[The Historical Roots of the Wealth Tax Debate: From 1794 Carriages to Modern Constitutional Challenges]-[The Carriage Tax (Update)]

Planet Money · B2 · 2024-06-26

📋 Summary

The Constitutional Dilemma of the Wealth Tax

The Modern Context: Moore v. United States

The recent Supreme Court case Moore v. United States brought the concept of a "wealth tax" to the forefront of American legal discourse. The case centered on the Moors, an American couple who invested in an Indian business. When Congress passed a 2017 law taxing foreign corporate profits even before they were distributed, the Moors argued they were being taxed on "unrealized gains." Because this money was "still invested" and had "not yet turned into cash," they contended it was wealth, not income. While the Supreme Court ultimately issued a narrow ruling upholding the tax, the broader constitutional question—whether the government can tax assets that "grow in value overtime"—remains unresolved.

The 1794 Carriage Tax: A Historical Precedent

The debate over taxing wealth is far from new. It traces back to 1794, when George Washington and Treasury Secretary Alexander Hamilton sought to raise revenue. They implemented a federal tax on carriages, which were then the ultimate status symbol of the wealthy. Much like today’s arguments, the rich "did not like being taxed," and the opposition was led by James Madison. Madison and his allies in the Jeffersonian Republican party aimed to strike down the tax by invoking a specific clause in the Constitution: "representatives and direct taxes shall be apportioned among the several states."

The Hidden History of the "Direct Tax" Clause

Legal scholar Beverly Moran explains that the "apportionment" clause was a "trip wire" inserted into the Constitution primarily to protect the Southern slave-owning economy. Because the South held significant wealth in the form of "land and slaves," they demanded that any "direct tax" be divided by population. This ensured that if the federal government taxed enslaved people, Northern states would bear a massive portion of the financial burden, effectively preventing such a tax from ever passing.

The Legal Fiction of 1796

To challenge the 1794 Carriage Tax, opponents needed a case that met the Supreme Court's $2,000 threshold for financial disputes. They found Daniel Lawrence Hilton, who supposedly owned 125 carriages. In reality, this was a "legal fiction" or a "lie," as Hilton owned only one chariot. Both sides agreed to bend the facts to get the case before the Supreme Court. In the resulting decision, the Justices upheld the tax, deeming the idea of apportioning a carriage tax "absurd and radically wrong." They ruled that the constitutional clause regarding direct taxes should only apply to the specific compromises intended by the founders: taxes on land and enslaved people.

Future Implications for Wealth Taxation

Today, proponents of a wealth tax, such as Senator Elizabeth Warren, argue that current income taxes are "a pretty weak tax" on billionaires whose wealth resides in accumulated assets rather than traditional income. However, critics and legal experts warn that any attempt to pass a modern wealth tax will face an "uphill battle in the courts." Billionaires are expected to hire armies of lawyers to re-litigate the definition of "direct taxes" and challenge the constitutionality of such levies.

Ultimately, while some scholars argue that the 1790s precedent provides a clear path forward, others, like Moran, suggest that a constitutional amendment may be the only "surefire way" to ensure a wealth tax can withstand judicial scrutiny. The debate over whether the Constitution protects wealth from taxation remains deeply intertwined with the nation's complex history, proving that the struggle over who pays to run the government is as old as the republic itself.

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This is Planet Money fromNPR.

There is a kind of tax that a lot of people have imagined and dreamed of really for yearsnow.

A wealthtax. A way to tax people not just on what theyearn, but on what theyown.

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