[Show Intro]
Thomas: Hello and welcome to Opening Arguments, this is episode 336. I’m Thomas Smith, that over there is Andrew Torrez, how’re you doing Andrew?
Andrew: I am doing fantastic Thomas! How are you?
Thomas: I am doing even better because we have got the deepest of deep dives, I can’t wait for this episode because there’s some really cool law stuff happening and I’m just excited, and it’s not necessarily revolving around Trump which is fun. It’s a nice change of pace, I think.
Andrew: Yeah, I think this is a Trump-free episode… mostly. I mean, you know, the universe will never be Trump-free, but, you know…
Thomas: Yeah. Forever by the way. I mean, even history will always have Trump in it, we’re stuck with this forever unless we can, you know, figure out a new timeline? Are we able to branch off like a Back to the Future II scenario? But in reverse? [Laughs]
Andrew: Oh plug! As long as we’re doing that plug, I think it’s episode 80, the most recent episode of Philosophers in Space where you and our good buddy Aaron do that-
Thomas: Oh, Primer?
Andrew: Primer, yeah! I kinda wanna go see that now.
Thomas: You should watch it, it’s a super low budget but, you know, every once in a while if you have a good enough idea and you don’t try to make some terrible styrofoam cardboard monsters or something you can make a really good low-budget movie and it’s a good movie. It’s interesting, it’s not like anything else. It’s a little old by now, but yeah, Primer, and it’s short, too.
Andrew: Yeah, I’m excited! So anyway, I thought that was a really fun episode-
Thomas: Well thank you!
Andrew: -of Philosophers in Space, and they’re all good episodes and everybody should be subscribed and listening, but yeah, so long as we were talking time travel I thought I’d plug your other show!
Thomas: [Laughs] Alright, well I appreciate that! Let’s talk not time travel, let’s talk Bill Barr and his nonsense for a second before we get to our main segments.
Andrew: Yeah, a lot of folks have been asking me to weigh in on Barr’s recent speech at Notre Dame in which he blamed secularists for the eventual heat death of the universe. Look, you don’t need me to tell you that the speech is awful and terrible and Bill Barr has turned into a monster. I can’t tell – some of the recurring questions are does he actually believe this Christian-Dominionist stuff or is this just where his bread is buttered now that he’s become Trump’s biggest loyalist? You know, that’s above my pay grade man! [Laughs] I may do a fisching of everything that’s wrong with this speech, maybe we’ll do it on a Tuesday deep dive, maybe we’ll do it as a Patreon bonus, it’s bad and it’s unconscionable that the Attorney General would deliver a speech like this, you all know that already so it’s – I just wanted to say because when we get a topic that a lot of people write in about I typically want to at least say, yes, I’ve seen and heard your emails and I share your outrage.
Thomas: Alright well we may look forward to that at a later date, but now for the actual segments for today we’re gonna talk about a potential Congressional review act for the Supreme Court. Interested to hear if that would be constitutional. Then is Warren’s wealth tax constitutional? You know I talked a little about that on my show but only because I didn’t wanna take any more of your time with very busy proceedings. I read a little bit about that and from what I can see people are pretty divided on it and there are plausible readings either way so I think it’ll be a great time to get Andrew’s opinion on that. Then finally we’ve got an interesting listener question in the wildcard segment which is the one that is whether or not Andrew left enough time for it in all his bullet points!
Andrew: [Laughs]
Thomas: Which I like, it’s cool, it’s a wildcard segment! Wildcard, clownhorns!
Andrew: [Laughing] Wildcard, clownhorns!
Thomas: Alright, that’s our – so I don’t even like to introduce what it is because you may not hear it. [Laughs]
Andrew: Yeah!
Thomas: Alright so let’s go to our first segment of the day.
[Segment Intro]
Andrew: Alright! To introduce this segment what I’m going to do is I’m gonna time travel into the future, this is a time travel episode, and I’m going to read from Justice Allito’s majority 5-4 decision in TODO zarta v altitude express that the Supreme Court is gonna hand down in the Spring of 2020.
Thomas: Jeeze.
Andrew: Right? You remember TODO zarta v. altitidue express consolidated with another case and this is the issue of whether the Civil Rights Act of 1964, which prevents discrimination on the basis of sex, also applies on the basis of-
Thomas: Gender identity?
Andrew: Gender identity and sexual orientation. So reading from Justice Alito’s majority opinion, (quote) “while discrimination against individuals on the basis of gender identity or sexual orientation is lamentable, it is the job of this Court to interpret the laws, not make them. Congress knows how to prohibit discrimination on the basis of sexual orientation, indeed it has proposed doing exactly that on multiple occasions (see cites). If it wants to do so it can, but we cannot usurp Congress’ role and legislate from the bench and thus we reluctantly overrule the 2nd Circuit.” There! We don’t have to cover-
Thomas: The whole timeline we’re in.
Andrew: Yeah, yeah. We don’t have to cover the case when it comes out. I am 100% confident that that is a near direct paraphrase of how the Court is gonna rule in those consolidated cases, and it betrays a trick that conservatives on the Supreme Court have been using dating back to the days of Scalia, which is to say “look, we’re just umpires calling plays, we’re not the ones who make the laws, you elect the legislature for that.”
Thomas: Mm-hmm.
Andrew: “So we’re gonna interpret this law in this terrible way, and look! All you have to do is convince a majority of Congress and win the Presidency.”
Thomas: Mm-hmm.
Andrew: They know that they’re full of it when they write this, they know, particularly where we are today, where divided government is the norm and hyperpartisanship is off the scale, that with the filibuster, the way politics are right now there’s zero chance. So when the Supreme Court rules that the Civil Rights Act of 1964 does not apply in cases of sexual orientation or gender identity Democrats will try and pass the equality act again and probably fail, depending on how big we win in 2020. So that’s the problem, and against that backdrop enter law professor Ganesh Sitaraman, and Professor Sitaraman you may remember the name. He co-wrote along with Professor Epps the judicial lottery paper that we discussed in episode 294 after Bernie Sanders kind of-
Thomas: Hmm.
