The 7.5 earthquake and resulting tsunami that shook Japan on New Year’s Day set the stage as the faultless metaphor that will reverberate throughout 2024 and beyond. With the impending presidential election aside, the tremors of improbability arrived a month earlier when the U.S. Supreme Court decided to hear a case with profound implications for the federal income tax.
Moore v. U.S. will decide if the federal government can tax unrealized capital gains not yet received under the 16th Amendment. The justices agreed to hear Charles and Kathleen Moore’s appeal as the couple wanted their $14,729 refund against which the 9th U.S. Circuit Court of Appeals ruled. The 9th Circuit, known in legal circles as the “9th Circus,” has the worst record of any appeals court before the Supreme Court. (READ MORE: Time to Throw Chevron Overboard: Loper Bright Enterprises v. Raimondo)
Like Roe v. Wade did last year, this case will have a huge and lasting ripple effect on future taxation.
Time to Replace the Income Tax
It is no secret that the nation is accruing debt that is unsustainable. The day of reckoning approaches. The irony is that the case is named Moore — indeed, “more” income through taxation.
Over a century of income tax laws has resulted in thousands of pages of decrees that carve out craters of exemptions in a labyrinth of directives. The tax code is a bloated, crony-orchestrated, lobbyist-measured disaster for those unable to manipulate it by hiring all those cunning accountants and attorneys who are paid handsomely to circumvent it.
When was the last time a member of Congress did his or her own taxes?
A fundamental reckoning from the ground up is long overdue to bury the income tax, along with the IRS, and replace it with a consumption or flat tax.
What Is Income?
To tax unrealized capital gains not yet received is extreme. The power to regulate and tax is the power to destroy. Congress’ authority to tax does not include reinvested capital and personal property as income.
Income is money received.
Assets may increase in value, but until they are collected as interest, dividends or sold, there is no income. If you cannot spend it, it is not income.
You can’t pay the rent or fill your gas tank with paper gains or the appreciation of your home. When you gain on any financial instrument but do not sell, you earn a “paper profit.” If unrealized gains are taxed, and the taxpayer has no cash to pay, a forced liquidation would be necessary for payment.
Are you prepared to pay a tax because your assets go up in value? House, car, pets, trading cards, comic books, Auntie Estelle’s antique coffee table — where does it end? Provided market values decline, would monies be refunded? Stop laughing — that was no joke.
Uncle Sam wants all the golden eggs without having to buy the hens, the henhouse, and the chickenfeed. The power brokers in Washington believe everything, real or imagined, is subject to taxation.
An Economic Nightmare
It is pitiful that this case is even necessary.
A tax in bad faith resulted in a revolution nearly 250 years ago. Such taxation realizes the socialist dream of equal outcome regardless of effort, ingenuity, innovation, or lack thereof. Ayn Rand’s nightmare is finally realized.
The Supreme Court’s decision is expected in June right in the middle of the presidential campaign. Provided the government loses, Democrats will condemn the decision as a political red herring. But the Supreme Court’s job is not to maximize taxable income for Uncle Sam but to interpret if this tax is constitutional. A ruling in favor of Uncle Sam would unleash Congress’ taxing power and devastate our economic system as we know it. Going forward, all unrealized income would become whatever the government says it is.
The income tax has been around since 1913, and its ability to produce revenue has never been assuaged by politics. The United States has a spending problem, not a taxing problem. Revenue is up, but it can’t compete with current spending levels.
A ruling in favor of the government would only exacerbate such spending.