By: Sadie Betting, Volume 106 Staff Member
In March 2020, the United States had 614 billionaires. By October of this year, it had 745. Since the beginning of the COVID-19 pandemic, the ultra-wealthy have grown their fortunes by $2.1 trillion, or roughly half of what the United States collected in tax revenue in 2021. It is unsettling to think that they would have retained far less—and the government reaped more—if the current tax structure didn’t allow billionaires to effectively opt out of paying taxes. Even though high earners pay the majority of the federal government’s tax revenue, America’s growing wealth inequality has sparked calls for a wealth tax.
In October, Senator Ron Wyden proposed the Billionaires Income Tax, igniting not only passionate responses from the ultra-wealthy, but also discussions about the constitutionality of taxing the passive income of economic elites. In theory, the billionaire tax would apply to “people with at least $1 billion in assets or $100 million in income for three straight years,” or about seven hundred taxpayers. Currently, tradeable assets like stocks are only taxed upon sale; under the proposed scheme, qualifying billionaires would be taxed on their assets’ increase in value. Although conjectures vary, they generally suggest that such a tax would raise well over $250 billion in revenue. While Wyden’s proposal ultimately failed, a wealth tax remains appealing and is likely to resurface in the future if Congress fails to address wealth inequality through some other means.
But the preliminary question remains: can it be done? Dissenters note that a billionaire tax could open the government up to constitutional challenges under Article I or the Sixteenth Amendment. Under the Constitution, any wealth tax must either target income that is “clearly realized” or be “apportioned” across the entire population as a direct tax.
I. ARTICLE I CHALLENGES
Article I of the Constitution requires taxes to be apportioned according to state populations. While much jurisprudence discusses the meaning of “direct tax,” there is no simple, well settled answer of what it means. Hylton v. United States, the first case in which the Supreme Court considered the question, declared that “capitation, or any other” taxes were direct taxes, as distinguished from “duties, imposts, and excises.” While it found that a qualifying excise tax could not be subject to the apportionment requirement, the court did little else to elaborate. Two years after Hylton, the Supreme Court decided Pollock v. Farmers’ Loan & Trust Co., which struck down a tax on real estate income as un-apportioned. In subsequent litigation, the Court broadened that reading, finding taxes on income from personal property unconstitutional.
Since then, numerous courts have been reluctant to consider the direct-or-capitation tax question., and the Supreme Court has shown some willingness to creatively interpret new taxes to avoid answering it altogether. After Pollock II, a wealth tax like Senator Wyden proposed would have no constitutional footing. Billionaires tend to concentrate in hubs of economic power; they are by no means “apportioned among the states.”
II. SIXTEENTH AMENDMENT CHALLENGES
Pollock prompted a swift response. In 1913, the United States ratified the Sixteenth Amendment, which forms the basis for a second constitutional challenge to a wealth tax. It provides that “Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” At the same time, Congress enacted the Internal Revenue Code, which, for its part, defined “income” as “gross income,” or “all income from whatever source derived.”
Case law subsequently interpreted the Sixteenth Amendment to resolve Pollock II in favor of the ability to tax wealth. In 1920, Eisner v. Macomber held that income “may be defined as the gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale conversion of capital assets.” But rather than following Eisner’s definition, the Supreme Court limited its reach, concluding in Commissioner of Internal Revenue v. Glenshaw Glass Co. that it was not “a touchstone to all future gross income questions.” Under Glenshaw, taxable wealth must be “clearly realized,” which courts have interpreted to preclude taxing the increase in value of unsold assets.
But is failure to be considered “income” fatal to a wealth tax? In short, no. A billionaire tax, if enacted, could come in many forms. Some have suggested that introduction of a wealth tax could be accomplished through adjustments to taxpayer liability, whether that means redefining the taxable income base, changing the rate schedule, or limiting tax credits for the ultra-wealthy. Given the current makeup of the Court, it’s not difficult to imagine how an “alternative” wealth tax could generate a line of cases that could solidify the doctrine of direct taxes or further define “income.” But looking elsewhere seems to be the most plausible way to go—the viability of a wealth tax is highly uncertain if its flaws are not downright unconstitutional. While Wyden’s proposal ultimately failed and Congress is not currently considering a wealth tax, this type of reform remains a popular rallying cry: tax the rich.
 Josh Boak, Explainer: What’s a ‘Wealth Tax’ and How Would It Work?, Assoc. Press (Oct. 27, 2021)https://apnews.com/article/coronavirus-pandemic-joe-biden-business-health-personal-taxes-bb51ab8b987c32e00c743a05d428079c [https://perma.cc/6Y9V-VGH8]; Chuck Collins, Updates: Billionaire Wealth, U.S. Job Losses, and Pandemic Profiteers, Inequality.org (Oct. 18, 2021) https://inequality.org/great-divide/updates-billionaire-pandemic [https://perma.cc/EZ4Y-ER6T].
 Collins, supra note 1 (noting that most of billionaires’ gains will go untaxed and will “disappear entirely” from the tax pool when the wealth is passed on to the next generation).