Andrew: -Charitably…
Thomas: Proposed some unconstitutional things?
Andrew: [Laughs] Right!
Thomas: Yeah.
Andrew: Did not describe it as written in the debate, how about we say it that way.
Thomas: Okay.
Andrew: It’s hard to summarize a law review article in a 30 second answer, let’s use the principle of charity here. So we discussed that in 294. Professor Sitaraman is somebody who’s thinking a lot about the current state of the Supreme Court and in fact, his recent article for the Atlantic, this is not a law review article, this is a popular level article, it’s called (or at least the Atlantic titled it) “How to Save the Supreme Court” I’m gonna link it in the show notes. Spoiler, it’s really good!
Thomas: Really?
Andrew: It’s a really, really good idea. I wanna go through what he’s proposing the limitations are, but I have added it in that same episode 294 I gave my plan to fix the Supreme Court which includes jurisdiction stripping, I’m adding this as another plank to the plan, I think it’s a good idea. So I’ve spoiled the evaluation, now let’s get into what Professor Sitaraman says. Again, he calls it a Congressional Review Act for the Supreme Court, it’s not quite that. [Laughs] But here’s what he proposes, and by the way we explained what the Congressional Review Act is way back in OA episode 61, I feel like we were sort of on the forefront of that in warning you that the Republican Senate with help from – the Republican Congress, House and Senate, with help from the Trump Administration was about to use the until that point seldom used Congressional Review Act to undue a lot of Obama era regulations and in fact they did. So here’s what Professor Sitaraman says, he says “If the Court issued a decision interpreting a statute or regulation, Congress would have 30 days to vote on whether to open a reconsideration process. If Congress voted yes, the speaker of the House, the Senate majority leader, and the minority leaders would appoint a special committee in each chamber (with proportional party membership) to design a legislative fix for the full body to vote on within the next 30 calendar days. The bill would go to the other house where it would be voted on within 10 days through a privileged, fast-track process, which would avoid common legislative snags like the filibuster and committee hearings. The president would then sign the law or veto it, as with any ordinary piece of legislation.” The part there that mimics the CRA is you build in – again, Congressional Review Act, consituttional, has been in place for 20 plus years, you build in to the legislation the idea that there is limited time for debate, so what that does is that gets around the filibuster in the Senate in which what happens in the filibuster is essentially you fail to call for cloture, for an end to debate. That cloture vote is what takes 60 votes, so without using the nuclear option you can still legislate around the filibuster by saying no, we don’t have an indefinite time for debate in cases like this, you only have (then you specify the amount of time). So that’s the plan, how does it strike you? Kind of just right out of the box?
Thomas: Yeah, this sounds really interesting, I guess I’m curious about a couple things: One, how does this go with the balance of powers? Then you’re gonna get a case of then the Supreme Court can review whether or not this works with the Supreme Court? You know, it’s like the Supreme Court could be reviewing itself if Congress passes this law in the first place, it’s gonna be like a Marbury v. Madison kind of thing. Also, in the case of something like, let’s say it’s abortion, where this awful Supreme Court might just decide “nope! Can’t do that!” What does that look like in this process? If the Court says abortion is some sort of violation of the constitutional rights of the fetus or something, they really take down Roe v. Wade I don’t really see how there can even be a legislative fix for that kind of thing, what would that look like?
Andrew: I’m really glad that’s where you went, because that is the inherent limitation of this plan. I think lawyers will intuitively grasp how limited the solution is, but if you’re just reading along you might not understand that distinction, so let me elaborate on that because what you just said is 100% correct. When the next Supreme Court or when this Supreme Court overturns Roe v. Wade or Obergerfell v. Hodges that is the Supreme Court interpreting the constitution and the Supreme Court is supreme in interpreting the constitution, there’s nothing congress can do about that, there will be no legislative fix. There’s nothing. That’s where my solution of jurisdiction stripping has to come in, you have to say the only thing you can do preemptively is say in matters of established individual rights the Supreme Court doesn’t have jurisdiction to consider challenges to those rights or something like that.
Thomas: Huh.
Andrew: As we talk about in episode 294, congress can do that. Congress can say “you can’t rule in these kinds of cases.” Now how we define that jurisdiction stripping is where the ball game is going to be.
Thomas: Yeah.
Andrew: Because if we define it the way I just did then yes, that would strip jurisdiction in civil rights cases but could arguably also strip jurisdiction in gun control cases. There’s a lot of – we’ve never done this before on that scale so there’s kind of a pandora’s box in opening it. You’re 100% correct, it would only apply when the Supreme Court is interpreting a federal statute or a federal regulation. But Professor Sitaraman has a response to your objection, he notes “[T]he majority of cases that come before the Court do not concern constitutional matters. Of the 71 cases heard by the Court during its 2017–18 term, for example, only 25 involved the Constitution. Forty-six cases … [involved] other issues.”
Thomas: Yeah…
Andrew: So that’s basically a 1/3, 2/3rd, right?
Thomas: However-
Andrew: [Laughs]
Thomas: I feel like those are disproportionatly important to us. When we think about “oh no the Supreme Court’s ruined for a generation” which it is because we failed to elect Hillary Clinton, there’s no other reason, that’s the reason. No “both sides,” we failed to do that so we’re stuck with this. Anyway, the cases we’re most worried about, I think, tend to be those big rights-based constitutional questions, don’t you think?
Andrew: I agree. Professor Sitaraman anticipates that objection too!
Thomas: Oh! It’s like I’m having a dialogue with some professor I’ve never heard of!
