Supreme Court appears hesitant to rubber-stamp Biden’s future wealth tax plans

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FILE – The U.S. Supreme Court is seen before sunrise on Capitol Hill in Washington, March. 21, 2022. On Dec. 4, 2023, the Supreme Court will hear arguments over a nationwide settlement with OxyContin maker Purdue Pharma that would shield members of the Sackler family who own the company from civil lawsuits over the toll of opioids.(AP Photo/Jose Luis Magana, File) Jose Luis Magana/AP

Supreme Court appears hesitant to rubber-stamp Biden’s future wealth tax plans

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The Supreme Court on Tuesday appeared ready to uphold a 2017 tax on U.S.-owned companies’ profits from foreign investments while also appearing hesitant to issue a broad decision that would give the go-ahead for the Biden administration‘s wealth tax plans.

Justices considered a rare 16th Amendment case surrounding a Washington state couple’s fight against a $14,729 tax bill stemming from their stake in an Indian company. The pair say a 2017 provision improperly taxes them on corporate income they never actually pocketed.

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A majority of the justices suggested the 2017 tax law, passed by a Republican-controlled Congress and signed by then-President Donald Trump, did not fundamentally stray from other levies imposed by Congress in recent years. Simultaneously, the high court seemed inclined to leave the door open to addressing a larger question of Congress’s ability to enact taxes based on wealth rather than income in the future.

Under the tax law in question, U.S. taxpayers who owned at least 10% of a foreign subsidiary the year Trump signed the law in 2017 were required to pay a one-time tax on the value of their post-1986 holdings at that time, not on what they paid for the holdings initially. That one-time tax continues to apply to people who buy more than 10% in an overseas business.

The Biden Department of Justice contends that the 2017 tax provision falls squarely within Congress’s 16th Amendment taxing power and is consistent with legal precedent. Solicitor General Elizabeth Prelogar, who argued Tuesday on behalf of the DOJ, dismissed a series of questions by the high court on whether a decision upholding the mandatory repatriation tax would lead to more aggressive moves by Congress.

The Moores’ argument gained attention from some allied groups because they contend that the challenged provision is similar to a wealth tax, which would apply to the assets of some of the wealthiest U.S. residents. Under current law, those wealthy individuals only pay taxes on the assets after selling them.

Some Republican-appointed members, including Justices Samuel Alito and Neil Gorsuch, appeared to be thinking about a wealth tax when they asked Prelogar about the “far-reaching consequences” of her arguments.

“So let’s say that somebody graduates from school and starts up a little business in his garage, and 20 years later, 30 years later, the person is a billionaire. Can Congress, under your argument, can Congress tax all of that on the ground that it’s income?” Alito asked the solicitor general.

“Sounds to me like the hypothetical is actually functioning as a property tax,” Prelogar responded.

After some redefining of Alito’s inquiry, Gorsuch chimed in to note that in his understanding, “at least in your brief, the answer to Justice Alito’s question, I think, is, yes, that could happen.”

“I’m just asking what the limits of your argument are,” Gorsuch added.

“Well, I certainly think that Congress has broad taxing power,” Prelogar replied.

The notion of taxing unrealized income is the pretext for several Democratic proposals targeting wealthy households, including Biden’s billionaire minimum income tax. Congressional Democrats reintroduced the tax proposal last week, and Biden has repeatedly touted his plan to supporters.

Conservative and libertarian court watchers on Tuesday appeared more concerned that upholding the 2017 tax provision could pave the way for a tax on the ultra wealthy.

Former Republican House Speaker Paul Ryan, who was in office when the 2017 tax law passed, has voiced opposition to the Moores’ lawsuit and has suggested that a strong ruling in favor of the couple could upend decades of U.S. Tax Code.

“I’m not for a wealth tax, but I think if you use this as the argument to spike a wealth tax, you’re going to basically get rid of, I don’t know, a third of the tax code,” Ryan said during a September event at the Brookings Institution.

Meanwhile, Sen. Ron Wyden (D-OR) said ruling in favor of the Moores could block legislation like the billionaire income tax he introduced last week.

“The Moore case could make it impossible to close those loopholes,” Wyden told the Associated Press.

Before the Moores arrived at the high court, a federal district court sided with the government and moved to dismiss the case, finding that the 16th Amendment gave Congress the ability to tax incomes “from whatever source derived.” The U.S. Court of Appeals for the 9th Circuit affirmed the lower court’s decision.

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Cato Institute research fellow Thomas Berry told the Washington Examiner the justices appeared to have “no appetite” to adopt the deferential approach embraced by the 9th Circuit, which he said would “simply allow Congress to define an income tax however it wishes and remove judicial oversight from the enforcement of the 16th Amendment.”

“The court seems likely to draw a line past which Congress may not go when imposing federal taxes, which means courts will still have a role to play in keeping Congress in check,” Berry said, adding, “The uncertain question is where exactly the court will draw that line.”

© 2023 Washington Examiner

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