Posted on 07/09/2023 9:37:24 PM PDT by SeekAndFind
Wealth tax proposals have been all the rage among progressive politicians of late, despite the many pitfalls of attempting to tax unrealized gains.
But a case the Supreme Court just took up could render taxation of unrealized gains constitutionally untenable.
Moore v. United States looks at a provision in the 2017 Tax Cuts and Jobs Act (TCJA). One of the ways that legislators offset the foregone revenue from tax cuts was through a one-time “deemed” repatriation of earnings from U.S. citizens’ shares of foreign corporations.
Put simply, the deemed repatriation provision acted as if Americans with shares in foreign corporations (above a minimum threshold) had received a dividend representing their share of that corporation’s profits going back to 2006. Never mind that they hadn’t received this dividend — the TCJA treated them as if they had.
In this sense, the deemed repatriation provision acted very much like a wealth tax. Though corporate shares gain value as the corporation in question is profitable, investors’ gains from these shares are entirely theoretical until they either sell their shares or benefit from those corporate profits in the form of a dividend. The “deemed repatriation” ignored the distinction in American tax law between realized income (which is usually taxable) and unrealized income (which usually isn’t).
One couple affected by the deemed repatriation provision, Charles and Kathleen Moore, chose to challenge it in court. Though they had never received any dividends or sold their 13 percent stake in an Indian company that provides agriculture tools to impoverished Indian communities, they were hit by a tax bill under the TCJA just the same. Now, their challenge finds itself before the Supreme Court.
The case hinges upon the interpretation of the Sixteenth Amendment to the Constitution. Prior to the ratification of the Sixteenth Amendment in 1913, the Constitution granted Congress the power to levy “direct” taxes only if they were equally proportioned among the states — in other words, they could only be levied on a per capita basis.
The Sixteenth Amendment allowed Congress to ignore this proportionality requirement for “income” taxes specifically. That’s fairly straightforward for normal “income” taxes on wages, dividends, or capital gains — in other words, “realized” income that directly benefits the taxpayer. But whether the Sixteenth Amendment applies to unrealized income, where a taxpayer’s net worth increases but their cash on hand remains the same, is the question before the Court.
While the case will, of course, hinge upon legal interpretations, the distinction between realized and unrealized income is obvious to most taxpayers. When you receive cash (or an electronic deposit to your checking account), it’s easy enough to set aside part of that for your tax obligations. On the other hand, if your car’s theoretical sales price increases, as many did during the pandemic, it makes little sense for Uncle Sam to demand his share unless you actually go ahead and sell.
A ruling explicitly describing unrealized income as capital, rather than income, for the purposes of the Sixteenth Amendment would effectively place a judicial stamp of disapproval on wealth tax proposals of all stripes. That would effectively end some of the zanier ideas coming from the left.
Of course, wealth taxes should be something that Congress avoids because they’re bad policy, are an enormous headache and costly to administer, and harm entrepreneurship. But given that those have never been good enough reasons to stop Congress from doing things in the past, a judicial veto wouldn’t hurt either.
Or education level. It wouldn’t matter you worked at a burger joint, if you had a degree, you should be paying ‘this’ much.
Before long they will begin taxing infants for their potential future income.
Federal judges salaries are derived through federal taxation. They will never make a ruling to limit federal taxes
After all it’s for the children......
This year the IRS changed rules on trusts and the stepped up basis for assets.
Simply put ... FedGov wants to tax you today for earnings you may realize tomorrow.
That is not the intent. Gov’mt wants to collect taxes on every increase in your stock’s values.
If it goes up on Tuesday record that for your tax return. If it goes down on Wed, ignore. If it recovers on Thursday, again record that for taxes. Basically, every time any asset goes up the Gov’mt gets their cut.
That is the intent. Nothing to do with your trying to realize(cash in) the asset.
In general, there is already a precedent for a widespread wealth tax: property tax on homes. REgardless of appreciation or otherwise, Gov’mt gets a cut. If you don’t pay they seize the property.
None of this has anything to do with income. It is all about taking from you so Gov’mt can give (& skim) to others.
In line with your moniker, we should repeal the 16th along with the 17th. They were the strong two step progressive “reforms” of the progressives in the early 1900s. Calvin Coolidge called them out in his speech marking the 150th anniversary of the Declaration of Independence in 1926. I posted it on my social media last week, and it foretold current day problems.
In short, the principal points were:
“• The Declaration is the preeminent support for free government around the world.
“• We celebrate the American Revolution because it represents the convictions of an independent, liberty loving, God-fearing people who knew their rights and had the courage to maintain them.
“• Our institutions subsequent to the Declaration have stood the test of time. They have advanced civilization.
“• Take time to turn off the noise of partisan politics and find solace and consolation in our two great charters of freedom, the Declaration and Constitution. Together, they will always provide adequate defense from all dangers.
“• The Declaration is the outward manifestation of the desire of all men to be free.
“• Like no other revolutionary movement in history before or since, not only did the Declaration liberate a people, it ennobled humanity.
“• Great ideas are always reached by a gradual development over a length of time usually proportionate to their importance. This is especially true of the principles laid down in the Declaration. Three very definite propositions were set out in its preamble regarding the nature of mankind and therefore of government. These were the doctrine that all men are created equal, that they are endowed with certain inalienable rights, and that therefore the source of the just powers of government must be derived from the consent of the governed.
“• About the Declaration there is a finality that is exceedingly restful. It is often asserted that the world has made a great deal of progress since 1776, that we have had new thoughts and new experiences which have given us a great advance over the people of that day, and that we may therefore very well discard their conclusions for something more modern. But that reasoning cannot be applied to this great charter.
“• If all men are created equal, that is final.
“• If they are endowed with unalienable rights, that is final.
“• If governments derive their just powers from the consent of the governed, that is final.
“• No advance, no progress can be made beyond these propositions. If anyone wishes to deny their truth or their soundness, the only direction in which he can proceed historically is not forward, but backward toward the time when there was no equality, no rights of the individual, no rule of the people. Those who wish to proceed in that direction cannot lay claim to progress. They are reactionary. Their ideas are not more modern, but retrograde.
“• From the contemplation of these truths the Founders made their Declaration and adopted their Constitution. It was to establish a free government, which must not be permitted to degenerate into the unrestrained authority of a mere majority or the unbridled weight of a mere influential few.”
If the reader takes nothing else from this squib, I hope it is the sentences above. Keep them in your hip pocket and ready to throw in the face of your hopeless straying Leftist friends and relatives this Independence Day. These are the truths that the Left denies. In the name of ill-defined and ever-changing social justice, perverted progressives strive to enslave the once freest nation on earth. We can stop these destroyers of all that is good and decent from progressing our Declaration and Constitution.
Article V.
Wouldn't it logically force the government to pay or give tax credits annually to those whose investments (or any other assets however valued) had dropped in value?
It would be an accounting nightmare!
Property tax is a tax on unrealized gains based on a mythical assessment of what you “might” sell your home for. It is also a tax on inflation. It is also a repeated tax on the same asset.
Inheritance taxes are taxes on what’s left after taxes have already been paid on the income that produced the assets.
Ever notice how you NEVER get to vote on your level of taxation?
Oral arguments for this case should be interesting.
A wealth tax would guarantee that the wealthy would hire tax attorneys to help them hide their wealth though an infinite variety of tax avoidance schemes—including of course moving those assets that can be moved offshore.
It is the middle class that ultimately gets crushed with such schemes.
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