Andrew: [Laughs]
Thomas: I had no idea!
Andrew: I extended an invitation for him to come on the show, so we’ll-
Thomas: Oh, he was afraid, he didn’t wanna come. He’s afraid of my-
Andrew: [Laughs]
Thomas: All my arguments that he’s apparently engaging with!
Andrew: He says, “These cases are often extremely important. Through its recent interpretation of the Federal Arbitration Act, the Court restricted the ability of workers to bring class-action lawsuits. In 2015, it interpreted the Clean Air Act to overturn the Obama Administration’s regulation of hazardous pollutants. The Court case challenging the Trum’s travel ban involved questions of statutory interpretation, as does” (and this was the intro to our section) “this year’s case on the meaning of the term ‘sex’ in Title VII of the Civil Rights Act.”
Thomas: Yeah, what about gerrymandering? Would that be one that-
Andrew: No. Gerrymandering has been a constitutional question.
Thomas: Oh. So another important one that this one wouldn’t-
Andrew: It’s absolutely important to understand and confine the scope of problems that this would fix, and very, very important. The kind of things upon which the Supreme Court was a leader in the 1960s and 1970s and led in the 2010s with the Obergerfell decision, where – there’s a set of political theses on this as to whether social change can begin in the courts. I am persuaded by the side that argues yes it can, that essentially the Supreme Court took the lead in the 1960s on civil rights on racial equality issues and at the time that Obergerfell came down we would still be struggling to pass gay marriage laws in a majority of states I think absent the Supreme Court’s decision. There’s nothing we can do in this provision that would respond to that, so I think that’s correct and it’s worth noting the limitations.
Thomas: Okay. Me, one, Professor Whatever-his-face, zero. I win the debate.
Andrew: [Laughs] And he notes the other implication here, which I think is dovetails with the message of Opening Arguments, which is you would have to have a political party with a majority in both the House and the Senate and the Presidency.
Thomas: Right.
Andrew: So it would only be effective, as he says, (quote) “when the government was unified under one party or when there was strong bipartisan consensus.” Then he goes on to note, “This minimal review is desirable; a popular majority or bipartisan political consensus would be a precondition for deciding that the Court was out of step” with reality.
Thomas: Mm-hmm.
Andrew: You know, it’s not gonna fix everything, but I thought it was a really, really interesting argument. There are – I’m gonna link the article in the show notes, there are other potential minor objections that I’m not gonna get into, but I wanted to signal boost that, I want it to be part of our debate and discussion because I think it is very interesting. So there you go!
Thomas: Definitely, yeah!
[Commercial – vistaprint.com, enter promo code “OA50” (expires Jan. 5, 2020)]
Thomas: Alright well while we’re talking about constitutionality, let’s get to our main segment!
[Segment Intro]
Thomas: So, is Warren’s wealth tax constitutional? I’ve seen very interesting stuff and it seems to me, my non-expert reading seems to be this is a pretty reasonable question, it’s not a slam dunk on either side but that’s my impression, what does the actual lawyer think?
Andrew: I think that view of the situation is correct. I wanna break down, because I think there’s some really interesting deep stuff here which is why we’re doing it on a Tuesday, let’s begin with exactly what the proposal is. I’m gonna quote from Elizabeth Warren’s website:
Thomas: [Laughs]
Andrew: [Laughs]
Thomas: Your first $50 million, that’s on you! You can keep that, that’s yours!
Andrew: [Laughs]
Thomas: Your $50 million and first dollar, we’re gonna take two cents. Now what can two cents buy?
Andrew: [Laughs]
Thomas: I can basically do this from memory! [Laughs]
Andrew: [Laughs] Yeah I’ve seen a lot of Warren speeches, too!
Thomas: Yeah.
Andrew: First she lays out the argument for it, which I think this is worth quoting because it’s part of the argument that if Elizabeth Warren is the nominee that we’re gonna have in the general election and it’s part of the argument in the primary, because not all the Democrats on stage agree with the notion of a wealth tax. You saw Corey Booker dispute that in the debate last night, although he kind of forgot to give a reason, but [Laughs]. The counterargument, charitably the counterargument is well let’s just have more progressive taxation. One of the things Booker said was let’s raise the capital gains rate and everything else. Again, good proposal, but here’s what Warren says on the website. She says, “While we must make income taxes more progressive, that alone won’t straighten out our slanted tax code or our lopsided economy. Consider two people: [one is] an heir with $500 million in” [Laughs] and okay, this is a little bit focus-grouped “yachts, jewelry, and fine art,” [Laughs] but okay, so one person with $500 million in assets, “and [then] a teacher with no savings in the bank.” (Then she notes) “If both the heir and the teacher bring home $50,000 in labor income [in a] year, they would pay the same amount in federal taxes, despite their vastly different circumstances. Increasing income taxes won’t address this problem.” Before you say well that seems preposterous, that is not preposterous. Most ultra high net worth individuals don’t earn income. They don’t earn labor income in the sense that you or I earn labor income, they have-
Thomas: Capital gains, right?
Andrew: Yeah, right. To the extent that they bring in income in any given year that income is very often in the form of investment income, returns on investment which is taxed under capital gains which is taxed at a preferential rate, and if you’re the CEO of Exxon Mobile, for example, you may choose to take your compensation in stock.
Thomas: Mm-hmm.
Andrew: So that’s not – when you receive the stock that is not subject to capital gains, it’s subject when you sell it. You receive it at a certain basis but you don’t pay the capital gains until you sell it and then you pay on the appreciation.
Thomas: Mm-hmm.
Andrew: So if you get the stock at $100 and you sell it at $200 you pay capital gains tax on the $100 a share of appreciation unless you die and give it to your talentless hack of a son at which point death re-zero’s the basis. So all of those gains can be passed on to your kids 100% tax free.
Thomas: Wow, really?
