Sen. Ron Wyden (D-Ore.) has proposed a “billionaires tax.” Laughably, the first thing you notice about it is that it targets trusts value at ... $100 million. To the insatiably greedy and shamelessly profligate federal government, some $34 trillion in the red, a pittance such as $900 million is a mere rounding error. Still, Mr. Wyden must have thought that christening it a mere “multimillionaires tax” wouldn’t engender a sufficient level of envious rage among the masses in the great class warfare struggle.
When Uncle Sam goes after “the rich,” the government’s really planning to pick the pockets of the middle class, where collectively the real money is to be found. Even the corporate tax, despite its name, deceptively takes precious, hard-earned cash from those in the middle and at the bottom.
President Richard Nixon and a Democrat-controlled Congress in 1969 enacted the alternative minimum tax (AMT) to stop 155 super-rich individuals from getting away with paying no income taxes; but before it was fixed by President Donald Trump’s tax cut legislation in 2017, the AMT was taking money from no less than 62 percent of taxpayers who were earning $500,000 to $1 million annually—well off, yes, but hardly in the range of, say, Elon Musk or Jeff Bezos.
The taxation of wealth itself; the taxation of the income from one’s labor or successful investments; and the law’s keeping government’s hands off before an investor sells, say, a stock that has increased in value—that is to say, before he has unlocked his new money and can spend or reinvest it—these are all things more dangerously interrelated than many realize. The most stalwart champions of the free market consider it a moral issue that capital gains—the result of the sale of something for more than you paid, based on the market’s determination that it has increased in value—aren’t income. But the original framers of the U.S. Constitution believed that direct taxes on either what you have or what you’re getting give government a far-too-heavy hand over a free people.
Earlier this month, the U.S. Supreme Court heard arguments in Moore v. the United States, in which a couple is suing the federal government over the so-called mandatory repatriation tax targeting the unrealized gains of Americans holding shares in some foreign corporations. In the Moores’s case, their $40,000 investment in KisanKraft Machine Tools in India in exchange for 13 percent ownership was made more than 15 years ago. The wealth that they’ve made in the foreign firm is money that they’ve never touched, and they argue that the 2017-enacted levy violates the 16th Amendment, whose authorization of government’s income tax powers has always been understood as excluding increases in the value of unsold property.
As the Moores’s attorney, Andrew Grossman, told the justices: “‘Income’ was understood at the time of the 16th Amendment’s adoption to refer to gains coming into the taxpayer, like wages, rents, and dividends. Appreciation in the value of a home, a stock investment, or other property is not and never has been taxed as income.”
While all nine justices mulled the oral arguments on that, Mr. Wyden was nosing into Justice Clarence Thomas’s personal finances via a threatening letter to Justice Thomas’s attorney. This was despite Congress having no regulatory authority over the Supreme Court, since, like Congress and the executive branch, it was established by the Constitution.
It’s worth thinking about the fact that Mr. Wyden’s own son, Florida-based investment fund manager Adam Wyden, asked on the X platform, formerly known as Twitter, regarding his father, “Why does he hate us/the American dream so much?” and added: “Reality is: most legislators have never built anything ... so I guess it’s easier to mindlessly and haphazardly try and tear stuff down. Thankfully, I think I can compound faster than my dad and his cronies can confiscate it.”
Don’t be so sure, because politicians stop at nothing and take advantage of everything—even going back to the Constitutional Convention. The apportionment requirement for direct taxes found in Article 1, Section 9, of the U.S. Constitution—the root of what would many years later become Washington’s income tax authority—was an anti-slavery maneuver undertaken by New York’s Gouverneur Morris during the framing debates.
As the Supreme Court in its 1881 Springer decision noted, looking back at the history, Mr. Morris had “hoped the committee would strike out the whole clause ... He had only meant it as a bridge to assist us over a gulf,” the “gulf” being “the share of representation claimed by the Southern states on account of their slave population. But the bridge remained. The builder could not remove it, much as he desired to do so. ... It was silently incorporated into the draft of the Constitution as that instrument was finally adopted. It does not appear that an attempt was made by any one to define the exact meaning of the language employed.”
Long afterward, in 1913, popular resentment and envy of the successful drove ratification of the Constitution’s income tax amendment, and when Congress enacted a graduated system with a top rate of 3 percent on earnings of $50,000 or more, the House Ways and Means Committee asked that Americans “cheerfully support and sustain this, the fairest and cheapest of all taxes.”
A half-century later, the top rate of the “cheapest of all taxes” had reached 70 percent—although even a quarter-century after ratification, via surtaxes and other stratagems, it at times exceeded an effective rate of more than 90 percent.
The greed of government is never to be underestimated. And today, the Moore case portends a possible end to the semantic differentiation between income and property: Call it what you like, just hand over more of your damned money. As Mr. Grossman warned the justices, “The government cannot identify a single thing that Congress couldn’t tax as income under its position that realization is unnecessary.”
Solicitor General Elizabeth Prelogar, defending the government against the Moores, was pressed by Justices Samuel Alito and Neil Gorsuch as to whether the Biden administration even believed there were, in effect, any limits to the federal government’s taxation powers.
“Well, I certainly think that Congress has broad taxing power,” she responded. The Supreme Court, Ms. Prelogar said, “has said Congress has plenary power. It can tax people just for existing.”
And if the Supreme Court sides with the Moores and protects them from being taxed even on wealth that is, in effect, locked away from them, then according to Ms. Prelogar, “it would cause a sea change in the operation of the Tax Code and cost several trillions of dollars in lost tax revenue.”
Trump-appointed Justice Brett Kavanaugh seemed sympathetic and inclined not to use the case to rule definitively that income has to be realized to be taxed under the 16th Amendment, as the tax code has implicitly recognized for more than a century.
Which is preferable? The government having its multitrillion-dollar greed suppressed, or private investors, entrepreneurs—the employers of millions and the source of infinite invention, innovation, and prosperity—forced to sell off their assets every year to pay newly imposed taxes on the rising value of their locked-up, unrealized holdings?
The genius of our Constitution is its diffusion of powers through the separation of the branches, and checks and balances. When nothing that you own is off limits to the taxman, “We the People” and everything written below it become nothing more than words on parchment paper.
