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45 Ne. J. Legal Stud. 1 (2025)

handle is hein.journals/neastjol45 and id is 1 raw text is: Page 1 | Vol. 45 | 2025 | Art. 1 | North East Journal of Legal Studies A TAX ON UNREALIZED CAPITAL GAINS IS NOT A WEALTH TAX ... BUT THAT MAY NOT MATTER TO THE US SUPREME COURT Nicholas Misenti* I. INTRODUCTION President Biden's 2025 Budget proposal included a tax on unrealized capital gains of taxpayers with a net worth of $100 million or more.1 The proposal was supported by Vice President Harris2 but opposed by President Trump and republicans.3 The 2024 reelection of President Trump, and the fact that republicans won control of both the House and Senate, puts such a proposal on hold, but it is likely to resurface gain. Thus, the constitutionality of a tax unrealized capital remains is an important issue. The proposal to tax unrealized capital gains has been conflated with a wealth tax.4 This confusion may be because the Biden proposal included a threshold where the tax would apply only to a taxpayer with a net worth of $100 million or more. But that confusion could also be a purposeful distortion by groups that oppose the tax. A wealth tax would not be deemed an income tax and thus could not be justified by the 16th amendment to the US Constitution. The 161h amendment overturned the holding in Pollock v. Farmers'Loan & Tr. Co., 5 that an income tax was a direct tax and thus authorized an income tax. Under Pollock, a wealth tax would still be deemed a direct tax in the form of a property tax that is not authorized by the 16th amendment. Such a direct tax would need to be apportioned among the states based on population6, which isn't practical or even possible with a wealth tax. Thus, a wealth tax would have little chance of surviving a constitutional challenge.7 However, in contrast to a wealth tax, a tax on unrealized capital gains is a tax only on the incremental growth in the value of property over the course of a tax year, i.e., a tax on economic * The University of Hartford 1 Garrett Watson, Erica York. Analysis of Harris's Billionaire Minimum Tax on Unrealized Capital Gains. September 4, 2024. https://taxfoundation.org/blog/harris-unrealized-capital-gains-tax/ 2 Id 3 Diccon Hyatt. Your Unrealized Gains Are Safe from Biden/Harris Tax Proposal-Unless You Have $100M. August 28, 2024. https://www.investopedia.com/unrealized-gains-are-safe-from-biden-harris-tax-proposal-unless- you-have-usd100-million-8703570 4See, e.g., Nathan Goldman and Christina Lewellen. The Pros and Cons of Wealth Taxes. October 23, 2024. htt rai 1114 One of Vice President Kamala Harris's centerpiece policy proposals is a wealth tax-a 25-percent minimum tax on unrealized gains for taxpayers whose net wealth exceeds $100 million. 5 Pollock v. Farmers'Loan & Tr. Co., 157 U.S. 429 (1895) 6 See Article I, Section 9, Clause 4 of the US Constitution ? During the oral arguments in Moore v. United States, the U.S. government's attorney conceded that a wealth tax would be unconstitutional under the 16th Amendment. See Tr. of Oral Arg. 127-128; Moore v. United States, No. 22-800, 38 (U.S. Jun. 20, 2024). See also, The U.S. Supreme Court hears Moore case, raising questions about income taxation. December 5, 2023. I ` 1= 9/2023/us nye-couirt-hears-moorti guesstions-incon

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