Andrew: Yeah. Again, this is not a hypothetical, this is a real thing that really happens with real rich people in our real country. So enter Liz Warren’s proposal which you described! [Laughs] First $50 million, that’s on you! “[H]ouseholds with a net worth of $50 million or more” which the study identifies as “the wealthiest 75,000 households in the U.S., or the top 0.1% … would pay … 2% tax on every dollar of net worth above $50 million and a 6% tax on every dollar of net worth above $1 billion.” Then she notes, “Because wealth is so concentrated, this small tax on … 75,000 households will bring in $3.75 trillion in revenue over a ten-year period,” which is a staggering amount of money. It raises more-
Thomas: Yeah I mean I don’t know why we do it in ten years? I guess that’s just to exaggerate a little bit, so what does that mean? $375 billion a year?
Andrew: $375 billion a year.
Thomas: Yeah.
Andrew: Which is-
Thomas: A lot.
Andrew: Which is about 100%-
Thomas: My favorite thing is a lot of people who make $30,000 a year are getting really sad and angered on behalf of the rich people, they’re like “Thomas, you idiot! You don’t get it! They don’t have $50 million in cash so they’re not gonna have the cash flow to” okay. So if you have $60 million in assets you’re telling me you can’t just sell like one car or stock or something to come up with whatever the two cents per dollar for that $10 million is? I’m pretty sure they’ll be okay. I think they’ll be able to figure it out.
Andrew: Shockingly, or not shockingly, the plan has a contingency for precisely that.
Thomas: Are you saying the plan has a plan for that? [Laughs]
Andrew: The plan has a plan for that! I’m gonna quote again from the website, “Taxpayers will be permitted to defer payment of the tax with interest for up to five years:
For the rare taxpayer with extremely high net worth but liquidity constraints that make it difficult to pay this additional tax, there will be an option to defer payment of the tax for up to five years, with interest.” So I also think that’s part of the reason for the 10 year computation.
Thomas: Yeah, yeah, good point.
Andrew: Because some people will defer. “The IRS will also be instructed to create rules for cases where deferment is required in truly exceptional circumstances to prevent unintended negative impacts on an ongoing enterprise or a taxpayer facing unusual circumstances that would advise for delay.”
Thomas: See how considerate we still are for the mega $50 million plus group?
Andrew: Yup! Yeah.
Thomas: That’s fine, reasonable, alright. But like, come on! [Laughs] We go out of our way! This is … [Sighs]
Andrew: Then there’s the implimintation which is increase to the IRS’s enforcement budget, minimum audit rate for those subject to this tax which is crucial.
Thomas: Yeah.
Andrew: And a “40% exit tax on the net worth above $50 million of any U.S. citizen who renounces their citizenship; and systematic third-party reporting that builds on existing tax information exchange agreements adopted after the Foreign Account Tax Compliance Act.” So in other words, one of the objections “well rich people will just move their taxes overseas.”
Thomas: Mm-hmm.
Andrew: Yes, in the same way that rich people are often cheating on their taxes already and this plan will do lots more to try and stop that then existing-
Thomas: Yeah, remember the Panama papers?
Andrew: The existing law does just about nothing. Yeah. [Laughs]
Thomas: Yeah.
Andrew: Now to figure out if it’s constitutional we have to look at the history of taxes in this country, because, spoiler! It is a fair question to ask whether it is constitutional and the way the arguments line up may – I think will – surprise you. So it’s part of why I really wanted to do this. So up until the 20th century this country was funded by tariffs, not taxes. That is taxes on imported goods. In the latter half of the 19th century, post-Civil War with the rise of progressivism, with the publication of Das Capital, you had the rise of progressives in this country that said, “um, you know, funding the government by taxing things that people need to live is really regressive.”
Thomas: [Laughs]
Andrew: Because all consumption taxes are inherently regressive. So maybe what we ought to do is have an income tax. That’s why it’s called the progressive income tax today. So there was a lot of debate over that, it was actually in the Democratic party platform in the latter half of the 19th century, and in 1894 Democrats finally managed to pass the Wilson Gormund Tariff Act. Incidentally, this was an alliance between progressives, many of whom were in the Republican party, and pro-free-trade Democrats. There was a kind of political tradeoff here, in fact I’m gonna link the Wikipedia article on the Wilson Gormund Tariff Act because it’s super interesting and we don’t have time to go into all the ways that our politics sucked in 1894, almost as much as it sucks today. [Laughs] So they stripped out a lot of the stuff from the bill, the important thing is for the first time, the conception of the bill was that it was going to greatly reduce tariffs and replace that with an income tax, the first half of that kind of got politicts-out. I’ll direct you to the Wikipedia article on that. For our purposes, the income tax component of that act was kind of Liz Warren-y. It was a 2% tax on all income over $4,000. $4,000 is $117,000 in today’s dollars.
Thomas: Wow.
Andrew: First $117,000, that’s yours, you keep it! Every dollar over that, 2% income tax. That was then immediately challenged and the Supreme Court in an 1895 case called Pollock v. Farmers’ Loan & Trust Co., which I’ll link in the show notes, ruled 5-4, very controversially, that an income tax was unconstitutional. I’m about to explain the reasons why, but I wanna tell you that that decision was super controversial, the dissent accused the 5 justice majority of judicial activism on behalf of rich people, which it pretty much was! And ignoring 100 years of precedent, which it pretty much did!
Thomas: [Laughs]
Andrew: But nevertheless, that was the Supreme Court’s decision in Pollock, that sparked a 20 year political battle that led to the passage of the 16th Amendment in 1913. The 16th Amendment is, I think it’s the shortest amendment to the constitution? It’s one sentence. [Laughs] It says-
Thomas: Dude, you gotta pay your taxes.
Andrew: Yeah! It says “The Congress shall have the power to lay and collect taxes on income from whatever source derived without apportionment among the several states and without regard to any census or enumeration.”
