Billionaire Taxes and the Constitution

The United States now has ten times as many billionaires as it had just a few decades ago. This ever-growing class has sparked congressional interest in “billionaire tax” proposals. These proposals would generally require that billionaires recognize income when their asset values increase, even if they have not sold their assets. Under existing doctrine, billionaire taxes likely violate the realization requirement embedded in the Sixteenth Amendment of the Constitution. However, this Article argues that existing Sixteenth Amendment doctrine suffers from deep infirmities and theoretical inconsistencies. With the conceptually sound interpretive approach advanced in this Article, a billionaire tax could pass constitutional muster

Pollock, Macomber, and the Role of the Federal Courts in the Development of the Income Tax in the United States

Crane notes that the federal income tax is much more a lawyer\u27s tax than either the income taxes of other jurisdictions or the several nonincome federal taxes. She locates the source of the legalistic nature of the tax in the Supreme Court\u27s 1895 opinion in Pollock v. Farmers\u27 Loan & Trust Co., invalidating the income tax of 1894 as a constitutionally impermissible unapportioned direct tax. She describes how the ghost of Pollock hovered over the income tax for decades after its reintroduction in 1913, inspiring Eisner v. Macomber and other judicial explorations of the constitutional meaning of income. Moreover, she argues that more good than harm came out of the Court\u27s intense involvement in the development of the tax. She concludes that the threat of continued Supreme Court holdings insisting upon giving constitutional content to the meaning of \u27income\u27 forced the Congress and Treasury to commit to a far more consistent and coherent set of rules for defining the tax base

The Expatriation Tax, Deferrals, Mark to Market, the Macomber Conundrum and Doubtful Constitutionality

Taxpayers shift income offshore with lawful devices like operating through a foreign corporation. Taxpayers have enhanced the amount of that income lodged outside the U.S. with transfer pricing strategies. Andtaxpayers have evaded U.S. taxation of their worldwide income by secreting assets and income in tax haven, bank secrecy jurisdictions. Statutes, regulations and litigation seek to limit use of offshore opportunities toavoid the U.S. income tax. Penalties for taxpayers and their foreign hosts have been enacted to prevent thehiding of assets offshore. This article reviews many of those techniques and statutory or regulatory responses in the context of examining the 2008 expatriation tax. Expatriation removes taxpayers’ foreign source income from U.S. taxing jurisdiction including gain on appreciated property that changes source as the taxpayer expatriates. In response to increasing numbers of expatriating Americans, loss of potential tax revenue from those expatriates has become a growing concern. While capture of a portion of the expatriate’s wealth produced while in the U.S. seems justified and desirable, continuing U.S. taxing jurisdiction over pre-expatriation increases in wealth is difficult to enforce as the individual may be beyond the reach of U.S. authorities. Congress enacted the expatriation tax to capture those increases in wealth at the moment of expatriation while the U.S. still has jurisdiction over the taxpayer. Yet, requiring an expatriating individual topay a tax on increases in wealth that accrued while the individual was subject to the U.S. income tax – largely unrealized appreciation in value -- is problematic in a realization-based tax system like the U.S. has. Even if taxation is permissible, taxing expatriation is a barrier to emigration and in that it treats emigrating taxpayers differently and less favorably from all other U.S. taxpayers. Expatriation is not an event of realization andlongstanding U.S. Supreme Court precedent determined that absent realization, gain is not income. This article addresses that constitutional conundrum and identifies the income that the U.S. may tax without question and emphasizes the constitutional barrier to taxing the unrealized appreciation. The article anticipates litigation of the constitutional issue and recommends that if the tax withstands constitutional challenge Congress enact a comprehensive tax base reaching all unrealized appreciation for all taxpayers. That comprehensive base would both simplify the tax law and help to level the growing disparity between wealthy and poor in the U.S