Biden Is Trying To Pass a Wealth Tax—Again. It Could Be Unconstitutional.
The president's new budget plan calls on Congress to tax wealthy Americans' unrealized capital gains.
President Joe Biden got elected in part by portraying himself as a moderate, rejecting calls for a wealth tax by his primary campaign rivals, Sens. Elizabeth Warren (D–Mass.) and Bernie Sanders (I–Vt.).
Now that Biden has made it to the White House, though, he just won't drop the idea, even though, like many of his tax-and-spend plans, he can't manage to get it through the Democrat-controlled Congress.
Biden first floated what I called the "Biden-Wyden wealth tax," after Sen. Ron Wyden (D–Ore.), the chairman of the Senate Finance Committee, back in October 2021. It went nowhere, thanks in part to the dynamic duo of Sens. Joe Manchin (D–W.Va.) and Kyrsten Sinema (D–Ariz.), who deserve credit for saving Biden from his party's worst policy ideas. It was too much even for Speaker Nancy Pelosi (D–Calif.), who, The Washington Post reports, privately derided the Biden-Wyden wealth tax as a publicity stunt.
Now, like a sequel to a movie that wasn't any good the first time around, a variation of the Biden-Wyden wealth tax is back for another try in the president's latest budget. This time around, the White House is trying to sell it using slick language. The New York Times reports that a White House document described the tax, aimed at those with assets of more than $100 million, as "a prepayment of tax obligations these households will owe when they later realize their gains."
Politico reports that "illiquid taxpayers may opt to pay later with interest."
Many of the same problems that applied to the original Biden-Wyden wealth tax apply to this new iteration of it. It could well be unconstitutional. Its retroactive application violates a principle of the rule of law. The small number of people targeted by it raises concerns about consent of the governed and about taxation without representation. There are practical issues having to do with the valuation of assets whose value may fluctuate wildly over time. We should be figuring out ways to ease the burden of taxation and shrink the size of government, not moving in the opposite direction. The money would be better used by the rich people who own it than by the lobbyist-influenced politicians in Washington.
One could have some fun, though, with these two concepts on which Biden-Wyden II reportedly relies—prepayment and "illiquid…may opt to pay later with interest." What if the rest of the taxpayers applied the same principle to the federal government, under the theory that turnabout is fair play? I'd send the government an invoice for the future value of all my Social Security and Medicare benefit payments. They'll owe it to me eventually anyway, so demanding the money now is just "a prepayment of…obligations" the government "will owe…later." Also, I'd like the value of the future defense spending and Social Security and Medicare spending that my children and possible future grandchildren will benefit from. It'd like that money from Washington now, as a prepayment, please.
If every taxpayer made this demand, the government wouldn't have enough money to pay right away. It'd be "illiquid." The government would have to do what it does now—borrow by issuing bonds and paying the money back later with interest. The government can also create money through the magic of the Federal Reserve, though when it does too much of that, as it has recently, it erodes the value of the money that's already out there.
On the face of it, the imbalance between the two demands for immediate prepayment of long-off possible obligations highlights the asymmetry of the tax collector and the taxpayer. When the tax collector asks to be paid immediately, he has the armed compulsory power of the state to back him up. The tax collector can go to court, impose a lien, seize assets. If a taxpayer wanted to be paid those future Social Security or Medicare benefits right away instead of waiting for later, the taxpayer would be laughed out of town. And the taxpayer would be helpless to try to take the money from the government.
There is one way, though, in which the taxpayers have more power than the tax collectors. That is at the ballot box.
If Biden gets turned out of office by the voters, he may yet have occasion to be thankful that the Biden-Wyden wealth tax was not enacted in such as way as to require immediate prepayment to the IRS of possible future speaking fees and book royalties of past presidents. Once the federal government embraces the idea of "prepayment of tax obligations these households will owe when they later realize their gains"—well, there's just no telling where that dangerous logic might lead.