The U.S. Supreme Court on Thursday (June 20) rejected an appeal from a couple in Washington state, upholding the provision in the new tax law enacted during the Trump administration that taxes overseas investments. The case, with its broad implications for U.S. tax law, has drawn close attention.
The Supreme Court justices ruled 7-2 that the Mandatory Repatriation Tax provision in the 2017 Tax Cuts and Jobs Act is in line with the U.S. Constitution’s Article 1 and the 16th Amendment. The controversial tax case revolves around whether the government has the authority to tax investment gains that have not yet been received. Conservative Justice Brett Kavanaugh, speaking on behalf of the majority justices, stated that the court has long supported such taxes and maintains the same stance with regard to the MRT.
Kavanaugh emphasized during the ruling that the opinion is “narrow in scope” and does not involve heated debates about a Wealth Tax. Furthermore, the majority justices believe that any other outcome could raise questions about other federal tax types.
According to Kavanaugh, “If the Moore couple’s arguments were logically extrapolated, it could lead to the unconstitutionality of most provisions in the Internal Revenue Code. If these tax provisions were suddenly revoked, the U.S. government and its people could lose hundreds of billions in tax revenue.”
Charles Moore and Kathleen Moore of Washington state received a $15,000 tax bill for investing in an Indian company, which they disputed. In the case Moore v. U.S., the couple argued that the disputed profits were reinvested and not distributed to them.
After paying their taxes, the Moores filed a federal lawsuit citing the unconstitutionality of the MRT and requesting a refund.
This tax was enacted by Congress in 2017 as part of a comprehensive plan signed by former President Trump. The contentious provision is a one-time tax aimed to help cover the budget costs of the Republican’s 2017 tax cuts plan. It applies to profits held abroad by multinational corporations owned by Americans from 1986 through the end of 2017, which were previously outside the jurisdiction of the IRS. According to CNN, this provision is expected to generate $340 billion in tax revenue over ten years.
Some conservative groups cautioned that a government victory could pave the way for imposing a federal Wealth Tax. President Biden and several Democratic lawmakers have been advocating for related tax legislation in recent years.
Biden and other Democrats have proposed new taxes on the wealthy to fund government spending programs, many of which are designed to assist middle and lower-income Americans. Some proposals seek to tax the annual growth of unrealized capital gains, which are currently only taxed when sold.
In March, Biden included a “Billionaire Minimum Income Tax” in the budget, requiring individuals with assets over $100 million to pay a minimum tax rate of 25%. The bill would tax the “total income” of the wealthy, including unrealized gains.
The budget proposal faced criticism from House Republican lawmakers.
Democratic Senators Elizabeth Warren of Massachusetts, Ron Wyden of Oregon, and Bernie Sanders, an independent from Vermont, have also unveiled tax proposals targeting the wealthiest Americans.
These proposals regarding a Wealth Tax have not yet garnered political support in Congress.