Posted on 06/20/2024 8:15:05 AM PDT by Miami Rebel
The U.S. Supreme Court on Thursday ruled against a couple who challenged the constitutionality of a Trump-era tax provision, handing the government a victory in a case that had huge potential consequences for the federal budget.
At issue was a tax enacted in 2017 to pay for President Trump’s massive corporate tax cut and to prevent off-shore tax dodges. It was challenged by Charles And Kathleen Moore, who were required to pay a one-time $15,000 tax on an investment in India that grew in value from $40,000 to over a half million dollars.
Backed by conservative anti-regulatory groups, the couple claimed that because they had received no payments or dividends from the company, there was no income to be taxed. And they maintained that the tax violated the Sixteenth Amendment to the constitution, enacted in 1913, which authorizes Congress to collect taxes on income.
This tax, they maintained, was not on income, and thus was unconstitutional.
But the Supreme Court disagreed by a vote of 7 to 2.
Although on paper the case appeared obscure, it had potentially trillions of dollars in tax consequences for the federal budget, and an adverse decision could have severely limited congressional options in enacting tax policy.
Indeed, former Republican House Speaker Paul Ryan, who shepherded the tax through the House of Representative, warned that if the tax were invalidated, it could unravel a third of the tax code.
Congress enacted the tax as a one-time payment to cover the transfer from one international tax rule to another. Under the old system, if you earned foreign income overseas in a foreign corporation that you owned, you would not have to pay taxes on those earnings until you brought the profits back to the United States. Congress saw that as a perverse incentive to keep profits offshore, and by some estimates as much as $3 trillion in income was shielded in shielded offshore profits.
In order to move to a new system, the idea was that a one-time transition tax, at a low rate, was needed. For the Moores, their one-time tax was $15,000, coincidentally roughly the amount Charles Moore was reimbursed for travel expenses when he went to India for board meetings.
Tax law experts from conservative to liberal were greatly relieved by Thursday’s decision. Remember, this tax is expected to yield $340 billion by 2027, mainly from huge corporations, and the lion's share of those taxes has already been collected, and likely would have had to be paid back if the court had reached a different conclusion.
What's more, various other tax regimes enacted to prevent tax dodges by the rich could also have been at risk, according to George Callas, who served for 15 years as a Republican staffer for the tax writing committees of Congress.
In the Moores' case, they owned 11% of the Indian company, and under federal law, that is considered a controlling interest, meaning the owners have influence over the timing of any distributions and dividends, a leverage that Congress wanted to rein in to prevent tax avoidance.
Lawyers for the couple described them as playing no active role in the company. But documentsdisclosed by the publication Tax Notes show that Charles Moore was far more involved in the company's management than he suggested. Recordsshow he served on the board of the company for five years between 2012 and 2017, that he was reimbursed for thousands of dollars in travel expenses to and from India, and perhaps most importantly, that he provided the company with short-term infusions of cash that were never used, but were repaid 60 days later with 12% interest. Former congressional tax staffer Callas sees that as clearly “suspicious.”
“Why would you loan a company money for 60 days, have it sit in a bank account, never be used, and then repay it with a big interest rate, unless you were just trying to find a way to get money out of the company without calling it that?" Callas says.
That said, a phalanx of conservative, anti-regulatory, and anti-tax groups was arrayed against the tax in Tuesday's case, including the U.S. Chamber of Commerce — even though the group supported the 2017 tax bill that included the provision at issue in Thursday's case.
Callas, who served as Speaker Ryan's chief tax counsel at the time the bill was negotiated and passed, notes that at the request of the Chamber and other stakeholders, House Republicans made many specific changes to the 2017 tax bill, but there was "no discussion" of any "constitutional vulnerability." It was "purely a discussion of how to design the policy appropriately."
For the Chamber and other stakeholders years later "to discover constitutional concerns that they didn't raise before, “strikes me as opportunistic,” he said in an interview with NPR last December.
Ahh, Nina Totebag!
I wondered what happened to her.
Wasnt this all part of MAGA bringing investment back to our shores?
This is libtard douchebaggery. Just what you would expect from Nina “far left” Totenberg.
This article is full of facts not stated in the opinion, and utterly irrelevant to the issue of whether this is a tax on “income” under the 16th amendment, and therefore constitutionally justified.
In order for there to be “in-come” under the plain meaning of the word income as used in the 16th amendment, money has to “come in.” Here, money did not “come in.” Therefore, as Justice Thomas correctly asserted, this was not a constitutional tax.
The Communist douche canoe still lives and breathes, so that stories like this can be disseminated by Communist douche canoes everywhere.
I guess I dont fully understand. Is this a tax on realized gains (dividends, interest, capitol gains) off shore, or a tax on unrealized gains? The unrealized gains would be the one I would call unconstitutional, but I was not aware of any tax on unrealized gains yet in place. I only know the dems want to do that.
Yup.
I haven’t read the decision (nor the dissent from Thomas/Gorsuch) and I realize my opinions on capitalism and taxes are no longer in fashion, well... anywhere, anymore.
But I just wish more folks would step back and realize what stuff like this means. I.e., I’m sure protectionists and anti-free market folks like this. But I’ll bet that secretly, so does Pocahontas and Bernie the socialist.
This decision effectively blesses the whole concept of a “wealth tax” and settles the question of a pretty massive taxation concept.
The federal government is now free to say “You have too many assets - regardless of whether you’ve realized any REAL gains, from your investments and work... I can now take some of it... and I don’t care if that means you liquidate some of those assets to pay me.”
As the cliche goes, you can’t get a little bit pregnant... and the socialists have to be secretly thrilled because now they’ve got a bun in the oven - and they certainly won’t murder this one in the womb.
You understand it perfectly and I wish I had seen your response before mine, but yup... UNREALIZED gains - “wealth” and “investments not yet bearing fruit” are now taxable.
required to pay a one-time $15,000 tax on an investment in India that grew in value from $40,000 to over a half million dollars.
followed later by:
their one-time tax was $15,000, coincidentally roughly the amount Charles Moore was reimbursed for travel expenses when he went to India for board meetings.
I feel like there's more to the story that I dont know. Like the Moore's arent just simple investors, simple stock holders with foreign holdings. They own a company and hold seats on the board of directors. As such, maybe they get compensation through stock options, etc. The details just arent clear to me. Maybe I would understand it better if I understood the mechanism by which US corporations are sheltering overseas.
You’re more fair than I - and I’ll cop to jumping to pure saltiness a bit too hard.
The full decision with the dissent is https://www.supremecourt.gov/opinions/23pdf/22-800_jg6o.pdf
I know it gets complicated - at least the decision DOES seem to be narrowly carved out so maybe we’re talking... heavy petting (that cracks the door open to...) rather than my tart cliche.
I suppose I wouldn’t disagree that sure, there’s plenty of sleaziness to be had with “reimbursement” (regardless of whether it involves an international entity or not) but at initial blush - the travel expenses don’t seem terribly unreasonable.
Fundamentally, I guess I just flew off the handle initially because the reality IS we aren’t really talking gains here.
I know people hate loopholes but I guess I just lean on the idea that the loophole door swings both ways: loopholes for benefits that don’t constitute income, but also loopholes for the feds to grasp more money.
I’m going to read the decision (and the dissent!) more closely... and FWIW? Thanks for calming me at least :-)
No worries. :)
If you figure it out, feel free to educate me as well. From my initial question/comment, I thought Trump did this (whatever exactly this was) to close a loop hole and help bring investment back to in country, which I would support. A wealth tax I would never support.
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