Document Type

Article

Publication Date

7-2025

Abstract

A federal wealth tax is high on the wish list of progressives, but is it constitutional? This Article shows that under the original public meaning of the Constitution, a wealth tax is a “direct tax” that must be apportioned. This means that the percentage of revenue collected in each state must match its percentage of the population. For instance, if two states both have three percent of the population, each must provide three percent of the revenue. This leads to an unappealing outcome: if one state is less wealthy, it needs a higher tax rate to supply its share.

Article I requires apportionment only for a “direct tax,” not for “duties, imposts, and excises.” This Article emphasizes a pattern in taxes that do not have to be apportioned. They are levied on transactions: imposts apply to imports, and excises apply to domestic transactions. These taxes on transactions were exempted because they are hard to apportion. By contrast, a tax that is levied not on transactions — but on taxpayers themselves — is “direct,” and thus is subject to apportionment. In other words, the Framers considered a tax “direct” when it applies without a transaction. Under this definition, a wealth tax is direct because it is imposed directly on taxpayers, regardless of whether they are engaging in a transaction.

In proposing this definition of “direct” taxes, we reject the narrower interpretation, espoused by many judges and commentators over the years, that the only “direct” taxes are head and real estate taxes. At ratifying conventions, John Marshall and other Framers offered a broader definition that included taxes on personal property. Their view reflects the practice of states at the time, which taxed these assets.

To rescue wealth taxes from apportionment, many distinguished commentators have offered a range of theories. For example, some treat apportionment as a mistake, while others dismiss it as mainly a protection for the shameful institution of slavery.

But these commentators do not give the Framers enough credit. The taxing power was too important for them to be sloppy or to focus only on the institution of slavery. The Framers wanted to solve the fundamental problem under the Articles of Confederation (insufficient revenue) without recreating the fundamental problem under imperial rule (taxation without representation). Specifically, they sought to discourage what we call “fiscal raids,” in which states join forces to enact national taxes that mostly burden other states. As Professors Bruce Ackerman and Akhil Amar have shown, this risk could have arisen with an unapportioned tax on enslaved persons because it would have been collected mainly in the South. But we show that the same was true of other region-specific practices, such as the presence of tobacco plantations and undeveloped land in the South, as well as ships, timber, farms, and manufacturing in the North. Apportionment protected all these region-specific assets from federal fiscal raids. In short, apportionment was fundamental to the Framers’ vision of federalism.

Our interpretation is in some tension with the early case of Hylton v. United States, which upheld an unapportioned duty on carriages. A common interpretation of this holding — that the Court spared a type of wealth tax (i.e., on carriages) from apportionment — is inconsistent with our reading of the Direct Tax Clause. Yet there is another way to interpret Hylton’s holding, which aligns with our view: the Justices classified the carriage tax as indirect because they considered it a delayed sales tax, which was paid over a number of years. Admittedly, Hylton also has dicta that is inconsistent with our interpretation: the Justices said that the only direct taxes were head and real estate taxes. Notably, though, they hedged this view in various ways.

The holdings of subsequent cases align with our view, with only one exception: Pollock v. Farmers’ Loan & Trust Co. We agree with Pollock that there are direct taxes other than head and real estate taxes — a correction of the overly narrow dicta in Hylton. But unlike the Pollock Court, we do not classify an income tax on income from property as direct. Rather, we consider it indirect as long as it is a tax on transactions, such as wages, rent, and dividends, which are classic transactions by definition.

Disciplines

Law | Tax Law

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