Thomas: Hmm.
Andrew: That’s it. Now you probably noticed, you’re like well this seems like kinda maybe a reverse 2nd Amendment? I totally get the “they can lay taxes on income from whatever source derived” what’s all that nonsense about the apportionment among the states and census-
Thomas: Yeah, that was part of my reading. I learned that that does become the key there, that’s why your property taxes are on the state level because they get first dibs on that, but I’m sure you’ll get to it.
Andrew: Yeah! No, that’s exactly right. It refers to the limitations that are in the constitution on the existing power of congress to impose taxes. This was the basis for the Pollock decision. So we talked about in the A segment, what can you do when the Supreme Court says the constitution protects the right of a fetus to bear arms?
Thomas: [Laughs]
Andrew: And own AK-47’s, practically the thing that you can do about it is amend the constitution. That’s what we did with income tax. It was just super clear that the 1735 way of funding the government in a pre-industrial economy just wasn’t gonna work in an industrializing economy with growing and inarguable gap between the ultra wealthy and everybody else. So that sparked that first progressive revolution in this country. What are those restrictions? The first restriction is – in fact I’m gonna go backwards.
Thomas: I’m sorry, so where are these restrictions coming from? Because you said the amendment was one sentence.
Andrew: Yeah.
Thomas: Is this from case law?
Andrew: No, these restrictions are in Article 1, they’re the powers of the Congress.
Thomas: Okay.
Andrew: So it says, Article 1 Section 8 says “Congress shall have the power to lay and collect taxes, duties, imposts, and excises.” Then there’s some stuff in the middle and then it says “but all duties, imposts, and excises shall be uniform throughout the United States.” Notice, by the way, first part of the clause says they can do taxes, duties, imposts, and excises and then that uniformity requirement only applies to the latter three, it does not apply to taxes.
Thomas: Hmm.
Andrew: But then the next section, Article 1 Section 9, says “no capitation or other direct tax shall be laid unless in proportion to the census or enumeration herein before directed to be taken.” If you’re thinking “what in the clownhorn is that?”
Thomas: I’m gonna need a lawyer to help me with that.
Andrew: Yeah [Laughs] Yeah!
Thomas: Yeah.
Andrew: Here’s what that is. A capitation tax, cap, this is sometimes called a poll tax, a head tax. This is just every person has to pay a certain amount of money to the government. That was a thing.
Thomas: Hmm.
Andrew: You can see how obviously regressive that would be.
Thomas: Yeah.
Andrew: But that was a kind of thing that was potentially proposed in the latter half of the 18th century. The reason that the restriction on a head tax has the “in proportion to the census or enumeration” bit in it, you wanna take a wild guess? Think of the worst thing in American history and you’re probably right.
Thomas: Uh, lemme guess, does it have something to do with not counting slaves for these purposes or counting slaves for these purposes? Something involving slavery, is that?
Andrew: Exactly right! Now, I gave you a pretty big hint there, but… [Laughs]
Thomas: [Laughs]
Andrew: Article 1 Section 2, since superseded, is the 3/5 compromise that the representatives and direct taxes shall be apportioned among the several states according to their respective numbers and the numbers include (quote) “free persons, subtracting Indians not taxed” [Sighs] again this is our shameful history, this is not my language, “and adding 3/5 of all other persons” i.e. slaves. So the idea at the time was you bring in slaveholding states into the Union, they get to inflate their numbers for representation in Congress.
Thomas: Yeah.
Andrew: Which was real bad! We limited the amount by which they got to inflate their numbers… yay. So they got that massive giveaway. For our nation’s history until the Civil War the Southern states with slaves got a disproportionate vote and an outsized say in how our government was run.
Thomas: It was basically like, hey, let’s figure out how this is gonna work. We have all these people that need to count for representation purposes! Wait, people you say? So they get to vote, then? No, no, no! Sorry, no. People for the stuff we want, they’re not people for all the other stuff.
Andrew: Exactly right. So the idea at the time was okay, we’re gonna give you this political giveaway as an incentive to join the Union, but the price of that is this kind of tax that we think the government is likely to impose, you’re gonna have to pay more in taxes. You can imagine the debate among the founding fathers and the, you know the sort of “alright, I get it, Virginia is gonna have an outsized voice in the new government because we’re gonna include all their slaves, but at least we’re gonna tax them on the basis of all their slaves too.” However that was thought of in theory, in practice we just never laid any direct taxes. So [Laughs]-
Thomas: Wow.
Andrew: They got all the goodies without having to pay the direct taxes. But that’s the notion of the apportionment, so the idea was a direct tax has to be collected from the states in direct proportion to their population as determined in the census, initially as modified by the 3/5 clause. Now we’ve struck out the 3/5 clause thankfully, but that’s the direct tax apportionment requirement. Make sense?
Thomas: … Yes.
Andrew: Okay. Now I heard your hesitation there and I wanna tell you you are not alone.
Thomas: Well I was trying to figure out why a wealth – yeah. I’m just trying to do the math of wealth and property tax-
Andrew: Oh yeah, we’re getting there.
Thomas: Okay.
Andrew: We’re still in the deep dive portion, we’ll get to the Liz Warren portion.
Thomas: Yup, yup, yup.
Andrew: So practically how that works is you take the total amount of the tax, you divide it by the number of members of the House of Representatives and then you multiply that number by the number of representatives that each state has and then each state is responsible for collecting that amount of the tax from its citizens. That’s how the apportionment works with respect to taxes. Your quizzical “this kind of makes sense,” you’re not alone! The Supreme Court kind of had a “this kind of makes sense” moment. [Laughs]
Thomas: Hmm.
Andrew: Cocking their head like a Cocker Spaniel. It was one of the very first – well, very – I don’t wanna be hyperbolic here, it was a 1796 decision. So super early decision of the Supreme Court!
