Since famously “the power to tax involves the power to destroy” (John Marshall), has US jurisprudence ever ruled that a 100% tax on the profits from selling something is unconstitutional? Note that I don’t mean doubling the retail price of something by adding a sales tax, I mean flat confiscation of the profits from a sale. It occurs to me that faced with something too widespread and too easy to do to actually eliminate, the government might resort to a doctrine of “they shall not profit” (would that be ‘qui nihil profuerunt’ or ‘erunt, non lucrum’?) to at least discourage the profit motive.
If there is no “profit motive”, then what is the motive to sell anything?
The column describes various situations where felons were deprived of the right to profit from their crimes. Not via a >100% sales tax, but it proves there is no inalienable right to profit. There have been situations, not sure if ever in the US though, where strict price controls forced eg retailers to sell certain items at a loss (depending on the circumstances, either they ate the loss for a while, or the item would disappear from shelves). But extreme price gouging is not necessarily tolerated in the US either. Tangentially related, an old thread mentioned the (unpopular and short-lived) 105% income tax bracket in Sweden…
There isn’t necessarily, though selling at a loss is sometimes a 100% valid strategy, and, on the other hand, there are laws in the US limiting, under certain circumstances, monopolies, price gouging, and that sort of thing.
Income means more than profit. It could mean any transfer of assets. If you give your brother $10, the constitution gives Congress the right to take it all. (If you do give your brother $10 billion, then Congress does take a good portion of it today). You could sell your car for $8,000 and Congress can take it all, not just the profit. What Congress can not do is take any portion of your assets until you transfer them to someone else. Of course, your eventually gonna die and Congress could take it all before your brother gets his inheritance.
Google: Laffer Curve
The Court can’t pre-emptively declare that a 100% tax is or isn’t constitutional. It would have to rule on the subject only after a case involving such a law reached it.
I can’t think of any instance in which such a tax on the profits from a particular product was ever passed.* Therefore, any discussion of the subject has to remain speculative, just like the hundreds of other questions we ask here about things that have never happened.
*The Son of Sam laws aren’t taxes and also are not 100%. The only one I know of that survived court scrutiny is New York’s revised law of 2001, but even that doesn’t go into affect unless at least $10,000 is involved.
I can see the opposite, as in promote the general welfare type of thing under certain absurd circumstances. Let’s say someone somehow bought up the rights to all the fresh water, being essential for life, I could see the government allow them to recoup their expense of providing it but not profit from it.
Also profit has 2 different meanings in business. One way of looking at it is the revenue minus expenses. Another way that businesses use is anything extra over a certain expected percentage, basically using the first definition to establish a baseline of ‘profit’ then anything over that is considered profit. With that second definition some utilities operate effectively at 100% tax on profit. They can only legally make so much.
At some point a tax becomes a Fifth Amendment taking. Even if it is called a tax, a 100% tax is, in effect, a government taking.
Lucas v. South Carolina Coastal Council is an instructive case. Lucas v. South Carolina Coastal Council - Wikipedia
The State basically said that no new construction could be made on Lucas’ beachfront property. Although on its face, it was a state police regulation that merely provided where new construction could take place, the Court held that what the state did was to effectively deprive Lucas of all economic value of his property and was thus a Fifth Amendment taking which required just compensation.
I think a 100% tax like you propose would be the same thing. It is just an outright full taking as it deprives a person so taxed of all economic value of whatever property generates the income.
Now, would a 99.9% tax survive? This is GQ, but I think this points out a flaw in the Supreme Court’s tax jurisprudence.
The Hearst-DuPont Marijuana Tax Act of 1937 applied excise taxes to marijuana that were effectively more than 100%.
But the intent of that law was to outlaw the product, rather than raise revenue. It was eventually declared unconstitutional, but not because it was a ‘taking’ (the Supreme Court didn’t rule on that), but because it required a person to incriminate themself when applying for the stamp, a violation of the 5th Amendment.
IANAL but I read USC Article I Section 8: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises…” and Amendment V: “…nor shall private property be taken for public use without just compensation.” Taxes on real property are widely instituted, and real property is confiscated, “taken,” for non-payment, and then sold, not put to public use. That’s not like a “public domain” taking. So I don’t see the USC barring high tax rates, especially not on private non-real property.
Why? As far as I know, it’s a theoretical optimization problem. I say “theoretical” because AIUI, economists generally disagree about the shape of the curve itself and about which variables matter (beyond the two axes, tax rate and tax revenue).
I’m not an economist, but is there even broad agreement about how many local maxima/minima are involved? I mean, I can postulate an undefined function F(x), but until I define the function, I can’t evaluate the result for any non-trivial x.
It seems likely that some function describing tax rates vs tax revenue, but how do you solve an optimization problem if the function in question is undefined?
If there’s a hole in that reasoning, I’d be glad to know about it. And if the reasoning above is sound, isn’t “Google: Laffer Curve” about as useful as “Google: extraterrestrial life?”
That is to say: there very well could be some function that accurately describes the Laffer Curve, and the enormity of the universe makes it possible or even probable that some form of extraterrestrial life exists. But to the best of my knowledge, we haven’t actually found either one.
Missed the edit window due to timeout: in the third paragraph of my post above, strike “describing” and replace it with “describes.”
