Supreme Court Upholds Part Of Trump's Awful 2017 Tax Law And ... That's Good?

We're just as surprised as you are, really!

Photo by Fine Photographics on Unsplash

The Supreme Court on Thursday ruled to uphold a little-noticed provision in Donald Trump’s otherwise despicable 2017 Big Fat Tax Cuts For Rich Fuckwads law, declining to overturn a one-time tax on foreign earnings that partially, a tiny, offset the 2017 tax law’s enormous giveaway to rich fuckwads and corporate fuckwads. The Washington Post reports (gift link) that the decision stomped down a challenge to the law “that many experts feared could destabilize the nation’s tax system.”

In his opinion for the seven-to-two majority, the Honorable Justice Kegstand wrote that finding for the plaintiffs — the Moores — could have left “vast swaths of the Internal Revenue Code unconstitutional.” Per WaPo:

“Those tax provisions, if suddenly eliminated, would deprive the U.S. Government and the American people of trillions in lost tax revenue,” he wrote. The implications of the challengers’ argument, he added, would have required Congress to “either drastically cut critical national programs or significantly increase taxes on the remaining sources available to it — including, of course, on ordinary Americans. The Constitution does not require that fiscal calamity.”

Well that’s good, the not gutting the tax system altogether. We wouldn’t want that.

Let’s summarize the case, Moore v. United States, as we understand it: Plaintiffs Charles and Kathleen Moore owned stock in an Indian company that deals in farm supplies. The company did well, and their shares increased substantially in value. Normally, income from foreign businesses isn’t taxed in the US until it’s “realized” — i.e., until the American taxpayer brings it back to the USA. Under the Trump law, though, Americans had to pay a one-time tax on the value of some foreign investments if those companies made a profit, even if the profits didn’t get handed out to the investors as dividends.

A libertarian anti-regulatory outfit, the Competitive Enterprise Institute (CEI), took the Moores’ case to federal court, saying it was illegal to tax any gains that the Moores hadn’t actually brought back to the USA, as the Post explains:

Over the course of 11 years, the value of the Moores’ initial investment of $40,000 in the KisanKraft company grew to more than half a million dollars. Until the 2017 law took effect, the couple paid no taxes on that increase. They argued that they should not be taxed because they never actually took in money, even as the value of their share in the company grew.

That argument didn’t get very far with the US Court of Appeals for the Ninth Circuit, which said nah, the 16th Amendment lets Congress apply taxes to both “realized” and “unrealized” investment gains, and the Supremes agreed, although Kavanaugh’s decision sidestepped whether unrealized gains can be taxed, because if you have shares in a company, that’s considered realized income, let’s have beer. (No, it doesn’t make sense in the “words have meanings” kind of way.)

This is when you start tuning out and you find yourself trying to remember a sitcom plot, but it’s still important because a whole bunch of other taxes work similarly, and gutting the one provision of the 2017 tax law could unravel huge parts of federal tax law and leave the government needing to hold bake sales for bombers just like the bumper stickers in the 1980s predicted.

Since the lawsuit challenged the ability of Congress to tax unrealized gains, the case was also seen as a preemptive strike against any possible wealth tax, like the one proposed a few years back by Elizabeth Warren. So does the ruling mean a wealth tax is OK? No telling, probably not, but who knows? In a dissent joined by Neil Gorsuch, Clarence Thomas wrote that Congress has no authority at all to tax unrealized gains, like if let’s say a billionaire loans you a million bucks to buy an RV and then forgives the loan, but you don’t sell the RV for cash (we are completely making up this example, let us be clear. Nobody would be so big a dope as to not consider that taxable).

Even some members of the court who voted with Kav couldn’t agree on what they were agreeing on, as the Post explains:

Justice Amy Coney Barrett, joined by Justice Samuel A. Alito Jr., agreed with the outcome in the case but for different reasons and said the tax at issue “may or may not be constitutional” but that the Moores failed to properly prove a problem with the tax, if it exists.

Barrett and Alito agreed with Thomas and Gorsuch that a taxpayer must realize — or take in — some income for a tax to be valid, but came up with their own interpretation for the different business scenarios that allow Congress to consider shareholders to have realized income.

Also, at Vox, legal analyst Ian Millhiser says that the opinion isn’t nearly as agnostic as Kavanaugh claims when it comes to whether it precludes a wealth tax, since it’s full of arguments that could be rolled out by wealth tax opponents if Congress ever passes such a thing, so the decision is likely “excellent news for billionaires.” He concludes that Moore “likely puts to rest any future possibility of a federal wealth tax,” which might be just as well for progressives, he says. The practical challenges of even determining the value of a super-rich person’s investments and assets in the first place are a huge problem, so Kav has saved wealth tax advocates a lot of time by short-circuiting their efforts before they try. Hmm.

We would summarize his astute analysis, but the plot of that sitcom is really nagging at us so we’re gonna go to IMDB instead.

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Elizabeth Warren Proposes New 'Eat The Rich' Tax

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[Moore v. United States opinion / WaPo (gift link) / Vox]

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