Does the Constitution Preclude a Wealth Tax?

We already tax certain unrealized asset appreciation.

To the Editor:

Unfortunately, it isn’t a certainty that courts would rule a wealth tax to be an unconstitutional “direct tax” (“Biden’s Big Wealth Tax? Unconstitutional,” Review & Outlook, March 11). In 1895 the Supreme Court ruled 5-4 that an 1894 income tax was unconstitutional only because it included an unapportioned direct tax on income from real estate. The 16th Amendment simply removed that impediment.

We already tax certain unrealized asset appreciation. Futures contracts and straddles are “marked-to-market” every year-end and taxed. This was upheld by two circuit courts. The Ninth Circuit declared, “Failure to withdraw his gains immediately was little different from a failure to withdraw interest which has been credited to a bank account,” refusing to rule on whether “Congress could tax gains inherent in capital assets prior to realization.”

Even renouncing citizenship may not help. We also tax unrealized asset appreciation of wealthy individuals seeking to expatriate.

Jay Starkman, C.P.A.
Atlanta

This letter was originally published in the Wall Street Journal on March 14, 2023 under the title, “Does the Constitution Preclude a Wealth Tax?”