Elizabeth Warren's 'Wealth Tax' Is Punishment, Not Taxation

Does economic success deserve to be punished? The Democratic Party will have to answer in the coming primaries. Joe Biden is on the correct side of it.

With four well-chosen words, Vice President Biden summed up the most important ideological dividing line in the Democratic presidential primary.

The comment came at the third of three fundraisers Biden held on Thursday, September 26, in Los Angeles County. Usually Biden sticks pretty tightly to his stump speech, and usually he keeps his schedule a bit lighter than three public events in a day. So perhaps it was the candor that comes with fatigue. Perhaps it was the intimacy that came with the unusually small event— a crowd of about 50. Or maybe Biden was hoping, even subconsciously, that someone would notice and get the message.

Biden joked with the well-dressed and apparently affluent crowd that they shouldn't expect a tax cut from him. Then, according to the pool report from Matt Pearce of the Los Angeles Times says, came the four words that tell a long story: "But! No punishment, either."

The clear, if implicit, contrast was with Sens. Elizabeth Warren (D–Mass.) and Bernie Sanders (I–Vt.). Warren and Sanders each have proposed a "wealth tax" that is accompanied by a punitive exit tax on anyone leaving the country to escape the wealth tax.

Democrats have been toying with these exit tax proposals for some time. The rates they float keep climbing. An expatriation tax already applies on those renouncing U.S. citizenship—they have to pay capital gains tax on the accumulated gains on their assets, reflecting a "deemed sale" at a mark-to-market price even on assets that have not been sold.

Sen. Charles Schumer (D–N.Y.) proposed an exit tax at a 30 percent rate in 2012. Hillary Clinton, as a presidential candidate in 2015, proposed an exit tax that would have hit corporations at the 35 percent corporate income tax rate that then applied. And, here in 2019, Warren and Sanders have both proposed exit taxes at the confiscatory rate of 40 percent, with the Sanders plan climbing to 60 percent on assets above $1 billion for individuals seeking to avoid his annual wealth taxes of up to 8 percent.

Biden is correct that threatening to seize 60 percent or 40 percent of the property of a member of an unpopular minority group who wants to leave a country is functionally not taxation, but punishment. The number of people subject to such a tax is small enough that it could be subject to the U.S. Constitution's prohibition, in Article I, against a bill of attainder.

Whether the exit or wealth tax is, by definition, a tax or a punishment turns out to be one of the fundamental issues in whether it is constitutional. An opinion by Chief Justice Warren, discussing the Constitution's Bill of Attainder clause in the 1965 Supreme Court case United States v. Brown, cited Alexander Hamilton: "If the legislature can disfranchise any number of citizens at pleasure by general descriptions, it may soon confine all the votes to a small number of partisans, and establish an aristocracy or an oligarchy; if it may banish at discretion all those whom particular circumstances render obnoxious, without hearing or trial, no man can be safe, nor know when he may be the innocent victim of a prevailing faction. The name of liberty applied to such a government would be a mockery of common sense."

The clause, Justice Warren wrote, "was not to be given a narrow historical reading (which would exclude bills of pains and penalties), but was instead to be read in light of the evil the Framers had sought to bar: legislative punishment, of any form or severity, of specifically designated persons or group."

Justice Warren quoted an earlier decision, United States v. Lovett: "Legislative acts, no matter what their form, that apply either to named individuals or to easily ascertainable members of a group in such a way as to inflict punishment on them without a judicial trial are bills of attainder prohibited by the Constitution."

Justice Warren noted "It was not uncommon for English acts of attainder to inflict their deprivations upon relatively large groups of people, sometimes by description, rather than name." In this case the description would be "billionaires."

What an ironical historical twist it would be if a policy of President Elizabeth Warren ended up struck down on the basis of a precedent by Chief Justice Earl Warren—and on the basis of an accurate description by Vice President Biden that the proposed tax amounts to a "punishment."

Beyond the legal questions, interesting though they are, are moral and prudential ones. Does economic success—which usually, if not always, involves hard work, risk-taking, and creating a product or service that many people find valuable enough to voluntarily pay for—deserve to be punished? The Democratic Party will have to answer in the coming primaries. Biden is on the correct side of it. His challenge will be to articulate a case that goes beyond his four words in Los Angeles, which were a fine start.