Brian D. Galle (UC-Berkeley), Consumption Taxes and the Constitution, 103 Wash. Univ. L. Rev. ___ (2026):

In the aftermath of Moore v. United States, there has been a modest rise in interest in U.S. consumption taxes, not only for revenue raising but as a response to inequality. This Essay argues that these consumption tax proposals are not likely to be a satisfactory response to inequality, even if they may have other features to recommend them for more limited purposes. For example, to achieve inter-temporal neutrality, a cash-flow consumption tax requires one of three other conditions: 1. Taxpayers derive no utility from wealth or investment; 2. all utility from wealth or investment is taxed as imputed income as it is “consumed”; or 3. taxpayers receive no deductions for investments that provide consumption value. I argue that violations of condition 1 are large and important to household decision making, especially among the very wealthy, while condition 3 is not administratively achievable in a world where condition 1 is widely violated. It is also well-known that a cash-flow consumption tax must tax borrowing.

Consumption taxes thus must likely tax both borrowing and imputed income to function, but unfortunately, both these requirements face many of the same constitutional questions that critics raise with respect to wealth and mark-to-market taxes.

Taxes on imputed income closely resemble, in both operation and potential administrative difficulties, a tax on wealth. District court opinions following the Supreme Court’s definitive 1920 decision in Eisner v.Macomber held that cancellation of indebtedness income was outside the Sixteenth Amendment definition, and there has been similar debate at times about the tax treatment of embezzlers.

In short, it does not appear that consumption taxes (or related proposals to tax new borrowing) offer an easy solution to contemporary inequality, and would carry much the same constitutional risk as proposals that directly address the problem.

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