Thomas: Yeah.
Andrew: Pre-dated judicial review, so I don’t wanna be overly hyperbolic but this is one of the first significant things the Supreme Court ever did. In that case they were called upon to determine whether a tax on carriages – that’s the old horse-pulled carriages, right?
Thomas: [Laughs] Sorry, I thought you said the attacks on carriages, like there was a carriage attack problem? But no, nevermind.
Andrew: [Laughs]
Thomas: A tax. Got it.
Andrew: Taxing the non motorized vehicles of the late 18th century that are lionized and memorialized in Christmas songs everywhere. That was held by the Supreme Court not to constitute a direct tax.
Thomas: Huh, interesting.
Andrew: That’s a case called Hylton v. United States. H-y-l-t-o-n. The Supreme Court’s reasoning in this was really, really interesting. Essentially what they said was there’s no way. I don’t know what this is but you couldn’t possibly impose this on an apportioned basis, because think about it this way, if you have 10 times as many carriages in New York as you do in Virginia then the tax rate is gonna be 10 times higher on Virginia carriages then they are on New York carriages. And what if you have – we’re adding new states, it’s 1796 we’re adding new states all the time, in a year in which the first carriage gets-
Thomas: [Laughs]
Andrew: -purchased in Ohio, right, exactly! That guy would owe $11 million in taxes on his one carriage!
Thomas: [Laughs]
Andrew: The Supreme Court was like, “that’s really stupid.” [Laughs] So basically what they said was okay, look, the constitution says direct taxes have to be apportioned, but if you can’t apportion it then we didn’t mean for it to apply for that kind of tax no matter what you think it is. If that sounds like I’m sort of making it up, I’m gonna quote from the actual opinion. This is Chief Justice Chase, he writes “The Constitution evidently contemplated no taxes as direct taxes, but only such as Congress could lay in proportion to the census. The rule of apportionment is only to be adopted in such cases where it can reasonably apply” (end of quote).
Thomas: I like how he’s like “evidently.” Dude! Go talk to the people!
Andrew: [Laughs] You say this! I love this. You’ve not read the opinion, it is a very important bit of fact to know that Chief Justice Chase was one of the signers of the constitution!
Thomas: [Laughs] He’s like “I dunno, we were pretty drunk back then. What were we doing? Evidently we intended, I don’t remember.”
Andrew: Yeah!
Thomas: “It’s a haze.”
Andrew: So it is pretty good evidence of how the framers intended the apportionment clause for taxes to work to have a guy who was one of those group to then say “look, we didn’t intend for it to work this way.”
Thomas: Yeah. But it also kind of gives lie to originalism, the fact that he’s like “uuuh, it looks like…” doesn’t sound entirely sure of himself, so it’s not as though there was one thing called “the founders intentions” there was a bunch of different intentions and they might not have, in any given thing they might have had different intentions and it might’ve gone one way, so I dunno. Even in 1796 it sounds like it’s not as thought it was straightforward as to what they all meant to do with this thing.
Andrew: Exactly right. So put a pin in that and now let’s jump forward 100 years to the Pollock decision in 1895, that was the one that invalidated the income tax, the very first income tax, our $4,000 on and the Wilson Gorumend Tariff Act of 1894. The Supreme Court essentially said, “uhhh, yeah, Hylton doesn’t count, income taxes are a direct tax, and since they’re not being apportioned over the states you can’t do it under the constitution.” That, by the way, I told you the opinion was controversial, that’s why the dissent accused them of ignoring 100 years of precedent, the dissent was like “yeah, the fact that you can’t apportion income taxes proves that income taxes are not direct taxes because Hylton stands for the proposition that we weren’t morons when we weren’t morons when we drafted the constitution.” Nevertheless, Pollock was good law and then was superceded by the 16th Amendment. After Pollock in 1895 income tax passes in 1913 then subsequently there is a law passed to tax dividends.
Thomas: Hmm.
Andrew: Now we get to Elizabeth Warren’s wealth tax. In 1920 in a case called Eisner v. McComber, the Supreme Court said taxing stock dividends is also a direct tax and therefore because it wasn’t apportioned among the states by that super complicated ridiculously stupid formula it was invalidated. So that settles it, right? Eisner v. McComber, 1920, Supreme Court said you can’t tax dividends, Warren’s wealth tax would tax dividends, so unconstitutional, right? Not so fast. We’ve talked about the Lochner era Supreme Court and the end of the Lochner era court. Supreme Court decisions on business regulations from this time period are generally viewed with extreme disfavor.
Thomas: Hmm.
Andrew: Even where they’re not explicitely overruled, and here Eisner has not, when you go and you look it up on WestLaw, it has the little yellow “some negative history” but not the red “this has been overruled and don’t cite it.”
Thomas: Is that like the message is “warning, this comes from a time when they also were protecting children’s rights to work at age 11 in coal mines and stuff” that kind of?
Andrew: Well, the yellow symbol can mean a lot of different things.
Thomas: [Laughs]
Andrew: But in this case it does mean that! That is exactly right. So it is not as cut and dried as just “there’s case that says no you can’t, so no you can’t.” There is good reason to believe that neither Eisner nor Pollock are good law in light of the 16th Amendment and the repudiation of the Lochner era in general. But notice, now let’s kind of pull it all back together again, then I’m gonna give you my prediction. To argue that Elizabeth Warren’s wealth tax is unconstitutional, the argument is that it is a direct tax that either A, could be apportioned or B, doesn’t matter because it’s not apportioned. Those are the arguments you have to win in order to win that Elizabeth Warren’s wealth tax is unconstitutional and that includes with it the notion that Pollock and Eisner are good law. Elizabeth Warren wins if the Supreme Court holds any of these three things: If they hold that the wealth tax is and indirectrather than a direct tax. They very well might.
