The Supreme Court declined to overturn a tax policy Thursday that critics warned could have had broad implications on federal tax policy and the U.S. economy, ruling against a couple who claimed they should not have been taxed on money they invested but hadn't made a profit on.
The U.S. Supreme Court Building in Washington, D.C.
After being taxed on an investment they had in an Indian company, couple Charles and Kathleen Moore asked the Supreme Court to overturn what’s known as the “mandatory repatriation tax” (MRT), a provision of the GOP’s 2017 tax law that imposed a one-time tax on U.S. individuals and companies who have a significant stake in foreign corporations controlled by Americans.
The court ruled 7-2 to uphold the MRT, ruling it does not exceed Congress’ authority, with Chief Justice John Roberts and Justices Brett Kavanaugh and Amy Coney Barrett joining with the court’s three liberal justices.
The Moores argued they shouldn’t have been taxed on “unrealized gains,” meaning investments that they haven’t actually made a profit on; money earned from investments or assets is generally taxed after they’ve been sold at a profit, meaning those gains are “realized.”
The court did not agree with their arguments, with Justice Brett Kavanaugh writing for the majority that the MRT is in line with other tax provisions that have been “long imposed by Congress and long upheld by this Court.”
Striking down the MRT could have benefitted corporations, as the Institute on Taxation and Economic Policy predicted 400 multinational corporations could receive $271 billion in tax relief from the policy being overturned, as well as impact Democrats’ proposals for a wealth tax on the richest Americans.
The Moores also argued the court should weigh in on taxing unrealized gains because Democrats’ proposals for a wealth tax on the richest Americans would tax those earnings—but the court’s ruling did not address that, with Kavanaugh noting the court’s ruling is a “narrow” opinion that doesn’t address whether realization is needed for taxes on income.
The Supreme Court’s narrow ruling means there’s still room for Democrats to try to enact a wealth tax—and Republicans to challenge it in court if they do. Moore v. U.S. comes as Democrats have increasingly called for the wealthiest Americans to be taxed on their wealth, with proposals specifically taking unrealized gains into account. President Joe Biden has proposed a “Billionaire Minimum Income Tax” on households worth more than $100 million, which would impose a 20% tax rate on their full income, including unrealized gains. Democrats’ wealth tax proposals continue to face heavy opposition from the right, however, making it unlikely any proposals will pass in the near future.
$340 billion. That’s how much a ruling invalidating the MRT could have cost the federal government over the next decade in lost tax revenue, the Justice Department said in a court filing.
Separately, the Moore case has come under scrutiny from the left for potential ethics issues. Justice Samuel Alito—who has repeatedly come under fire recently for perceived ethical conflicts—refused in September to recuse himself from Moore v. U.S., after he was interviewed in the Wall Street Journal by David Rivkin, one of the attorneys who argued the case. Alito claimed there was “no valid reason for my recusal,” claiming Rivkin participated in the interviews “as a journalist, not an advocate.” The justice has also previously been criticized for taking a luxury fishing trip with billionaire Paul Singer, who chairs the Manhattan Institute, a right-wing think tank that filed a brief with the court urging it to side with the Moores. The Moores themselves have also come under scrutiny in light of reports suggesting the couple has closer ties to the Indian company they invested in than their lawsuit says. While the lawsuit claims the couple only invested $40,000 in company KisanKraft, records reported by Tax Notes claimed the Moores actually committed $400,000 to the company, and Charles Moore served as a director. (The Moores’ attorney Dan Greenberg denied there being any inaccuracies in a statement to The Washington Post.)
The Moores brought their case to the Supreme Court after lower federal district and appeals courts ruled against them, upholding the government’s tax on their unrealized gains. The case has been closely watched for its potential broader impact on U.S. tax policy, with the appeals court noting a ruling in the Moores’ favor could “call into question the constitutionality of many other tax provisions that have long been on the books” and tax economists predicting in a brief that a ruling for the couple would have a “profound” impact on the economy.