Whether a federal wealth tax is constitutional remains an open question that the Supreme Court has not answered, and a 2024 decision many expected to resolve it deliberately did not. In Moore v. United States, the Court upheld a one-time tax on undistributed corporate earnings but stated it was not addressing “taxes on holdings, wealth, or net worth” or “taxes on appreciation.”1Supreme Court of the United States. Moore v. United States The justices’ separate opinions in that case show a Court split on the underlying question, with four justices signaling that the Constitution requires a taxpayer to actually realize a gain before Congress can tax it, one saying no such rule exists, and four refusing to say.
Why Taxing Wealth Is Constitutionally Different From Taxing Income
Congress’s power to tax is broad, but two provisions in the Constitution set the boundaries that matter for a wealth tax. Article I, Section 9 provides that “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census.”2Constitution Annotated. Article I Section 9 – Powers Denied Congress Any tax classified as a “direct tax” must be divided among the states by population. A state with 10% of the country’s people has to produce 10% of the revenue, no matter how much taxable wealth actually sits inside its borders.
That requirement makes a modern wealth tax mathematically unworkable. Billionaire wealth per capita is not evenly distributed across the states, so apportionment would force residents of less-wealthy states to pay far higher effective rates than residents of wealthier states. The Supreme Court applied this constraint in Pollock v. Farmers’ Loan and Trust Co. in 1895, holding that a tax on income from real estate was a direct tax and had to be apportioned.3Justia U.S. Supreme Court Center. Pollock v. Farmers Loan and Trust Co. That ruling shut down the federal income tax for nearly two decades.
The Sixteenth Amendment, ratified in 1913, opened the only door around apportionment. It gives Congress the power to “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States.”4Library of Congress. Sixteenth Amendment The word “incomes” is doing all the work. A tax that qualifies as a tax on income escapes apportionment. A tax that does not falls back into the direct-tax category and is effectively unconstitutional. Every serious argument about a federal wealth tax comes down to whether taxing the appreciation of assets someone still owns counts as taxing income.
What Counts as “Income” Under the Constitution
The Supreme Court has defined constitutional income twice, and the two definitions do not line up perfectly. In Eisner v. Macomber (1920), the Court said income is “the gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital.” It added that “mere growth or increment of value in a capital investment is not income” and that a taxable gain must be “severed from” the capital.5Justia. Eisner v. Macomber, 252 U.S. 189 (1920) This is where the concept of “realization” enters constitutional law. If you buy stock for $100 and it grows to $1,000, that $900 is paper wealth. Under Macomber, it is not income until you sell.
Thirty-five years later, in Commissioner v. Glenshaw Glass Co., the Court offered a broader formulation: income means “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”6Legal Information Institute. Commissioner v. Glenshaw Glass Co. Glenshaw Glass drops the “severed from capital” language, but it keeps the word “realized.” That word has done enormous constitutional work in the century since.
The federal tax code is built around realization events. Capital gains get reported after a sale, not while an asset appreciates.7Internal Revenue Service. About Schedule D (Form 1040), Capital Gains and Losses A few narrow exceptions exist, such as mark-to-market accounting for securities dealers8Office of the Law Revision Counsel. 26 U.S. Code 475 – Mark to Market Accounting Method for Dealers in Securities and Subpart F’s treatment of certain foreign-corporation shareholders.9Office of the Law Revision Counsel. 26 U.S. Code 951 – Amounts Included in Gross Income of United States Shareholders In every case, however, the income was realized somewhere, just not by the specific taxpayer being taxed. A true wealth tax on unrealized appreciation of personal assets has no analog in existing law.
What the Supreme Court Actually Held in Moore
Moore v. United States looked like the case that would answer the realization question. It didn’t.
The tax at issue was the one-time Mandatory Repatriation Tax enacted as part of the Tax Cuts and Jobs Act in 2017. It applied to accumulated but undistributed earnings of American-controlled foreign corporations. Charles and Kathleen Moore, minority shareholders in an Indian company that had reinvested its profits rather than paid dividends, owed roughly $14,729 on their share of earnings they had never received. They paid and sued for a refund, arguing that Congress cannot tax income the taxpayer never actually got.1Supreme Court of the United States. Moore v. United States
Justice Kavanaugh, writing for a five-justice majority joined by Chief Justice Roberts and Justices Sotomayor, Kagan, and Jackson, upheld the tax on deliberately narrow grounds. The Court held that “Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income.”1Supreme Court of the United States. Moore v. United States The company had realized income. Congress simply attributed it to shareholders, the same way it does with partnerships and other pass-through structures.
