I was asked yesterday by an NYT reporter (Peter Coy) to comment quickly on the constitutionality of the Biden Administration’s new proposal to impose a 20% minimum tax (including unrealized income) on the super-rich. His column (which quotes my paragraph 3 below) is available here.
Here is the full text of the comments I sent him. (This preceded publication of the Treasury’s Greenbook explanation yesterday afternoon.)
1) In legal terms, it appears to be clearly an income tax, not a wealth tax. This ought to protect it against constitutional challenge. As I understand it, people who meet the wealth threshold are taxed with respect to certain unrealized income. There are provisions in the existing tax code that tax unrealized income. And wealth as such is not being taxed. I don’t think this should be more controversial legally than having an asset test under which people can fail to meet the qualifications for receiving Medicaid.
2) That said, the current Supreme Court might very well strike it down. But in my view this would simply add to the concerns that many have already expressed about the Court’s descent from just “calling the balls and strikes” (as Chief Justice Roberts once put it) into operating like a loyal branch of the Republican Party and the conservative movement.
3) Even apart from the possibility that the Court would declare this a wealth tax even though it apparently isn’t, there have also been rising concerns that the Court will revive the basically defunct doctrine from Eisner v. Macomber, a case decided in 1920, to the effect that unrealized income cannot constitutionally be taxed. The legal academy predominantly agrees that this doctrine from the Macomber case is both obsolete (dating back at least to Helvering v. Bruun, a 1940 case) and wrong. It could also be highly damaging to both the equity and administrability of the existing federal income tax. But it is not clear whether the current Supreme Court majority would regard the infliction of such damage as a defect or as a virtue.
4) The proposal clearly raises issues pertaining to administrability, revenue and its likely economic effects that are subject to fair debate, and as to which there may be good arguments on both sides. I would need to know more about the proposal than I currently do in order to weigh in on that debate.
[Although not included in my comments to Mr. Coy, I also am generally not a huge fan of minimum tax structures, but I accept that there may be pressing political reasons for using them.]