Biden’s Proposed Wealth Tax

Only time will tell if a wealth tax is constitutional.

A new budget proposal from President Biden includes a kind of wealth tax. There’s no need for alarm: it would apply only to taxpayers with more than $100 million in wealth. Besides, there is zero chance Congress will actually pass a budget that includes this provision. It’s there as a way to provoke debate on disparities in wealth and fairness in taxation.

You won’t have trouble guessing which side the Wall Street Journal takes in this debate. The editors believe we are already “soaking the rich.” Their critique of Biden’s wealth tax proposal hinges on language in the 16th amendment authorizing the federal government “to lay and collect taxes on incomes.” It isn’t income, they say, when the market value of your stocks or other assets rises.

Presumably they are aware that an increase in wealth plainly is income according to a definition long used by economists (consumption plus change in net worth). Yet they are saying it isn’t the kind of income that can be taxed under the 16th amendment. For support they rely on a 1920 case, Eisner v. Macomber. (I’m sobered to realize this case, now more than a century in the past, was only 58 years old when I first studied it.)

In Macomber the Supreme Court found that a stock dividend was not income within the meaning of the 16th amendment. Mrs. Macomber held 2200 shares of Standard Oil stock, and her holdings increased to 3300 when the company declared a 50% stock dividend. This event did not put any cash in Mrs. Macomber’s pocket. Nor did it increase her wealth in any way. It merely divided that wealth among a larger number of shares. The transaction had no more economic significance to her than if she exchanged a quarter for two dimes and a nickel.

The holding in Macomber would not apply to Biden’s proposed wealth tax. The crux of the case was that the stock dividend did not alter Mrs. Macomber’s wealth. This would not be true of Biden’s proposed wealth tax. Would such a tax survive a constitutional challenge? The answer to that question is likely many years in the future.

Credit and Deduction Changes for 2022

For those preparing 2022 income tax returns, the IRS offers the following brief summary of how credits and deductions have changed from the previous year:

Unlike 2020 and 2021, there were no new stimulus payments for 2022, so taxpayers should not expect to get an additional payment in their 2023 tax refund.

However, taxpayers may still qualify for temporarily expanded eligibility of the Premium Tax Credit, a refundable credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. To get this credit, taxpayers must meet certain requirements and file a tax return with Form 8962, Premium Tax Credit.

Also, eligibility rules changed to claim a Clean Vehicle Credit under the Inflation Reduction Act of 2022.

Some tax credits return to 2019 levels. This means that taxpayers will likely receive a significantly smaller refund compared with the previous tax year.

Changes include amounts for the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC) and the Child and Dependent Care Credit will revert to pre-COVID levels. 

    • For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 for the 2022 tax year.
    • Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 per dependent for the 2022 tax year.
    • The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.

Finally, taxpayers that don’t itemize and take the standard deduction cannot deduct their charitable contributions this year.

[End of quote from IRS.]