The United States Supreme Court is hearing a case that could have long-term implications for President Joe Biden’s proposed tax on the wealthy.
The Moore v. United States argument concerns whether or not a wealth tax proposed by the administration is constitutional. This comes after the court recently ruled that his $430 billion transfer of student debt was unlawful.
President Biden has been vocal in his support for taxing the wealthiest members of society, saying during his State of the Union address earlier this year: “Reward work, not just wealth. Pass my proposal for a billionaire minimum tax, because no billionaire should pay a lower tax rate than a school teacher or a firefighter.”
According to The Washington Examiner, Biden later proposed an annual 25% tax on all gains to wealth in excess of $100 million in any given year, including unrealized capital gains which are currently not taxable and would only affect those in the top 0.01% highest earners if it were passed into law.
Charles and Kathleen Moore, from Washington state, are at the center of this case; they made an investment of nearly $40,000 into an Indian company in 2005 but never received money or other payments from it despite its yearly profits.
The specifics don’t involve huge amounts of money but rather focus on taxation and how ‘income’ is defined according to U.S law; thus making this case potentially impactful when it comes to deciding whether President Biden’s proposals can go ahead as planned or be nixed completely by ruling them unconstitutional before they even get off the ground.
According to the Washington Examiner:
Under the 2017 tax reform law, they learned that they were subjected to a mandatory repatriation tax of $14,729. They paid that amount and then filed suit seeing a refund and claiming that the tax violates the constitution’s apportionment clause. The Sixteenth Amendment authorizes Congress to “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states.” That means that the federal government cannot tax stock gains, which are the source of wealth for many billionaires unless those stocks are sold.
Progressive leaders have for years railed against this state of affairs, with Sens. Bernie Sanders (I-VT), Elizabeth Warren (D-MA), and Finance Committee Chairman Ron Wyden (D-OR) supporting a tax on wealth itself rather than direct income. An appeals court ruled that the Moores could be taxed this way, saying “there is no constitutional prohibition against Congress attributing a corporation’s income pro-rata to its shareholder.” But the Supreme Court could reverse that ruling, rendering the repatriation tax and future wealth-based taxes off-limits at the federal level.
“The Sixteenth Amendment allows the federal government to impose income taxes without apportioning them among the states,” said Cato Institute research fellow Thomas Berry. “But courts have always limited those taxes to that word, ‘income,’ and said that word is meaningful. It doesn’t just mean whatever the government wants it to mean.”
Along with the Chamber of Commerce and Americans for Tax Reform, the Cato Institute is one of numerous groups that have submitted amicus briefs in support of the Moores. Hearings are probably going to start in October.
Scholars have long disagreed on whether unrealized capital gains should be regarded as income. Berry proposes that Biden and other Democrats instead attempt to increase conventional income taxes, which is what he is also aiming to accomplish, as well as through measures like tariffs on imported goods.
In his speeches, Biden regularly brings up the concept of a tax on the super-rich, alleging that they pay as little as 3% of their income in taxes on average, which is lower than middle-class employees.
“You can never predict for certain,” Berry said, ” but I think the justices will be concerned about setting a new precedent here and opening the door to a lot of taxes that we’ve never seen before at the federal level.”