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Over the last few years, several high-profile politicians have pushed to impose a federal “wealth tax.” For example, a recent bill introduced in the Senate would create a two percent tax on the value of assets between fifty million and one billion dollars, plus a higher percentage on wealth valued over one billion dollars. The proponents of the tax argue that it would reduce the growing wealth inequality in the United States, while opponents say that it would disincentivize investment in the American economy.

Policy arguments, however, are only relevant if the federal government has the authority to institute such a tax. Under our Constitution’s limited grant of authority to the government, there exists an intricate framework of how the legislature may impose certain taxes. First is the broad grant that “Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises . . . but all Duties, Imposts and Excises shall be uniform throughout the United States . . . .” This broad grant, however, is subject to the caveat that “[n]o Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” The direct tax carve out is reiterated elsewhere in Article I, as “Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union . . . .” Exactly what qualifies as a “direct” tax has long perplexed scholars and judges. There is another grant of taxing authority in the Constitution, which allows the government to impose an income tax—even though it has historically been considered “direct”—without meeting the apportionment requirement. Most, if not all, commentators have conceded that a tax on property could not be considered an “income” tax, so that issue will not be addressed here.

This Note will argue that any wealth tax will necessarily qualify as a direct tax under Article I. Therefore, although Congress does have the capacity to levy a wealth tax, the requirement that it be apportioned among the several states renders it economically and politically infeasible to actually enact the tax. To bolster this conclusion, it will look into preratification practices of the colonies, which will help to inform the original public meaning of “direct taxes.” The word “direct” to describe a tax was essentially invented by the Founders, so that phrase in isolation does not provide much meaning. However, the Note will assert that only a narrow class of taxes were regularly “apportioned” before ratification, so the historical practice should therefore give meaning to the public understanding of “direct taxes”. Second, it will analyze the debates surrounding ratification of the relevant constitutional provisions. These statements shed light on the distinction between direct and indirect taxes that the Framers intended, and further elucidate the original meaning. While there was no one definition of “direct,” the Framers consistently used the term to describe taxes on the value of property. Lastly, in light of ambiguous text, it will seek to determine whether postratification practice by the legislature and courts effectively gave the provisions a definite meaning.

There have been a number of articles written about the original meaning of a “direct” tax. However, there is a surprising dearth of scholarship about the public meaning of the tax. The originalist-focused articles seem to center around the Framers’ intent (Federalist and Anti-Federalist papers, ratification debates, etc.) surrounding the Direct Tax Clause. While this is relevant for constitutional purposes, this Note aims to add to the existing research by highlighting the distinctions between direct and indirect taxes in historical practice, both before and around the time of ratification.



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