Posted on 06/22/2024 9:44:20 PM PDT by SeekAndFind
The Supreme Court ruled Thursday that a part of President Trump's 2017 'Tax Cuts and Jobs Act' that levied a tax on capital appreciation is constitutional. Justice Brett Kavanaugh wrote the majority opinion. Justices Clarence Thomas and Neil Gorsuch dissented.
The court ruled 7-2 that the mandatory repatriation tax, or MRT, is constitutional under the taxation regimes defined in Article I and the 16th Amendment. In short, the MRT imposed a one-time requirement for US citizens and companies to repatriate money held overseas.
In 2005, Charles and Kathleen Moore invested $40,000 in an Indian business named KisanKraft, which marketed power tools to Indian farmers in exchange for 13% of the company’s equity. It was a good investment, and the company made a profit every year. The profit was reinvested in the company, and no distribution was made to equity owners. The 13% equity share the Moores owned increased in notional value, but they didn’t receive a single cent in income.
Ordinarily, the Moores would have had a tax bill due when they sold their share of the business or started receiving a share of the profits. This changed in 2017 with the passage of the Tax Cuts and Jobs Act; investors in foreign corporations, like the Moores, were hit with a one-time “repatriation” tax on profits held overseas. The profits were based on the increased investment value even though the asset was not sold. I won’t tell you who controlled the Executive and both houses of the Legislative Branch when this was passed.
As a result of the change in the law, the Moores were hit with a $14,729 tax bill. They paid the bill and sued the federal government, claiming a violation of the 16th Amendment.
You will own nothing; you will eat bugs; and you will be happy.
Even though the majority decision says it does not address the issue of a wealth tax and Kavanaugh goes into a lot of specious mumbo-jumbo about how a wealth tax might run afoul of the Article 1 requirement that taxes be apportioned, that is just moonshine designed to mollify anyone more concerned with protecting wealth from confiscation than they are in enabling that to happen.
In Moore, the majority was careful to note that, at least with respect to undistributed corporate income, double taxation is off the table: “[N]othing in this opinion should 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.”
For an example of the genre, read the ever-excitable Ian Milhiser's explanation of why the government's ability to tax your stock or real estate portfolio is great news for the people who have one.
All of that is fine, but we also need to realize that Kavanaugh's thinking does not represent the whole court.
Finally, let’s consider the separate opinions. Justice Ketanji Brown Jackson’s concurrence leaves little doubt on where she stands: “[T]here is no constitutional requirement ... that a taxpayer ‘be able to sever ... the gain from his original capital’ in order to be taxed on it.” Jackson concludes that the requirement that income be realized before it can be taxed is not a constitutional rule but “founded on administrative convenience.”
Because this ruling specifically focuses on the facts in one case, and when one justice — in reality, there are at least three — explicitly says that taxing paper gains is okay, we shouldn't focus on all the leftists telling us not to worry. And John Roberts is in the majority.
Let's think back a decade to the birth of ObamaCare. One of the critical debates was the "mandate' for all Americans to have health insurance coverage. To incentivize the purchase of insurance, a penalty for non-purchase was created. Roberts decided that the madate was in reality a tax, despite no one ever having called it that, and because it was a tax, it was okay.
Salvaging the idea that Congress did have the power to try to expand health care to virtually all Americans, the Supreme Court on Thursday upheld the constitutionality of the crucial — and most controversial — feature of the Affordable Care Act. By a vote of 5-4, however, the Court did not sustain it as a command for Americans to buy insurance, but as a tax if they don’t. That is the way Chief Justice John G. Roberts, Jr., was willing to vote for it, and his view prevailed. The other Justices split 4-4, with four wanting to uphold it as a mandate, and four opposed to it in any form.
...
Here is the choice that individuals who do not want to obtain health insurance will face, according to the Chief Justice: “Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing they may not lawfully do is not buy health insurance and not pay the resulting tax.”
No matter what the defenders of this decision say, this ruling has opened the door to a wealth tax. The Moores were forced to take the money. They did have to pay a tax on the money they had not received. Just like the Supreme Court blithely declared that the tax the Moores paid didn't violate the Article 1 requirement that direct taxes be apportioned, the Roberts court also said that the ObamaCare mandate didn't fall under the apportionment requirement.
If you think this wasn't noticed by the left, think again. The door has been opened for a wealth tax. Eventually, some Congress will walk through it.
Suppose in fiscal year 2024, I bought $10,000 worth of shares in company X and by the end of the fiscal year, it is worth $20,000 ( an unrealized gain of $10,000). I DID NOT sell the shares that I own because I anticipate the share value to continue to go higher.
Question: Under this SCOTUS decision, will I be required to pay $10,000 UNREALIZED capital gains?
How does this decision affect the value of my home?
If I bought my home in this fiscal year for $400,000 and within a year, it is now valued at $430,000, will I be required to pay taxes on the unrealized gain of $30,000 even if I did not sell my house and continue to live there?
