The Supreme Court is still giving the Biden administration trouble. As a result of the court’s recent decision that President Joe Biden’s $430 billion transfer of student debt was illegal, the government may soon see its proposals to tax the wealthy reversed.
Although the court will hear cases this fall involving the rights to bear arms, the authority of federal agencies, and whether the phrase “Trump too small” can be trademarked, Moore v. United States could have the most impact on Biden. That argument concerns whether Biden may impose a wealth tax, something he has frequently advocated.
“Reward work, not just wealth. Pass my proposal for a billionaire minimum tax,” Biden said during the State of the Union address earlier this year. “Because no billionaire should pay a lower tax rate than a school teacher or a firefighter.”
“Biden later proposed a 25% annual tax on all gains to wealth in excess of $100 million in a given year, including unrealized capital gains which aren’t currently taxable. The White House says that the tax would only apply to the top 0.01% of the highest earners. While the proposal faces long odds with a Republican-controlled House of Representatives, it could be nixed permanently if the high court rules such a tax is unconstitutional,” The Washington Examiner reported.
“The specifics of the Moore case don’t involve huge amounts of money, but center around the same issues of taxation and the definition of the word ‘income,’” the outlet added. “Charles and Kathleen Moore, a Washington state-based couple, made a nearly $40,000 investment into an Indian company in 2005 and never received any money or other payments from the company even though it made a profit every year.”
The outlet added:
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.”