The majority then went out of its way to list what it was not deciding. The opinion said its analysis “does not address the distinct issues that would be raised by (i) an attempt by Congress to tax both the entity and the shareholders or partners on the entity’s undistributed income; (ii) taxes on holdings, wealth, or net worth; or (iii) taxes on appreciation.”1Supreme Court of the United States. Moore v. United States The Court added that its decision did not “attempt to resolve the parties’ disagreement over whether realization is a constitutional requirement for an income tax.” That question, the majority said, was for “another day.”
How the Justices Line Up on Realization
The separate opinions in Moore are where the wealth tax picture actually comes into focus, because the justices who wrote them did not dodge the question.
Justice Jackson concurred and argued that the Constitution contains no realization requirement at all. The “alleged realization requirement,” she wrote, “appears nowhere in the text of the Sixteenth Amendment” and is drawn only from Eisner v. Macomber. In her view, “there is no constitutional requirement, from Macomber or otherwise, that a taxpayer be able to sever the gain from his original capital in order to be taxed on it.”1Supreme Court of the United States. Moore v. United States If that view ever wins a majority, a wealth tax faces no Sixteenth Amendment obstacle.
Justice Barrett, joined by Justice Alito, went the other way. Concurring only in the result, she argued that the Sixteenth Amendment’s reference to income “derived” from a source “encompasses a requirement that income, to be taxed without apportionment, must be realized.” She read the Court’s precedent as uniformly holding that realization is required before the government may tax financial gain without apportionment.1Supreme Court of the United States. Moore v. United States She voted to uphold the Mandatory Repatriation Tax only because the underlying income had been realized at the corporate level.
Justice Thomas, dissenting with Justice Gorsuch, went further. He wrote that “Sixteenth Amendment ‘incomes’ include only income realized by the taxpayer” and called the majority’s attribution theory “a new invention.”1Supreme Court of the United States. Moore v. United States On his view, even the Mandatory Repatriation Tax was unconstitutional.
Add it up. Four justices (Thomas, Gorsuch, Barrett, Alito) have now put in writing that realization is constitutionally required. One (Jackson) has said it is not. The other four (Kavanaugh, Roberts, Sotomayor, Kagan) declined to take a position. A federal wealth tax on unrealized appreciation would need at least five votes to survive. The math is unfavorable to wealth tax proponents but not fatal, and everything turns on the four justices who have not committed.
How Current Wealth Tax Proposals Fit This Framework
Proposals continue to arrive in Congress despite the uncertainty. In March 2026, Senator Bernie Sanders and Representative Ro Khanna introduced the Make Billionaires Pay Their Fair Share Act, which would impose a 5% annual tax on individuals with assets exceeding $1 billion. The proposal targets asset values directly.10Office of Senator Bernie Sanders. Sanders and Khanna Introduce Legislation to Tax Billionaire Wealth and Invest in Working Families A separate approach in earlier budget cycles, the Billionaire Minimum Income Tax, would have required households worth over $100 million to pay a minimum 25% effective rate that included unrealized gains, framing appreciation as income rather than as property value.
The framing matters constitutionally. A 5% annual levy on total wealth reads as a direct tax and would require apportionment it cannot practically achieve. A minimum tax on unrealized gains tries to fit through the Sixteenth Amendment by relabeling appreciation as income. Whether that label survives judicial review depends on the realization question Moore left open.
One clarification for readers looking at the existing code: nothing in Moore threatens partnership taxation, Subpart F, or similar pass-through rules. The Court’s holding preserves them because in each case income is realized at the entity level before being attributed to the taxpayer. A wealth tax on personally held assets that have merely appreciated is a different animal, and the majority was careful to say it was not blessing that animal.
Practical Problems Even If a Wealth Tax Cleared the Constitutional Bar
Constitutionality is not the only hurdle. Publicly traded stocks have a market price every day. Privately held businesses, real estate, art, and other illiquid holdings do not. An annual wealth tax would require taxpayers to determine fair market value every year for assets that have no observable price. The IRS already faces heavy valuation litigation in estate tax cases, where valuation is needed only once. Making it annual would multiply those disputes and open extensive room for gaming.11Internal Revenue Service. Valuation of Assets – Private Foundation Minimum Investment Return: Other Assets
A wealth tax also creates a cash obligation based on paper gains. A founder holding $2 billion in stock of a company she built would owe $100 million a year under a 5% rate, even if she has never sold a share and earns little cash income. Paying could force sales that shift control of the company and depress its stock. Some proposals let taxpayers with mostly non-traded assets defer payment with interest until sale, or spread initial payments across years. Those design choices reduce the liquidity strain without eliminating it, and they add administrative complexity.
Where the Question Stands
Until a case squarely presents a tax on unrealized appreciation of personally held assets, the constitutional status of a federal wealth tax is genuinely unsettled. Moore answered a narrow question about attributing realized corporate income to shareholders and pointedly left the larger question alone. Any wealth tax Congress enacts would face immediate litigation, and its survival would rest on justices who have so far refused to say how they would rule.