Thomas: Hold on, it’s weird. I’m struggling to understand exactly how these words are being used. How would it be an indirect tax rather than a direct tax?
Andrew: Because you are taxing the person for the thing that it makes a reference to. In other words you are not directly taxing the property itself, you’re taxing the person who owns the property and therefore it is an indirect tax on the property rather than a direct tax on the person. I’m gonna get to – if that seems not 100% clear, again, you’re in good company. [Laughs] So I’m gonna get to the explanation.
Thomas: Yeah. But then an income tax is a direct tax, but it’s just okay because how the amendment was written?
Andrew: Because of the 16th Amendment, that’s right!
Thomas: Okay.
Andrew: And that’s the second way in which you could save Elizabeth Warren’s wealth tax. So number one you could say it’s an indirect tax on wealth applied through persons. Number two, you could say oh yeah, it’s a direct tax but it’s a form of income tax, it’s a specialized form of income tax.
Thomas: Right.
Andrew: Which, by the way, every post-1913 decision interpreting what “income” means interprets income as expansively as possible.
Thomas: Hmm.
Andrew: So lots and lots of good arguments that it would be an income tax. Or, number three, that it’s a direct tax but it’s a direct tax that can’t be apportioned and under the rule dating back to Hylton, 1796, a direct tax that can’t be apportioned doesn’t invoke the application of the apportionment clause because the constitution has – this is referred to in law review articles as the functionalist requirement, but essentially the “we didn’t write the constitution to make you do an impossible thing, so if the tax can’t be apportioned that restriction doesn’t apply.” So any one of those three arguments is sufficient to prevail and before I get into “what about this existing Supreme Court”
Thomas: Yeah. [Laughs]
Andrew: I wanna tell you that this turns traditional arguments on its head. Think about how, if you’re briefing the sides out, the conservatives arguing against the constitutionality of the wealth tax will be arguing that “oh look, it’s stare decisis” you have these existing decisions that date back to 1895 and 1920, they haven’t been overturned, they’re still good law, and therefore just follow the law. Stare decisis rules the day. Pollock is the 1895, McComber 1920, nothing since then has overruled those cases, they’re dispositive, stare decisis. [Laughs] The liberal side will be arguing an originalist argument! They will say “no, no, no, cases in 1895 and 1920 are not dispositive as to what the constitution meant when we wrote the apportionment clause in 1787 in order to figure that out we look to contemporaneous evidence and the best contemporaneous evidence is, hey, one of the founders, one of the guys who drafted the thing, was on the Supreme Court and ruled for a unanimous court in 1796 that the clause wasn’t intended to apply in cases where it couldn’t apply.” So you have this interesting role reversal. As an added wrinkle, the last Supreme Court, the last major Supreme Court decision, I can’t promise that there hasn’t been an offhanded reference in later cases, but the last one that I know about was the NFIB v. Sebelius, the 2012 Obamacare decision. 5-4 ruling written by Chief Justice Roberts affirming the constitutionality of Obamacare’s tax in order to fund healthcare. Here’s what Chief Justice John Roberts wrote in 2012 about direct taxes. He writes, “Even when the Direct Tax Clause was written it was unclear what else, other than a capitation (known as a “head tax” or a “poll tax”), might be a direct tax. Soon after the framing … this Court upheld the tax,” (on carriages) “in part reasoning that apportioning such a tax would make little sense, because it would have required taxing carriage owners at dramatically different rates depending on how many carriages were in their State.” That’s the citation to Hylton I just described. “The Court was unanimous,” (and I’m kind of skipping some of the citations here) “That narrow view of what a direct tax might be persisted for a century.” Then there’s a discussion of, “but then we had Pollock, and then here’s how he squares Pollock and Eisner. He cites the Eixner v. Macomber decision as well. Then he says, “A tax on going without health insurance does not fall within any recognized category of direct tax. It is not a capitation. Capitations are taxes paid by every person … The whole point of the shared responsibility … is that it is triggered by specific circumstances — earning a certain amount of income but not obtaining health insurance. Th[is] payment is also plainly not a tax on the ownership of land or personal property. The shared responsibility payment is thus not a direct tax that must be apportioned among the several States.” So you put all of that together and you have John Roberts acknowledging the arguments on both sides, saying look, you could plug in Warren’s wealth tax on both sides of that equation. You could say it is plainly not any of the enumerated categories of direct taxes, but it is arguably a tax on the ownership of land or personal property.
Thomas: Yeah.
Andrew: I think, in having read NFIB that if Roberts is being consistent that he would be forced to consider the question of whether this Court should overrule Eisner v. Macomber and I think the arguments weight in favor of the former, of saying yeah, Eisner v. Macomber, no longer good law, direct taxes must be specifically enumerated. A tax on wealth is not a direct tax because it is not a poll tax and therefore it is constitutional. It’s gonna be close.
Thomas: So yeah, you were talking about the decision but it sounded like you’re under the impression that the Obamacare tax would be analogous to a wealth tax?
Andrew: Because that’s the last time – it’s not so much that the Obamacare tax is analogous to a wealth tax, although I think it is. It is – the Obamacare tax is a tax triggered by specific circumstances. The Warren wealth tax is a tax triggered by specific circumstances. It is not a capitation, it is not a direct tax in the sense that the term was used consistently until 1895. Is it arguably-
Thomas: But that part where he’s like well it’s not a tax on land or something, it sounded like the wealth tax could be more comparable to that.
Andrew: That’s right. That’s the citation to Eisner v. Macomber. So that’s what John Roberts will have to wrestle with in order to determine whether to affirm the constitutionality of President Elizabeth Warren’s wealth tax. But he’s given himself a lot of ammunition to say yes. He’s given himself some ammunition to say no, but I think there are good reasons to believe that the tax is constitutional under our exiting law, certainly enough that it is not preposterous to campaign on.
