A Wealth Tax is Fool’s Gold

The appeal of a federal wealth tax is undeniable. Progressive politicians tout it as a powerful tool to combat rising inequality, promising to make the ultra-wealthy pay their “fair share” while generating substantial revenue for government programs. The symbolism resonates—finally, a policy that would directly target concentrated wealth rather than just high incomes. But there’s a fundamental constitutional problem that wealth tax advocates consistently overlook: under the U.S. Constitution, a federal wealth tax would actually impose higher tax rates on poor states than rich states, making it inherently regressive rather than progressive.

The Constitutional Constraint

The issue lies in Article I, Section 9, Clause 4 of the Constitution, which states that “No Capitation, or other direct Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.” Additionally, Article I, Section 2, Clause 3 requires that direct taxes be “apportioned among the several States…according to their respective Numbers.”

A wealth tax is unambiguously a direct tax—it’s levied directly on individual property rather than on transactions or income flows. The foundational case is Pollock v. Farmers’ Loan & Trust Co. (1895), where the Supreme Court ruled that taxes on income from property are direct taxes that must meet the constitutional apportionment requirement. While the Sixteenth Amendment carved out an exception specifically for income taxes, it did not repeal the direct tax clauses for other forms of property taxation. Chief Justice Roberts noted in his 2012 opinion upholding the Affordable Care Act individual mandate that the Supreme Court has “continued to consider taxes on personal property to be direct taxes.” A wealth tax, which would directly levy taxes on personal property including financial assets, real estate, and other forms of wealth, falls squarely within this established direct tax framework. While states routinely impose property taxes, the federal government has been constrained by these apportionment requirements since the founding era.

The Arithmetic of Inequality

What does apportionment mean in practice? Consider a hypothetical federal wealth tax designed to raise $327 billion annually—roughly $1,000 per person. Under constitutional requirements, each state must contribute its proportional share based on population, not wealth concentration. This creates a mathematical inevitability: states with lower average wealth must impose higher tax rates to meet their apportioned obligations.

The distribution of wealth across states would result in varying tax rates:

Wealthy States (Lower Tax Rates):

• New Jersey: 0.7% annual wealth tax rate
• Connecticut: 0.7% annual wealth tax rate
• Massachusetts: 0.7% annual wealth tax rate
• New Hampshire: 0.7% annual wealth tax rate

Poorer States (Higher Tax Rates):

• Mississippi: 1.3% annual wealth tax rate
• Arkansas: 1.3% annual wealth tax rate
• Nevada: 1.6% annual wealth tax rate
• New Mexico: 1.1% annual wealth tax rate

Residents of Nevada would face wealth tax rates more than twice as high as those in Connecticut. This isn’t a minor discrepancy—it’s a systematic inversion of progressive taxation principles.

The Mobility Problem

The constitutional arithmetic creates perverse incentives that would likely worsen the very inequality a wealth tax aims to address. Wealthy individuals are notably mobile, and the differential tax rates would provide enormous financial incentives to relocate from poor states to rich ones.

Consider Arkansas’s wealthiest resident, Jim Walton, with an estimated $51 billion net worth. Under our hypothetical wealth tax, moving from Arkansas (1.3% rate) to New Hampshire (0.7% rate) would save him approximately $300 million annually. But the story doesn’t end there—his departure would lower Arkansas’s average wealth, requiring the state to raise its tax rate even higher to meet its constitutional obligation. Meanwhile, his arrival in New Hampshire would increase that state’s average wealth, lowering its required tax rate even further.

The math becomes truly extraordinary with individuals like Jeff Bezos. If he relocated from Washington to Wyoming—the nation’s least populous state—his $157 billion fortune would triple Wyoming’s average net worth, creating a tax rate of just 0.3% and saving him nearly $1 billion annually compared to staying in Washington.

A Constitutional Dead End

These scenarios aren’t hypothetical edge cases—they’re the inevitable mathematical consequences of constitutional apportionment requirements combined with extreme wealth concentration and individual mobility. The result is a policy that would systematically advantage already-wealthy states while penalizing poorer ones, precisely the opposite of its intended progressive effect.

Some wealth tax proponents argue that implementation details could address these problems, but the fundamental issue isn’t technical—it’s constitutional. The apportionment requirement isn’t a regulatory hurdle that can be finessed; it’s a core structural feature of American federalism embedded in the founding document.

The Amendment Option

There is a solution, but it’s politically daunting: constitutional amendment. The Sixteenth Amendment successfully exempted income taxes from apportionment requirements, demonstrating that constitutional change is possible. A similar amendment could enable a truly progressive federal wealth tax.

However, constitutional amendments require approval from two-thirds of both houses of Congress and three-fourths of state legislatures—a deliberately high bar that reflects the document’s foundational importance. For context, only 27 amendments have been ratified in over two centuries, and none since 1992.

The Policy Implications

This constitutional analysis doesn’t resolve broader debates about wealth inequality or optimal tax policy. Reasonable people can disagree about whether concentrated wealth poses economic or democratic problems, or whether wealth taxes represent sound policy even if constitutionally feasible.

But it does suggest that current wealth tax proposals fundamentally mischaracterize the policy options available under existing constitutional constraints. Advocates who present wealth taxes as straightforward progressive reforms, achievable through ordinary legislation, are either unaware of these constitutional requirements or deliberately obscuring the amendment process necessary for implementation.

This doesn’t necessarily argue against wealth taxation as policy, but it does argue for constitutional honesty in political discourse. Voters deserve to understand that implementing an effective federal wealth tax requires constitutional amendment, not just legislative majorities. Only then can they make informed judgments about whether wealth tax proposals represent realistic reforms or, as the saying goes, fool’s gold wrapped in progressive rhetoric.

The path to addressing wealth inequality may require more fundamental constitutional changes than politicians typically acknowledge—a conversation American democracy deserves to have openly and honestly.