Congress should have passed a law clarifying that the mandate was NOT a tax.
It’s even worse.
If you lose money, you lose almost all of it. For those with tax experience, you can take a write off on losses to offset gains on others.
But, that $10,000 investment (after you paid taxes on it), say it grows to $20K, as you stated, 100% growth (with accompanying risk). On top of paying state and local income taxes (0 to 10.75), you have Capital Gains Tax (10-37%) plus Income Tax (10-39.6). So taking averages of these taxes, 5.25% (State Income) + 23.5% (Cap Gains) + 24.8 (Fed Income) we have a tax bill of 53.55%
Lucky you, you get to risk $10,000 of your hard earned earnings (after tax) and if you see 100% growth, you will be taxed on 53.55% of that growth; or get to keep $4,645 of your investment.
Makes you want run out as fast as you can and invest your earnings, doesn’t it? /s
Never underestimate the ability of DEMS to screw up any system.
No. The repatriation tax was only for assets being returned from overseas. Doesn’t apply to appreciation in domestic assets.
Companies were thrilled with Trump’s proposed legislation.
“Supreme Court clears the way for a a wealth tax”
No they didn’t.
“If I bought my home in this fiscal year for $400,000 and within a year, it is now valued at $430,000, will I be required to pay taxes on the unrealized gain of $30,000 even if I did not sell my house and continue to live there?”
No you will not. The law referred to has been in effect since 2017. Have you heard of one single person that has been sent a tax bill on an increase in value of their home? I’ll bet you haven’t.
Great question. Sounds like a wealth tax will tax 401Ks. Yikes!
Entering the danger zone.
If tax is based on unrealized capital gains, would unrealized capital losses be deductible?
Recent rulings in some states consider gold or silver as money, so would holding gold or silver coins not be subject to market to market for tax basis? Or will holding “money” also be subject to taxes on unrealized gains?
Would the Fed also be subject to mark to market & taxes on unrealized gains or losses on gummit guaranted bonds?
One should not overlook the possibility that the $30,000 of unrealized "gain" is more likely a debasement of the purchasing power of the US Dollar due to government mismanagement. There needs to be a correction for currency debasement to normalize apparent "gains". There is a similar term "indexing for inflation" that would be applicable.
Worse, your $400,000 house appreciates to $600,000 and you pay tax on that unrealized gain. Then the house value drops to $200,000. Do you get the tax you paid back? Do you get a tax refund for the unrealized loss (from 600 to 200 or from 400 to 200)?
This is an absolute nightmare. But with a $35 trillion debt, you can bet this is high on their priority list.
I think it's more appropriate to suggest that it might run afoul of the fifth amendment takings clause.
Taxing unrealized gains is confiscatory because most people would have to divest the property in order to pay the federal tax on the property. That would effectively be the government taking the property and keeping the tax portion of its sold value, leaving the former owner with the loss of property but keeping its net value in cash.
In the case of shares of stock, the shareholder may not be ready to sell those shares because they are part of a long-term diversified portfolio of stocks and bonds, and selling shares to pay for the tax unbalances the overall portfolio.
What about homes (real estate) that appreciate in value? Will the homeowner be forced to sell the home in order to pay the tax on the unrealized appreciation on the home?
What about undeveloped land in remote areas that suddenly become popular as development finally reaches out that far? If the land rapidly appreciates because housing or industry or luxury resorts are finally being planned nearby, is the owner of the dormant land going to have to pay a tax on the unrealized appreciation on that land? Will the tax be so high as to force the owner of the land to sell it in order to pay the tax?
This is why I see this as an illegal 5th amendment takings of private property.
-PJ
During the RE boom/bust the property tax collectors benefited big and I never heard of anyone ever getting a refund.
This is nonsense. They’ll go to a VAT/consumption tax before anything like this hits domestically.
It's OK. If the value of your house drops $30,000 the holy feral government gives you a rebate. </sarcasm>
>> a $14,729 tax bill
BFD
the issue concerns “the repatriation tax on profits held overseas”. This is not an issue for the average home owner, stock investor, small business owner.
That’s exactly my situation here in Kansas. Much of the farmland I bought forty years ago for $150/$200 per acre is now appraised at $4,500 per acre. I haven’t sold the land, I still farm and ranch it. If I had to pay an unrealized capital gains tax on my land I would go bankrupt, and so would every other farmer/rancher in Kansas and America too for that matter. This situation cannot stand.
At first glance (and I may change my mind after further consideration), I don’t see how a foreign asset would have any protection under the U.S. Constitution.
It all depends on how the IRS will interpret this and enact bogus regulations and rules that supposedly implement the intent of the ruling.
My guess is that if you look at the future what wealth won’t be taxed, that’s where all the Democrats and RINOs have their money.
This isn’t a screw up.
Deep State is doing this deliberately.
All those rich folks who were hoping to be eaten last are the idiots.
bkmk
Excluding property taxes of course.
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