives and the Electoral College. From the very beginning of the republic, however, the Supreme Court read the capitation clause narrowly, to permit Congress to impose nationwide taxes on wealth outside of such head taxes.
The court’s 1796 decision in Hylton v. United States served as a decisive precedent. Two years earlier, Congress had levied a direct tax on luxury carriages, imposing it uniformly on all carriages throughout the nation. The owners of fancy carriages immediately protested that this tax on their wealth was one of the “other direct taxes” that the capitation clause required to be apportioned on the basis of each state’s population.
A unanimous court rejected their claim. In his lead opinion, Justice Samuel Chase made it clear that the “rule of apportionment is only to be adopted in such cases where it can reasonably apply.” Because luxury carriages were not equally distributed amongst the states, it was unreasonable to insist on apportionment. Hylton’s “rule of reason” prevailed throughout the early republic, with the courts repeatedly enforcing Congress’ decision to impose property taxes, except for those on slaves, at a uniform rate across the nation.
During and after the Civil War, Congress added an income tax to the heavy property taxes needed to finance the war and Reconstruction. Since the courts followed Hylton, they never questioned the constitutionality of these taxes. As a consequence, the drafters of the 14th and 15th amendments saw no need to repeal the capitation clause.
Although the income tax was repealed after Reconstruction, it was reinstated by Congress in 1894 in response to populist demands for greater economic equality. It was only then that a narrowly divided court defied 100 years of history and dramatically expanded the “direct tax” provision by striking down the income tax in Pollock v. Farmers’ Loan and Trust Company. As in its contemporaneous decision in Plessy v. Ferguson, John Marshall Harlan issued a compelling dissent, condemning the court for reviving the legacy of slavery to bar contemporary demands for social justice. The majority responded with a murky opinion that ducked the fundamental issues he raised.
Nevertheless, the opinions issued by Harlan and his fellow dissenters served as a rallying cry for a mobilized popular movement demanding the repudiation of Pollock. Within three years, Congress responded with a wealth tax on inheritance in 1898—challenging the court to face the issues it had ducked in Pollock.
The court renewed its confrontation with the question in 1900 in Knowlton v. United States. The critics of the new wealth tax contended that the Pollock decision’s radical expansion of the direct tax provision required the invalidation of Congress’ new initiative. But instead of holding firm, the five conservative justices, executing a “switch in time,” joined Harlan and the other dissenters in unanimously upholding Congress’ wealth tax. Critically, the opinions in the case explicitly returned to the “reasonableness” test that the court had consistently followed since Hylton in 1796. In writing for the five conservatives, Justice Edward Douglass White expressly cited Hylton’s insistence that “apportionment … involves valuations and assessments which are arbitrary and should not be resorted to but in case of necessity.” Harlan and the Pollock dissenters were even more emphatic in their condemnation of the earlier decision as an aberration.
Knowlton set the stage for Congress’ consideration of the 16th Amendment in 1909. The preceding election swept a populist coalition into Congress. Leading senators immediately proposed to defy Pollock by passing another income tax statute. A leading progressive, Sen. Joseph Bailey, explained:
I do not believe that that opinion [in Pollock] is a correct interpretation of the Constitution, and I feel confident that an overwhelming majority of the best legal opinion in this Republic believes that it was erroneous. With this thought in my mind, and remembering that the decision was by a bare majority, and that the decision itself overruled the decisions of a hundred years, I do not think it improper for the American Congress to submit the question to the reconsideration of that great tribunal.
With Bailey’s initiative heading to the floor, the newly elected president, William Howard Taft, intervened to stop it dead in its tracks. As a strong defender of judicial review, he didn’t want the political scene to be dominated by the enactment of a statute that would force the court into the humiliating position of confessing that it had made a big mistake in handing down Pollock in the first place. As a consequence, he instead convinced his fellow conservatives to propose a formal constitutional amendment to correct the court’s blunder.
Because the justices had already returned to Hylton’s traditional “rule of reason” in Knowlton, it seemed sufficient to grant Congress the power “to lay and collect taxes on incomes, from whatever source derived.” Cordell Hull, a leading proponent of the amendment in the House, put it this way:
In common with the sentiment of the American people and the great weight of opinion of the legal profession throughout the country, its friends in Congress unalterably believe that the decision of the Supreme Court rendered in the Pollock case in 1895, pronouncing the income-tax law unconstitutional for lack of apportionment, is clearly unsound, and in justice to the country and to the Supreme Court itself ought not to stand as the law of the land. Meaning no disrespect to the high tribunal rendering it, I avow that this decision has not met the approval of, nor been acquiesced in as sound law by, any considerable number of either the American bar or the American people. This decision presents one of the very rare instances in the Nation’s judicial history in which it is well-nigh universally agreed that the greatest judicial tribunal on earth erred.
This history should be of decisive importance to the Roberts court, now dominated by an “originalist” majority. Just as serious originalists interpret the 1787 Constitution in the light of the Federalist Papers, written by Madison and Hamilton, they have an equal obligation to interpret the 16th Amendment in the light of the prevailing understanding of its framers—who, like Bailey and Hull, made it perfectly clear that in granting Congress the power to tax incomes, they were repudiating Pollock’s entire effort to broaden the scope of the capitation clause beyond the “reasonableness” doctrine announced in the early years of the republic.
If Democrats sweep into Congress and the presidency in 2020, they should not hesitate to advance a wealth tax if they are convinced of its merits—and challenge the current court to be true to its principles and consider the original understanding of the framers of the 16th Amendment. It is an open question, of course, whether Justices Samuel Alito, Neil Gorsuch, Brett Kavanaugh, John Roberts, and Clarence Thomas will be true to their originalist principles, or whether they will follow Pollock and defy both the traditional “reasonableness” doctrine announced in 1796 and the original understanding of the framers of the 16th Amendment.
Only one thing is clear: If they decide to revive Pollock, despite its inconsistency with the original understanding of 1787 and of 1909, they will not only provoke a grave crisis but discredit their professions of fidelity to the originalist principles they claim to champion.