Supreme Court Could Rule on the Constitutionality of a Tax on Wealth

An upcoming Supreme Court case is attracting attention from conservative legal groups who see it as an opportunity for the court to preemptively ban a wealth tax. The dispute, known as Moore v. United States, centers around a relatively obscure federal tax policy, the one-time repatriation tax that is levied on money that American companies make overseas if and when it is brought back into America.In 2017, the Republican-led House and Senate changed the way that repatriation taxes work via the Tax Cuts and Jobs Act. That measure which slashed the top marginal rate to 15.5 percent for repatriated cash and 8 percent for non-cash repatriated assets from the previous top rate of 35 percent.The act was aimed at discouraging businesses from holding assets through foreign subsidiaries and included other provisions to make payment of taxes easier, like giving entities that owe repatriation taxes eight years to pay them off through installments.In the case being heard by the Supreme Court, the plaintiffs, Charles and Kathleen Moore, are suing the federal government for a refund on taxes they paid on income from their stake in an Indian tool manufacturing company. They are arguing that repatriation tax is unconstitutional.The Moores reason that because they have not yet received any earnings, such as dividends, on their investment in the Indian company, they should not owe any tax. They point to a 1920 Supreme Court case, Eisner v. Macomber, which set a precedent that only “realized gains” are taxable as income.In other words, even if an investment rises in price, the increased value would not be taxable until its owner sold the property. Their argument hinges on the interpretation of Article I of the Constitution as well as the 16th Amendment, both of which delegate to Congress its power to tax.Article 1, Section 8 of the Constitution grants Congress the “Power To lay and collect Taxes, Duties, Imposts and Excises.” The 16th Amendment says that “Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”While the question of whether the Constitution grants Congress the power to establish a repatriation tax may not affect most individual Americans, the legal team for the Moores have framed the case as being about whether Congress has the power to establish a wealth tax, a subject which has become politically relevant in recent years.While there is no wealth tax in America, the idea has gained traction with President Biden, Senator Warren, and Senator Wyden, among others, all of whom have floated the idea of taxing assets held by the richest Americans.Proposals for such a tax include the idea of a tax on “unrealized capital gains,” as Mr. Biden has proposed. That would require stock and property owners to pay a tax on the increased value of their investments, a contrast with the current policy, in which investors only pay taxes on capital gains when property is sold, or “realized.” “There is every reason for the Court to resolve the pivotal constitutional question of realization now, when its judgment can inform lawmakers and stand to head off a major constitutional clash down the line,” the Moores told the Court. “This is no idle threat.”At the Moores’ trial in the Western District of Washington, and before the Ninth Circuit Court of Appeals, judges have ruled against the couple, dismissing their case.The likelihood of a wealth tax passing Congress in the near future aside, dozens of conservative legal groups and organizations have filed briefs over the past month expressing their interest in preemptively banning a wealth tax.One conservative group that advocates for tax cuts, Freedom Works, argues that the court must consider that a hypothetical “wealth tax will give rise to grave constitutional concerns.” The group contends that a wealth tax could give rise to a hypothetical retroactive tax on “unrealized income,” referring to gains made on paper by an increase in the value of assets that an individual or business is holding, which have not yet been sold.Likewise, the libertarian-leaning Cato Institute, in its brief, argues that “It is not a ruling in favor of Petitioners, but a ruling against Petitioners,” meaning maintaining current precedent, “that would be sweeping. The Cato Institute says that the increase in value of the Moores’ stock should not be considered income under the 16th Amendment and that to consider it as such would be “to unconstitutionally subject other amounts to the income tax.”The Saving America’s Family Enterprises group, in its amicus brief, jumped at the opportunity to paint the repatriation tax as a slippery slope, saying allowing it to remain as is would open the door to a “slurry of proposals to impose ‘wealth taxes’ targeting the unrealized gains of wealthy families and successful family businesses.”“Although these proposals initially take aim at economic elites, history teaches that a tax on the unrealized gains of middle-class Americans is not far behind,” the group writes.While it’s impossible to divine how the Court might rule on the Moores’ case or the hypothetical questions they say that their case concerns, the flood of conservative briefs on the topic has not yet been met by any similar filings arguing on the government’s behalf, meaning the attorneys for America will be standing alone.

Supreme Court Could Rule on the Constitutionality of a Tax on Wealth

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