On Tuesday, December 5, the Supreme Court began to hear oral arguments on a case with potentially profound implications for taxation policies. The case, Moore v. United States, involves a taxed amount of just under $15,000, yet could carry the weight of the entire tax code. As the court leans toward upholding a tax on foreign income while deferring a broader tax on wealth, conservative and liberal justices grapple with concerns about the far-reaching impact on the tax code.
What’s the Legal Question Posed By This Case?
The case focuses on overseas income and a specific clause within the 2017 tax overhaul known as the Mandatory Repatriation Tax. Enacted with the aim of lessening particular taxes on foreign earnings, the reform sought to diminish the motivation for U.S. corporations to stash funds abroad.
Should the plaintiffs prevail, it has the potential to prompt the courts to invalidate numerous tax statutes that have stood firm for many decades. A ruling in favor of the litigants could usher in significant changes to longstanding tax laws.
The plaintiffs, Charles and Kathleen Moore of Redmond, Washington, argue that they shouldn’t have been taxed nearly $15,000 in income taxes related to Charles Moore's investment in an Indian company because that income was never “realized.”
“If you haven’t received any income, how can you be required to pay income taxes?” Moore asks in a video posted by the Competitive Enterprise Institute, a libertarian group that is representing the Moores. “It seemed, to both of us, unconstitutional.”
In short, the legal question in the case involves how to define income for tax purposes.
"Appreciation in the value of a home or other asset is not income—at least, not until it is sold and the gain is realized," lawyers for the Moores told the Supreme Court. "Realization is not only what distinguishes income from property in general, but what makes income income."
What Are the Potential Outcomes of the Case?
Whether the Supreme Court sides with the Moores or against them, its decision could have sweeping implications for how much the government can dip into the earnings of wealthy Americans who can shield those holdings from taxes.
There are three possible outcomes: a narrow ruling favoring the Moores, which would open a path for challenging other tax provisions and possibly cost the government billions; a wide-ranging ruling invalidating large parts of the Internal Revenue Code, costing over $5 trillion; or a ruling for the government, preserving the existing tax framework.
As justices heard arguments and weighed the potential implications of the case, concerns surfaced regarding the broader impact on other provisions of the tax code if the ruling favors the Moores. A consensus seemingly emerged among Justices that finding a “narrow ground” on the case would be in its best interest. The court signals an inclination to support the tax on foreign income, with the potential to generate substantial revenues. However, the decision also postpones addressing a never-enacted tax on wealth rather than income—something President Joe Biden has pitched for 2024—leaving a critical aspect of taxation policies unexplored.
In a case that transcends its seemingly modest financial roots, the Supreme Court's deliberations on Moore v. United States delves into the core of taxation policies. As the court navigates the delicate balance between upholding specific taxes and addressing broader taxation issues, the outcome will undoubtedly shape the landscape of taxation policies and influence future legal battles.
This article was originally published in Certainty News [link to article page]