A Washington state couple's claim was rejected by the Supreme Court on Thursday, upholding a Trump-era tax on foreign investments. The case may have compromised current tax laws and scuttled Democratic talk of a wealth tax.
The tax was maintained by a 7-2 majority, despite the fact that some justices had different opinions.
Justice Brett Kavanaugh emphasized over and again during his bench reading of the court's ruling that it was "narrow" and had nothing to do with the contentious discussion surrounding a wealth tax.
The question of whether the government may tax investment revenues that had not yet been received was at stake in the much-watched tax case. A Washington state couple named Charles and Kathleen Moore filed a challenge against a $15,000 tax charge they were issued due to their investment in an Indian company. The Moores asserted that the disputed profits were never given to them; rather, they were reinvested.
The relevant tax was passed by Congress in 2017 and was a part of a bigger package that was approved by President Donald Trump at the time. A one-time forced repatriation tax was imposed on shareholders of certain foreign firms that are majority held by Americans, based on undistributed profits earned between 1986 and the end of 2017. Over a ten-year period, the provision was predicted to raise $340 billion.
According to Chye-Ching Huang, executive director of the Tax Law Center at NYU Law, "the Supreme Court heeded the warnings of a broad and bipartisan set of tax experts and roundly rejected the Moores’ radical theory that threatened to upend central pillars of the tax system."
Huang stated that the court demonstrated prudence by determining that Congress could impose taxes on the Moores based on their portion of profits realized at the corporate level.
Debate over wealth tax looms
“A success for the government may pave the way for a federal wealth tax, which President Joe Biden and a number of congressional Democrats have been eyeing in recent years, according to some conservative groups. However, during the December oral arguments, the justices—conservative and liberal alike—seemed to be seeking a limited resolution that would avoid undermining the status quo taxation or straying into the discussion of a wealth tax."
Additionally, Kavanaugh stated on Thursday that the decision should not affect the discussion.
In the opinion piece published on Thursday, Kavanaugh wrote, "Those are potential issues for another day, and we do not address or resolve any of those issues here." "We do the same with the MRT today as this court has long upheld taxes of that kind."
According to Kavanaugh, any other result might have prompted objections to additional federal taxes.
The bottom line, according to Kavanaugh, is that if the Moores' argument is followed logically, it may declare large portions of the Internal Revenue Code to be unconstitutional. "And the U.S. Government and the American people would lose trillions in tax revenue if those tax provisions were abruptly eliminated."
Chief Justice John Roberts, along with Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson, concurred with Kavanaugh's opinion. For differing reasons, Justices Amy Coney Barrett and Samuel Alito agreed with the court's overall ruling. Justice Neil Gorsuch and Justice Clarence Thomas both wrote dissenting opinions.
Notably, Barrett, Alito, Thomas, and Gorsuch, four judges, would have gone farther to suppress any talk of a wealth tax. They would have decided that in order for proceeds to be subject to 16th Amendment taxes, they had to be "realized."
According to Steve Rosenthal, senior fellow at the nonpartisan Tax Policy Center, the decision's restrictive wording serves as a caution to Biden and other wealth tax advocates who have voiced plans to tax money that hasn't been received yet.
According to Rosenthal, "it augers badly for future wealth and billionaire taxes" on CNN.
However, a number of progressive organizations praised the ruling, arguing that it opened the door for additional taxation.
The Massachusetts Democrat Sen. Elizabeth Warren wrote on X, saying, "The fight goes on to tax the rich, pass a wealth tax on ultra-millionaires and billionaires, and make the system more fair."
Enclosed within the "blast radius"
Democrats like Joe Biden have suggested raising taxes on the wealthy in order to pay for their spending plans, many of which are intended to assist middle-class and lower-class Americans. Annual increases in the value of unsold assets, or unrealized capital gains, are the subject of some proposals. At the moment of sale, this growth is normally the only time it gets taxed.
Some plans would impose a tax on the ultra-wealthy net worth.
In order to tax those worth more than $100 million, Biden has advocated for a "Billionaire Minimum Income Tax," which would impose a minimum 25% tax rate. It would tax the "full income," which includes unrealized gains, of the wealthy. Along with Warren, independent senator Bernie Sanders of Vermont and Democratic senator Ron Wyden of Oregon have launched tax plans that would target the wealthiest Americans.
Congress has not yet seen any political traction for those proposals.
Regarding the ruling, the Justice Department chose not to comment.
The Competitive Enterprise Institute, which had defended the Moores, expressed disappointment with the decision, according to general counsel Dan Greenberg.
According to Greenberg "this ruling permits the government to impose income taxes on foreign shareholders who have never received income." "We believe that is unjust since Congress is empowered by the Constitution to tax people based on their income, not the income of foreign companies that they do not control."
The case was also being closely monitored for possible effects on other existing tax laws that primarily affect wealthy Americans, such as a number of international tax laws that prohibit US citizens or corporations from moving their operations and assets abroad in order to evade paying federal taxes. At a panel last year, former House Speaker Paul Ryan—who contributed to the drafting of the 2017 tax cut law—said that a third of the tax code may be jeopardized if the Moores won.
Kavanaugh explained the case by stating that the Moores made the decision to "contain the blast radius" of their legal theory by attempting to set the Trump-era tax apart from other similar laws that have been in effect for a long time and have been deemed to be constitutional.
"To try to explain why those long-standing taxes are constitutional and why those precedents are correct, and to simultaneously try to explain why those taxes and precedents do not eviscerate their argument that the MRT is unconstitutional," Kavanaugh stated. "The Moores have advanced an array of ad hoc distinctions." "However, despite their creativity, the Moores' attempt to thread that needle is unsuccessful."
Moore v. United States attracted attention to the Supreme Court for reasons other than the legal difficulties it raised. Because one of the Moores' attorneys co-wrote two positive opinion pieces praising the justice in the Wall Street Journal last year, Democrats on Capitol Hill had demanded that Justice Samuel Alito resign.
Alito objected to that recusal request in a court document dated September.
Concerns over whether the Moores' attorneys had sufficiently disclosed the spouses' participation with the corporation were also voiced by outside parties. Charles Moore may have had a stronger connection to the India-based company KisanKraft than previously believed, as evidenced by filings examined by the tax professionals newsletter Tax Notes. Moore was even a former board member of the company.
Alito is not present.
Alito was notably absent on Thursday as his colleagues took their seats to declare the opinions of the day.
When asked about Alito's absence, the Supreme Court did not immediately provide a response.