 DataLab, In 2021, the Government Collected $4.05 Trillion in Revenue, USASpending.Govhttps://datalab.usaspending.gov/americas-finance-guide/revenue [https://perma.cc/Q74A-X7AH].
 Fin. Senate Gov’t, Billionaires Income Tax (Oct. 27, 2021) https://www.finance.senate.gov/imo/media/doc/Billionaires%20Income%20Tax%20-%20One%20Pager.pdf[https://perma.cc/6RLG-N2NZ] (“The tax code’s preferences for capital income over wage income fuel the concentration of dynastic wealth among the nation’s billionaires. The wealthiest few . . . avoid taxes by indefinitely holding assets are also able to borrow against those assets to fund their lifestyles. This means they opt out of paying taxes . . .”).
 Erica York, Summary of the Latest Federal Income Tax Data, 2021, Tax Found. (Feb. 3, 2021) https://files.taxfoundation.org/20210202124940/Summary-of-the-Latest-Federal-Income-Tax-Data-2021-Update.pdf[https://perma.cc/CDS2-S5ET].
 Trends in Income and Wealth Inequality, Pew Rsch. Cent. (Jan. 9, 2020) https://www.pewresearch.org/social-trends/2020/01/09/trends-in-income-and-wealth-inequality [https://perma.cc/7RX2-9E4U] (finding that middle class wealth growth has stagnated despite rising wages, while upper-income people’s wealth growth has accelerated).
 Billionaires Income Tax, supra note 5.
 Haleluya Hadero, ‘Stupid’ and ‘Insane’: Some Billionaires Vent over Tax Plan, Assoc. Press (Oct. 28, 2021) https://apnews.com/article/spacex-business-elon-musk-jeff-bezos-health-care-reform-088929b9bc60f52d00627f2bc44a8ff1 [https://perma.cc/3TUB-2U2Q].
 See, e.g., Kelsey Snell, Senate Democrats Unveil a Plan for a New Tax on Billionaires, NPR (Oct. 27, 2021) https://www.npr.org/2021/10/27/1049505682/senate-democrats-unveil-a-plan-for-a-new-tax-on-billionaires[https://perma.cc/8MFW-BGF7]; Boak, supra note 1.
 See Boak, supra note 1.
 Compare id. (“Nancy Pelosi . . . estimated . . . that the tax would raise $200 billion to $250 billion.”), with United States Senate Committee on Finance, Wyden Statement on Billionaires Income Tax Score, (Nov. 5, 2021) https://www.finance.senate.gov/chairmans-news/wyden-statement-on-billionaires-income-tax-score[https://perma.cc/3WMG-ZUZU] (estimating $557 billion in revenue over ten years).
 Kate Dore, If the Billionaire Tax Survives, It May Face Legal Challenges. Here’s Why, NBC (Oct. 27, 2021) https://www.cnbc.com/2021/10/27/if-billionaire-tax-survives-it-may-face-legal-challenges-heres-why.html[https://perma.cc/KBC6-EKER]; see also U.S. Const. art. I, § 2, cl. 3 (“Representatives and direct Taxes shall be apportioned among the several States . . .”); U.S. Const. amend. XVI.
 U.S. Const. art. I, § 2, cl. 3; Ari Glowgower, A Constitutional Wealth Tax, 118 Mich. L. Rev. 717 (2020).
 See, e.g., Union Elec. Co. v. U.S., 363 F.3d 1292, 15 (Fed. App. 2004) (citing The Records of the Federal Convention of 1787 (“Mr. King . . . asked what was the precise meaning of direct taxation? No one answered.”)); but see United States v. Mitchell, 58 F. 993 (1893) (“Direct taxes [lie] among the different states according to their numbers, not according to their property or wealth . . . Therefore, to accomplish the object in view, it is not necessary to inquire as to property, or wealth, or business.”).
 3 U.S. 171, 174 (1796) (“The rule of apportionment is only to be adopted in such cases where it can reasonably apply; and the subject taxed, must ever determine the application of the rule.”).
 Cash v. IRS, 2019 U.S. Dist. LEXIS 11603 (quoting Hylton) (“A capitation is a “a tax paid by every person, ‘without regard to property, profession, or any other circumstance.'”).
 157 U.S. 429 (1895) [hereinafter Pollock I] (holding the Wilson-Gorman Tariff, which taxed at 2% all income over $4,000, was not apportioned among the states and was therefore unconstitutional).
 Pollock v. Farmers’ Loan & Tr. Co., 158 U.S. 601, 637 (1895) [hereinafter Pollock II].
 See Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 571 (2012) (“A tax on going without health insurance does not fall within any recognized category of direct tax.”); see also Fernandez v. Wiener, 326 U.S. 340 (“The power to tax the whole necessarily embraces the power to tax any of its incidents or the use or enjoyment of them.”).
 National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012) (characterizing the Affordable Care Act’s individual mandate as a “penalty” rather than a tax).
 U.S. Const. amend. XVI.
 26 U.S.C. § 61(a).
 252 U.S. 189 (1920).
 348 U.S. 426 (1955).
 See, e.g., In re Curcio, 387 B.R. 278 (2008); Miller v. Miller, 160 N.J. 408 (1999).