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Soaking the rich

Armstrong Williams | 1/11/2013, 12:51 p.m.
At Thanksgiving, embracing the winds of change and increasing our faith

Democrats always seem to be in search of new ways to get revenue, especially from the rich. One idea being floated around recently, which a few European countries have, is a tax on wealth or assets. According to Daniel Altman in the New York Times, "The real menace for our long-term prosperity is not income inequality--it's wealth inequality."

This is the great distortion to economic prosperity, he argues. It sounds good, and I am sure when people think of it, they imagine an NBA superstar or Bill Gates looking at his balance sheet and paying fees on certain items, like houses, cars and yachts, without objection because they are so wealthy. Beneath the surface though, it is legally more complex and could be counterproductive.

First off, the Constitution would complicate its implementation. Article One says, "Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers," along with "No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken."

The 16th Amendment (1913) also says, "The Congress shall have 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."

The wealth tax would be considered a direct tax because it is based on the property or assets an individual owns. The tax would have to be "apportioned among the several States," which means it would be based on the census of a given area. This also means that government must establish a goal or target for revenue, so there would have to be major regulations enacted to enable the government to get an idea of how much revenue it is going to take.

States with small populations like Rhode Island and Montana would have to provide a portion of the overall tax, but the money taken from them would devastate them compared with California or New York. Though California is a financial mess, many wealthy people still live there. So based on their population, they would be taking less of a hit than a smaller state. The dynamics of the states in terms of wealth, population and demographics are not taken into account. The Constitution wouldn't allow for this because it's a direct tax.

Wealth inequality over the last 30 years, and subsequent stagnant wages, is a good debate to have. But a wealth tax will exacerbate the problem, not help it, because wealthy people will just move their assets. Those potential yachts and Ferraris will be moved to a different state or off our shores. Wealthy people have the lawyers and accountants to get around the taxes. John Kerry avoided a steep yacht tax in Massachusetts by docking his boat in Rhode Island! Many professional golfers used to live in California, but as the purses got larger on the professional circuit, they moved to Florida, where there is no income tax. Businesses and wealthy individuals are leaving California in droves. The state's taxes are so high that Texas or Virginia might be a better fit. Donald Trump has said he has considered leaving New York recently for Florida or another business-friendly state.