CNN
—
The Supreme Court on Thursday upheld a Trump-era tax on foreign investment, rejecting the arguments of a Washington state couple in a case that could have jeopardized existing tax policy and undermined Democrats’ wealth tax argument.
Although several justices gave differing reasons, the tax was upheld by a 7-2 majority.
Justice Brett Kavanaugh read the opinion to the court, repeatedly stressing that the court’s decision was “narrow” and not relevant to the fierce debate over the wealth tax.
This high-profile tax case involved whether the government could tax investment income that it had not yet received. Charles and Katherine Moore, a Washington couple, challenged a tax bill for $15,000 they received from investing in an India-based company. The Moores argued that the profits in question had been reinvested and never distributed to them.
The tax was enacted by Congress in 2017 as part of a larger bill signed by then-President Donald Trump. The one-time mandatory repatriation tax is levied on shareholders of undistributed profits earned by certain foreign corporations majority-owned by Americans between 1986 and the end of 2017. The provision was expected to raise taxes by $340 billion over 10 years.
“The Supreme Court heeded the warnings of a broad, bipartisan field of tax experts and roundly rejected the Moores’ radical theory that threatened to upend the very foundations of our tax code,” said Cheh-Ching Huang, executive director of the Tax Law Center at New York University School of Law.
Huang said the court “exercised restraint by deciding only what was necessary, which was that Congress could tax Moore on his share of income realized at the corporate level.”
Some conservative groups warned that a government victory could pave the way for a federal tax on the wealthy, something President Joe Biden and some Democrats have considered in recent years.But during oral arguments in December, both the conservative and liberal justices appeared to be seeking a narrow ruling that wouldn’t weaken current tax laws or weigh in on the debate over wealth taxes.
Kavanaugh reiterated Thursday that the ruling should not affect the debate.
“These are issues that may be debated another day, and we will not address or resolve them here,” Justice Kavanaugh wrote in his opinion Thursday. “This Court has long upheld taxes of this nature, and we will do the same today with respect to the Mass Rapid Transit System.”
Kavanaugh wrote that any other outcome could have led to other federal tax challenges.
“Ultimately, if Moore’s argument is taken to its logical conclusion, broad swaths of the Internal Revenue Code could be rendered unconstitutional,” Kavanaugh wrote, “and the United States government and the American people would lose trillions of dollars in tax revenue if these tax provisions were suddenly repealed.”
Kavanaugh’s opinion was joined by Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson. Justices Amy Coney Barrett and Samuel Alito, for different reasons, joined the Supreme Court’s final decision. Justice Clarence Thomas wrote a dissenting opinion, joined by Justice Neil Gorsuch.
Notably, four justices — Barrett, Alito, Thomas and Gorsuch — would have further rejected the wealth tax argument: They would have ruled that earnings must be “realized” to be taxed under the 16th Amendment.
Steve Rosenthal, a senior fellow at the Tax Policy Center, a nonpartisan research institute, said the narrowly crafted decision should serve as a warning to Biden and other wealth tax advocates who have floated proposals to tax income that hasn’t yet been received.
“This bodes ill for future wealth taxes and billionaire taxes,” Rosenthal told CNN.
But some progressive groups praised the decision, arguing it left room for other types of taxes.
“The fight continues to tax the wealthy, impose a wealth tax on the super-rich and billionaire, and make the system fairer,” Massachusetts Democratic Senator Elizabeth Warren wrote on X.
Biden and other Democrats have proposed new taxes on the wealthy to fund their spending plans, many of which are aimed at helping lower- and middle-class Americans. Some of the proposals would tax the annual growth of unsold assets, or unrealized capital gains, which are currently typically taxed only when they are sold.
Other proposals would impose a tax on the net worth of the ultra-rich.
Biden is pushing a “millionaire minimum tax,” which would impose a 25% minimum tax rate on people with assets over $100 million. It would tax the wealthy’s “all income,” including unrealized gains. Warren, Oregon Democratic Sen. Ron Wyden and Vermont Independent Sen. Bernie Sanders have also unveiled tax plans that would hit the wealthiest Americans.
These proposals have so far not gained any political support in Congress.
The Justice Department declined to comment on the decision.
Dan Greenberg, general counsel for the Competitive Enterprise Institute, which represented the Moores, said the group was disappointed with the ruling.
“This decision allows the government to impose income taxes on foreign shareholders who have never received the income,” Greenberg said. “I think this is unfair because the Constitution gives Congress the power to tax the income of individuals, but not the income of foreign corporations that they do not control.”
The case was also closely watched for its potential impact on other current tax provisions that often favor the wealthy, including several international tax provisions intended to prevent U.S. residents and companies from moving assets or operations overseas to avoid paying federal taxes. Former House Speaker Paul Ryan, who helped write the 2017 tax cut bill, told a committee last year that if the Moores were successful, it could undermine as much as one-third of the tax code.
In explaining the case, Kavanaugh said the Moores chose to “limit the reach” of their legal theory by distinguishing the Trump-era tax from other taxes that had been enacted earlier and had been found to be constitutional.
“The Moores have asserted a variety of ad hoc distinctions to explain why their longstanding taxes are constitutional and precedent correct, and at the same time, why those taxes and precedent do not negate their claim that the MRT is unconstitutional,” Kavanaugh wrote. “But the Moores’ efforts to find a solution, while ingenious, are futile.”
Apart from the legal issues involved, Moore v. United States The Supreme Court has been in the spotlight for another reason: Democrats in Congress have called for Justice Alito to resign after one of Moore’s lawyers co-wrote two favorable opinion pieces about him in The Wall Street Journal last year.
Justice Alito denied the recusal request in a September court filing.
Outside groups also questioned whether lawyers representing the Moores had fully disclosed their involvement in the company. Documents seen by Tax Notes, a publication for tax professionals, showed that Charles Moore had closer ties to India-based Kisankraft than initially known, including serving on the company’s board of directors.
Alito was not present Thursday while his colleagues sat down to deliver the day’s opinions, a relatively unusual move.
The Supreme Court did not immediately respond to a request for comment about Justice Alito’s absence.
This story has been updated with additional developments.
