WSJ: SCOTUS Made A Serious Mistake on Taxes – Opens the Way to Wealth Taxes for All


One of the Supreme Court decisions yesterday raised serious concerns because the Biden administration wants a wealth tax that taxes assets you possess every year, such as a home or a car. It will affect most middle-class Americans who own a home. This ruling could open the door for him to do it immediately.

The Wall Street Journal believes the ruling yesterday opens the door. This is from the Editorial Board:

A Supreme Court Mistake on Wealth Taxes

Five Justices open the door to taxing unrealized gains in assets. Democrats will walk through it.

If the current Supreme Court is so conservative, why does it keep turning out rulings against conservatives? The latest came Thursday in Moore v. U.S., as a splintered 7-2 majority upheld Congress’s mandatory repatriation tax (MRT), and five Justices cracked open the door to a wealth tax.

At issue was a provision of the 2017 tax reform that required shareholders of primarily American-controlled foreign corporations to pay a one-time tax on their retained earnings in proportion to their ownership stake. The tax targeted U.S. multinationals with foreign subsidiaries that had accumulated earnings offshore.

The MRT ensnared Charles and Kathleen Moore, who had invested in a small foreign venture. Although the Moores derived no income from their shares, they were smacked with a $14,729 tax bill. They argued that the tax violated the Constitution’s requirement that direct taxes levied on property be apportioned among the states based on population.

The Ninth Circuit Court of Appeals rejected their challenge, holding that the MRT was a tax on income allowed by the Sixteenth Amendment. But the judges also blew open the door to a tax on appreciation in assets by declaring that the “realization of income is not a constitutional requirement.”

Enter the Supreme Court, which granted the Moores’ appeal to address whether the Sixteenth Amendment authorizes Congress to tax unrealized sums. On Thursday the majority ducked the question they had said they wanted to answer when they took the case.

They Ruled Narrowly

The Justices instead ruled narrowly that under the Court’s precedents the MRT is constitutional. “It has gone without serious question in both Congress and the federal courts that Congress can attribute the undistributed income of an entity to the entity’s shareholders or partners, and tax the shareholders or partners on their pro rata share of the entity’s undistributed income,” Justice Brett Kavanaugh writes. He was joined by Chief Justice John Roberts and the three liberals.

The Chief and Justice Kavanaugh seem to have heeded arguments that ruling for the Moores might put other tax provisions in legal jeopardy. But the opinion leaves open the door to taxing asset appreciation, including unrealized capital gains—and that’s what makes this ruling so dangerous for liberty.

Justice Amy Coney Barrett Said No!

The majority could have followed the logic of Justice Amy Coney Barrett’s concurrence (joined by Justice Samuel Alito) that agreed on upholding the MRT but didn’t shrink from the issue of whether Congress can tax the appreciation of property. “The answer is straightforward: No,” she writes.

“The Sixteenth Amendment’s reference to income ‘derived’ from any source encompasses a requirement that income, to be taxed without apportionment, must be realized,” she explains. “The ‘commonly understood meaning of the term’ income when the Sixteenth Amendment was ratified requires that a gain be ‘realized’ or ‘derived’” to be taxed without apportionment.

Justice Barrett disagreed with the sweep the majority gave to the Court’s tax precedents, which she says would “give Congress carte blanche to attribute corporate income to a shareholder.” She says “our precedent suggests that Congress’s power” to do so “for tax purposes is limited.” She and Justice Alito concurred with the Court’s judgment because the issue of whether and when Congress can attribute the income of closely held corporations to their shareholders wasn’t fully briefed.

But “just because Congress can attribute income of a closely held foreign corporation” to its shareholders “does not mean it has equal power to attribute the income of a publicly traded domestic corporation to anyone holding a few shares in her retirement account,” she writes, a view echoed by Justice Clarence Thomas in a dissent joined by Justice Neil Gorsuch. So at least there are four votes against a wealth tax that many Democrats are eager to pass.


Justice Kavanaugh says the majority didn’t address this issue because it didn’t need to. But Justice Barrett’s opinion would have let the Court uphold the MRT while clarifying the law on taxing unrealized income. It could still have ruled narrowly while providing guidance to Congress and the courts on what the Sixteenth Amendment allows or doesn’t.

Justice Kavanaugh does issue a warning that “the Due Process Clause proscribes arbitrary attribution” of undistributed income to shareholders. And he writes that his opinion should not “be read to authorize any hypothetical congressional effort to tax both an entity and its shareholders or partners on the same undistributed income realized by the entity.”

That’s nice to know, but progressives will still read his opinion as saying five Justices haven’t closed the door on a wealth tax. The Moore majority has invited tax mischief it will have to clean up in the future—if this not-so-conservative Court can muster the votes.


5 1 vote
Article Rating
Notify of
1 Comment
Oldest Most Voted
Inline Feedbacks
View all comments