Thomas: Yeah. That was my conclusion that I actually think it’s likely that the conservative court will just strike it down but I think part of Warren’s message is not campaigning in fear and not just giving up arguments because we are anticipating something Republicans are gonna do. I think the message of the wealth tax, it’s not only good policy but just looking at what it would do is also good messaging, the idea that look, if we take 2 cents from every dollar after $50 million look at what we could pay for! It’s not only good policy it illustrates her entire campaign narrative anyway, which is that the people at the top have way too much and even a modest tax on them would produce all these goods. I love that she’s still campaigning on it even though I imagine that this Court would just strike it down.
Andrew: I agree with 100% of what you’ve just said. The cautisal that I would add to that is that it would bother me to have a candidate campaigning on a policy for which there was no good faith argument for its constitutionality.
Thomas: Yeah, no that’s true. It’s better that it is truly kind of a tossup in some ways, it’s not a blatantly unconstitutional thing.
Andrew: Yup. I’m going to link to, so Elizabeth Warren, this will not surprise you, before announcing the plan submitted it to basically a who’s who list of every liberal constitutional scholar in the country. Erwin Shimerinsky got it and Lawrence Tribe got it. She has two separate letters, each signed by like a dozen people who are my heroes in the law. Unquesitonably brilliant folks, all of whom have written and signed onto this letter that says “we think that it is constitutional” for reasons similar to the ones that I’ve advanced on this podcast. There is the seminal law review article on this, was co-authored by former acting solicitor general Alter Delenger, somebody we have mentioned on the show before. Again, an unimpeachably brilliant legal mind, and it is called “The Constitutionality of a National Wealth Tax.” I’m gonna include both the letters and that law review article in the show notes. I wanted to go through, I thought the deep dive was interesting, I thought the history was interesting, and you want to strawman – you wanna steel man the arguments on the other side. There are serious arguments on the other side that are backed by the kind of arguments that we liberals typically make. They’re backed by stare decisis, so I do not want to give short shrift to those arguments, but I wanted to lay everything out, so there we go! Elizabeth Warren’s wealth tax? Probably constitution, definitely worth campaigning on.
Thomas: Well there you have it! Awesome deep dive. I think you’ve murdered the wild card segment, we are out of time!
Andrew: [Laughs]
Thomas: That’s okay, we’ll save it for another day, it’s a good question.
Andrew: Yes we will.
Thomas: I think it’ll apply later. So that means it’s time to thank our top patrons, our hall of famers, our all time greats on Top Patron Tuesday over on patreon.com/law, enjoying Law’d Awful Movies, all the bonus goodies, all the Q&A question thread. So many good reasons to join over on patreon.com/law.
[Patron Shout Outs]
Thomas: Alright, let’s find out how I did on this new seemingly easy T3BE question, but maybe not.
[Segment Intro]
Andrew: Yeah, so Thomas, your first crack at the new question, you got a homeowner using a six-foot stepladder to clean the furnace in his home, slips, breaks his arm, the furnace had no warnings or instructions as to how it was to be cleaned. He sues the manufacturer of the furnace to recover for his injury, is he likely to prevail? You said I hope not and went with answer A, no, because the danger of falling from a ladder is obvious. This is right out of the, I’m not even gonna go through the other answers. You’re right, it was obvious, the answer was obvious, and it’s actually a legal principle that a manufacturer has no obligation to warn against obvious dangers.
Thomas: Hmm.
Andrew: You know, there’s nothing-
Thomas: Yeah, if you make bricks and get hit in the head with a brick, it’s like, okay, you gonna put a warning label on every brick that says if you get hit in the head with it that’s bad? No!
Andrew: Yup. So you said you thought as a possible answer on the yes, yes because the lack of warnings or instructions on how to clean the furnace made the furnace defective. No because of the principle that we just described.
Thomas: But let’s be real, none of the other answers were good, I was just trying to find the best.
Andrew: Also there would be another – defective means that it is unreasonably dangerous when used as intended so there is certainly no evidence for that in this fact pattern, so super easy question, you nailed it right out of the gate and good job!
Thomas: You know, the D answer wasn’t a good answer. None of the other answers were good, I just thought that would be the only other possible one, but yeah, this seemed pretty straightforward. Now I’m worried, is this new source starting with really easy questions and then gets harder? Or hopefully that’s just a random question.
Andrew: Yeah, well we’ll find out. I don’t wanna identify the source because I don’t want people to cheat.
Thomas: [Laughs]
Andrew: Our listeners, but I will tell you I’m very, very confident in the source. How about that?
Thomas: Yeah, cool!
Andrew: So we’ll see!
Thomas: I just don’t want it to lull me into a false sense of [Laughs] security before the last 70 will be impossible or something. Okay, well that was easy! I won! Let’s go to the future here in your limited use time machine and find out who this week’s big winner is!
[Segment Intro]
Andrew: Well Thomas, I think everybody who played along got this wrong as far as I could tell, my favorite response comes from Perfidious Pete who says “It has to be A. A furnace manufacturer being responsible for a fall from a ladder is a bizarre argument – so bizarre that I’m beginning to wonder if this fact pattern was drawn from a suit filed after Devin Nunes tried his hand at home repair. #T3BE #StickToSuingCows” So congratulations Perfidious Pete, everyone give him a follow on Twitter, that is @PerfidiousPete and enjoy your fame and fortune, may it never end!
[Segment Outro]
Thomas: Okay thanks so much for listening, that was a fantastic deep dive Andrew, good stuff. Mostly Trump free as well, but still very useful and relevant. Fun stuff! I love Tuesday episodes, they’re both important. Tuesday episodes, Friday episodes, they’re just great in different ways and having said that, we will see you on Friday!
[Show Outro]