But - levying taxes is legal. The penalties for non-payment of taxes are laid out in laws, which are subject to review for constitutionality if challenged. So the property seized for non-payment is taken under due process of law. (Not to be confused with civil forfeiture without charges, which somehow escapes being labelled properly as thievery by the power of the state).
Which brings us straight back to the OP’s question - is a “tax” law which is essentially a confiscation law constitutional?
Mark Twain said “How many legs does a dog have, if you also call the tail a leg?” Someone answers “Five?” and he responds “No, four. Calling a tail a leg doesn’t make it one.” So calling a confiscation law a tax does not make it one. There are no “magic words” in law. Very often laws are judged unconstitutional based on what their effect is, not how they are labelled. The question is whether the courts have the independence to state the obvious.
Exactly. That was what I was trying to say. Say I own a casino on the Las Vegas strip. The government taxes me on 100% of my income from that property. So I turn it into another type of business. They tax me 100% on that.
They have deprived me of all economic value of that property so under the Lucas case, that is a taking, whether they call it a tax, a police power regulation, a tree, a rainbow unicorn fairy or whatever. It is still a taking.
To your last point, the courts in Lucas did state the obvious. The State of South Carolina said that Lucas was free to do whatever he wanted with his beachfront property so long as he didn’t build on it. But the Court held that building on beachfront property IS the only real economic value of it.
You have to define “profit” to be able to answer the question. It could be as simple as Revenue - Expenses = Profit. However, it could also mean Gross Profit - Operating Expenses - Depreciation and Amortization = Net Profit, or worded slightly differently, Gross Revenue - Operating Expenses - Depreciation and Amortization = Net Revenue, and many other variations. In that case, are you referring to Gross Profit or Net Profit?
Say you’re a small sole proprietorship with no debt that operates strictly on cash, which is simple enough that the Revenue - Expenses = Profit equation applies. In that case, a 100% tax on profits simply means the government takes all excess income above and beyond your normal business operations. You can’t accumulate a rainy day fund, modernizing equipment will be difficult, and expansion is likely out of the question, but you still make payroll, pay the rent, and provide your usual goods and/or services. Those are all expenses that aren’t touched by the tax. You could hire people or just pay yourself more, increasing expenses and wiping out the profit so it isn’t taxed. That’s basically what a lot of non-profit organizations are. It’s not that they don’t make money, they just have to reinvest it internally rather than siphoning those profits off to somewhere else.
The trick with the original question is if that’s the type of profit we’re talking about. A 100% tax on gross profit means the operation is out of business within a month, if not sooner, because there’s no way for the company to pay anyone or buy anything. Where things really start to get muddy is when you have things like stock shares and subsidiaries and asset lending and all sorts of other accounting tricks. But in the simplest form, that 100% tax on (net) profit doesn’t have to mean collapse of the business. I thought that was done during one of the world wars, but maybe it was only proposed and never implemented.
Actually it’s the exact opposite, laws can create a 5th leg when none exists. Judges have to operate as that dog has 5 legs. There are exceptions to this, but basically the law defines what is the law, not reality. People also get off all the time for doing something harmful to society but the law doesn’t quite define their badness and they get off. OTOH many people doing nothing really wrong or dangerous do get nailed by the law, traffic violations are a great example, but there are many more. The domain of determining how many legs a dog has is that of lawyers who are know to argue over the placement of a comma in a statute.
You’re about half right. A law can place reasonable definitions on terms. If a state wants to say that for the purposes of a DUI law that a person is considered to be “driving” a vehicle if he “is behind the wheel and in constructive control of said vehicle” then that is reasonable, even if the ordinary definition of “driving” would not apply there.
But this takings debate is about substance. You cannot legislate away substance. If a law said that soldiers shall be allowed to live in your home and for the purposes of the law such living shall in no way be considered “quartering” then you can see the obvious problems with that law. You cannot waive away constitutional concerns with mere ipse dixit in the terms of a statute.
I believe here in NC if you are in the backseat asleep with the car keys in your pocket you can be charged with DUI.
Many jurisdictions are like that. Totally ogical - if you have the keys, you are “in control” of the car. The police do not have to sit there until you wake up and drive into the nearest light pole before they charge you. Where it gets hazy is when the question is - does someone without the keys still “have control”? That might have been the case decades ago when in the days of manual transmission and no steering locks, you could release the parking brake and roll downhill into a tree.
IANAL but AFAIK judges do get to consider the effective result of a law. Explicitly taking 100% of someone’s earnings is a confiscation, no matter what the law says. Of course, nobody is stupid - the law might then say your enterprise cannot buy its office supplies off your other company at a 1000% markup, etc. which would reinforce the confiscatory intent of the law - or else leave a giant loophole.
Where judgement is required is when, say, the law only takes 80% and the feds argue “it’s no our fault the local state also takes 40% your honor…”
Consider the desegregation fight - the court logically said “separate but equal” is not equal, and the obvious is that negro “separate” is not funded equally anyways, thus proving the fact.
The key here is that all these issues bump up against the hard wall of the constitution. There’s freedom of speech, equality before the law, no confiscation without just compensation, right to a fair trial, etc. etc. and laws must not conflict with theses standards. There’s no guarantee that a law has to conform to “natural justice” outside these restrictions.
The vast majority of people are wage or salary earners. They don’t get a profit. So, it seems to me that earning a sustainable living by providing useful goods or services is a pretty good motive.