White House Confiscatory Tax Proposal Underlines Why CEI Is Challenging Provision of 2017 Tax Reform

Today President Biden previewed his proposed fiscal year 2023 budget. I am in complete agreement with the first five words: “Budgets are statements of values.” 

Unfortunately, a Washington Post article on the President’s budget values makes clear that a rule of law—where constitutional protections place genuine limits on government—is not one of those values.

One proposal stands out. The administration proposes to target “billionaires” with a new minimum tax rate for any household worth more than $100 million, which echoes a legislative proposal by Sen. Ron Wyden (D-OR) and the ever-present rhetoric of Sen. Elizabeth Warren (D-MA). 

On the bright side, the Constitution speaks to this injustice directly. While Article I gives Congress the power “to lay and collect taxes,” it is a limited power.  Any direct tax must be “apportioned among the several states,” according to population. The underlying imperative is to protect against a government that unfairly targets one region, state, or category of person.

Beyond the plain meaning of the Constitution, which all but prohibits wealth taxes, consider the extraordinary power this type of tax would give to the Internal Revenue Service (IRS). Should IRS investigators be able to determine the value of your home, your car, and your retirement portfolio every year? 

Further, such a wealth tax would allow bureaucrats to determine—deeming is the technical word—whether an increase in value of something you own is now income. If my home appreciates, my net worth may increase, but I certainly don’t have any additional income available to spend, save, or invest. Yet, the president’s proposal would give the IRS the power to tax that appreciation. People would be forced to pay taxes on something called income even though they don’t actually have additional income at their disposal.

More than two and a half years ago, CEI challenged this principle in a lawsuit called Moore v. United States.

CEI’s case is a constitutional challenge to the Mandatory Repatriation Tax, part of 2017’s comprehensive tax reform legislation. That law retroactively taxes Americans on the value of their stock in certain foreign corporations, even if they never realized a dime in income, received dividends, or sold their shares. On the surface, this appears to be a dry, technical issue regarding taxation. But as CEI’s outside co-counsel, Andrew Grossman, wrote in The Wall Street Journal, the result of CEI’s case may “slam the door on a federal wealth tax.” He writes:

The stakes of the Moores’ case go well beyond their own tax liability. If they prevail, that would confirm that the Supreme Court’s precedents … limiting the exception for taxes on “income” to its common understanding remain good law.

We are passionate about this issue because we know the Constitution’s limits on the federal taxing power must be zealously protected, for everyone’s sake. The IRS is unique among federal agencies in that, for many working Americans, it is the one place where they come into extensive contact with the regulatory state. To generate more revenue, Congress invented a new definition of income tax that doesn’t involve any actual income. 

My values include building a society without harmful government controls, where property rights are secure, and Americans are free to prosper. Targeting a politically unpopular group of people and ignoring constitutional protections in favor vesting unilateral power in the IRS is fundamentally at odds with those values.