California's result doesn't settle the constitutional question, because no court ever looked at Prop. 40. Voters rejected it 52.8% to 47.2%, according to AP figures reported by CalMatters. The union behind it says it plans to try again in 2028, so it helps to know which legal fights a wealth tax would face, and which ones it wouldn't.

Why doesn't the direct-tax rule apply to a state tax like Prop. 40?

The apportionment rule is a limit on Congress, not on the states. Article I gives Congress its power to tax, and in the same breath says that "capitation" and "other direct" taxes must be apportioned by the census. States aren't covered by it. The National Constitution Center sums it up: "States, unhampered by apportionment, routinely impose real property taxes."

What does "apportioned by population" mean in practice?

Apportionment means Congress picks a total amount to raise and then splits it among the states by population, whatever their wealth. The Supreme Court gave an example in its 2024 Moore opinion: a state with 5% of the nation's people would owe 5% of the total. A poorer state with the same population would owe the same amount, so it would need a higher tax rate. The Court said that kind of result has made direct taxes hard to use.

For a wealth tax, that's the whole problem. Wealth isn't spread evenly across states. A less wealthy state would need a higher rate to cover its share. People still argue over whether an apportioned wealth tax could work at all.

What have the courts said so far?

The courts have ruled on related taxes but never on a tax on net worth. Here are the main cases:

  • Hylton v. United States (1796): The Court upheld a federal tax on carriages, calling it an excise rather than a direct tax. Later cases cite Hylton for the idea that head taxes and land taxes are the classic direct taxes.
  • Pollock v. Farmers' Loan & Trust Co. (1895): In a 5-4 decision, the Court struck down the 1894 income tax as applied to dividends, interest and real-estate income. It said that part was an unapportioned direct tax. Pollock has never been formally overruled.
  • Sixteenth Amendment (1913): It didn't get rid of apportionment. It only exempted taxes on incomes from the rule. A tax on wealth rather than income gets no help from it.
  • Knowlton v. Moore (1900): The Court upheld a federal inheritance tax as indirect, because it falls on the transfer of property, not the property itself. Supporters of a wealth tax lean on this case. Opponents say a tax on simply owning wealth is a different thing from a tax on passing it on.
  • Eisner v. Macomber (1920): The Court said a rise in an investment's value isn't income under the income-tax power. That matters for any tax on unrealized gains.

Did Moore v. United States settle it?

No. In June 2024 the Court upheld the Mandatory Repatriation Tax. But it called the ruling "narrow and limited to entities treated as pass-throughs" and refused to decide whether income has to be "realized," for example by a sale, before it can be taxed.

A footnote said the analysis didn't cover "taxes on holdings, wealth, or net worth". The majority also noted that the government had admitted a tax on someone's wealth or net worth might count as a tax on property, not income. Property taxes are the kind that must be apportioned.

The vote was 7-2, but only five justices joined the majority's reasoning. Justices Barrett and Alito agreed only with the outcome, and Justices Thomas and Gorsuch dissented.

Who says a wealth tax is constitutional, and who says it isn't?

Legal scholars are on both sides. The National Taxpayers Union Foundation, which campaigns against these taxes, argues the Constitution clearly rules out a federal wealth tax. In 2021, five professors including Bruce Ackerman and Laurence Tribe wrote to Sen. Warren that her plan was "plainly constitutional", relying on Knowlton. A separate letter from 14 law professors made the same overall argument.

The Tax Policy Center takes the middle view. It says the meaning of a direct tax "has long been debated" and the Supreme Court may have the final say. Note that the NTU paper (2021) and the TPC explainer (last updated January 2024) were both written before Moore.

What happens if the Court strikes down a federal wealth tax?

The main way around a ruling like that would be to amend the Constitution. That takes two-thirds of both houses of Congress and ratification by three-quarters of the states.

Other countries offer a warning on the policy itself. About a dozen OECD countries had net wealth taxes in 1990, and many have since repealed them, often citing how hard they were to run.

It would have faced challenges under California's own constitution and under other parts of federal law. Prop. 40 was a one-time 5% tax on billionaires' net worth, applied to people living in California on January 1, 2026, more than 10 months before the vote.

The Tax Foundation opposed the measure, and its pre-vote analysis listed several possible challenges:

  • State constitution: California caps taxes on intangible property at 0.4% and requires uniform property taxes. The drafters called the levy an excise tax and included a constitutional amendment. The Tax Foundation argued a court might treat that as a "revision," which California voters can't make through a simple ballot initiative.
  • Retroactivity: It argued that due process limits on a "wholly new tax" could be a problem, given the early residency date.
  • Taxing worldwide wealth: Taxing 100% of a resident's global wealth could break the Commerce Clause rules on how states may tax things that cross state lines, it said.

The measure's academic backers disagreed. Law professors Brian Galle, David Gamage and Darien Shanske wrote that there is "no serious argument that the CBTA would violate the Commerce Clause". CBTA is short for the measure's official name, the California Billionaire Tax Act. They called most of the critics' claims old arguments in new packaging.

None of these questions reached a court, because the measure failed. A 2028 retry may face a new obstacle: Prop. 42, which would ban future wealth taxes, was leading 51.6% to 48.4% in the AP count. How much it matters depends on the certified results and any lawsuits that follow.