A majority of the Supreme Court justices appear inclined to narrowly uphold a provision of President Donald Trump's 2017 tax package. The provision in question is a one-time tax on offshore earnings that helped fund Trump's significant tax cut. The justices are considering whether this tax is permitted under the limited powers of taxation granted to Congress by the Constitution. Justices from various ideological backgrounds expressed skepticism towards the challenge brought by a Washington state couple and an anti-regulatory advocacy group. This challenge is widely seen as an attempt to prevent Congress from implementing a wealth tax. Several justices pointed out that the tax on offshore earnings is similar to other major forms of taxation, such as income earned by business partnerships and offshore income. Conservative Justice Amy Coney Barrett questioned the distinction between the tax on offshore earnings and other forms of taxation. Liberal Justice Elena Kagan raised concerns about potentially endangering trillions of dollars worth of other types of taxation if the court were to rule in favor of the couple. While a majority of the justices seemed to believe that the tax is valid, they indicated that their reasoning may differ from the arguments put forth by the Biden administration. It is likely that the court will uphold the tax but reject the government's broad interpretation of Congress's powers of taxation. Justice Sonia Sotomayor remarked that none of the parties' definitions seemed satisfactory, suggesting that the court is not entirely pleased with either side's arguments. Solicitor General Elizabeth B. Prelogar, who defended the tax on behalf of the government, emphasized that the Supreme Court has consistently upheld Congress's power to tax undistributed corporate earnings. Justices Samuel A. Alito Jr. and Neil M. Gorsuch, two conservative justices, expressed concerns about the potential implications of a broad ruling in favor of the government. They worried that such a ruling could remove any limits on Congress's taxing powers. The 2017 law at the center of the case imposed a tax on certain offshore earnings that were previously exempt from taxation unless the money was brought back to the United States. This tax, known as Section 965, is expected to raise over 300 billion over a decade. If the provision is invalidated, the government may have to refund tens of billions of dollars to large corporations that have already paid under the tax. The case involves Charles and Kathleen Moore, who were subjected to15,000 in taxes due to their investments in an Indian company that supplies equipment to small-scale farmers. The Moores argue that they never earned any money from this investment and taxing them on money they never had is a tax on property, not income, which exceeds the federal government's powers according to the Constitution. They sued for a refund, but both the District Court and the U.S. Court of Appeals for the 9th Circuit ruled in favor of the government, stating that the tax is allowed.
Regardless of whether the Moores received any income, the 16th Amendment was the focus of discussion on Tuesday. The question at hand was whether Congress can tax income based on ownership of an asset that has increased in value, rather than the receipt of actual income. While many justices believed this question did not need to be resolved in this case, they considered the Moores' gains as realized income, even if it was the company that realized it. Andrew Grossman, one of the Moore's attorneys, argued that the provision is an unconstitutional federal tax on property. He stated that the couple was taxed not because they had any income, but simply because they owned shares in a corporation with retained earnings. Grossman criticized the government's view, stating that it would create confusion and contradict existing law. Justice Alito posed tough questions for the government, despite calls for him to recuse himself due to his ties to one of Moore's lawyers. Alito expressed concern over the 9th Circuit's ruling that realization is not required for Congress to tax income under the 16th Amendment. He and Justice Gorsuch pressed Prelogar, the government's representative, about the limits of their argument. They questioned whether Congress could tax Americans with small amounts of stock or appreciation of property. Prelogar defended Congress's taxing power in those areas but dismissed such hypotheticals as unlikely. Justice Kagan joked that Prelogar was merely doing her job as the government's advocate by defending these hypothetical taxes. Justice Kavanaugh offered a potential lifeline to the Justice Department, suggesting that the court did not have to embrace Prelogar's view for the government to prevail and the tax to stand. He argued that there was realized income in this case that could be attributed to shareholders in a manner consistent with Congress's practices. The "mandatory repatriation tax" has support from an unusual coalition, including the Biden administration and conservatives like Paul D. Ryan. They fear that a ruling against the provision could jeopardize other existing taxes on investments, partnerships, and foreign income. Supporters of the provision argue that the Moores were not taxed on unrealized gains but rather required to pay taxes on profits earned by a business partnership, similar to other Americans. During the proceedings, none of the justices asked questions about the Moores' personal story. However, tax experts claim that the Moores had greater involvement in the company than they disclosed, and an outside group sent a letter to the court stating that the factual background presented was inaccurate. The Moores' lawyer defended the record as candid and accurate. The case in question is Moore v. U.S.