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.
Uhhh...
Dude...
This law and ruling is specifically for investments being repatriated to the US.
In other words, in plain english, overseas investments.
Do I agree with it?
NO.
But it in no way effects your home or investments here in the good old USofA.
Really people.
Reading is good for you
in my part of the world they call it “property tax”...
Tax on Unrealized Gains and Means Testing is gaining traction with the Democrats. Property Tax is already in place, it taxes you on unrealized gains.
Expect .gov to get more authoritarian as things crumble. The hunt for more tax revenue is a given with the IRS hiring 60,000 plus agents. Historically, a sign of a Nation’s decline….which commonly ends in extreme Revolt and Revolution.
Our government is out of control, they must be reeled in.
how does it affect the value of your 401k...where the RATs, for years, have been trying to get “early access” to taxes owed ?
“No. The repatriation tax was only for assets being returned from overseas. Doesn’t apply to appreciation in domestic assets.”
************
Not yet. But the door was just opened; give them some time.
Not yet, but with this ruling, I'm sure there are some enterprising Gov’t types in the various states that will try to interpret the ruling that way and start sending out tax bills ... knowing that people will have to pay up first before trying to take the issue to court.
“Entering the danger zone.”
*************
Precisely. First step on a very slippery slope.
You can be sure the Dems are salivating at the prospects.
“Companies were thrilled with Trump’s proposed legislation.”
This may turn out to be an example of winning the battle only to lose the war.
A future domestic wealth tax passed by a future Congress and upheld by a future Supreme Court could destroy the economy quickly.
An argument could be made that the history of the last one hundred years has been a great country tiptoeing its way into oblivion.
No one small step was that awful—but together they created an unstoppable disaster.
Pay the Government forever, What happens if you have a capital loss??
There is no effect...yet.
This is like a Pandora’s Box—once opened lots of bad stuff can start happening.
If you have a long term capital loss you can credit your taxable income by a small amount—$2,000 a year or close to that.
So—if your capital loss was one million dollars you would recoup it for tax purposes in 500 years.
;-)
that’s what i infer from this article...chip a little bit here, chip a little bit there, then whammo.
The amount is now $3000. Also, it only applies to ordinary income.
If you have a capital gain of $10,000 then the capital loss would cover the entire $10,000.
"Capital loss carryover rules are the IRS regulations that allow you to deduct capital losses from your taxable income if they exceed your capital gains in a year. You can deduct up to $3,000 of capital losses per year. If your capital losses are more than $3,000, you can carry them forward indefinitely to offset future capital gains or ordinary income."
Thanks for the clarification.
I have an accountant do my taxes—and they have been applying a capital loss from fifteen years ago...each year...
Lol.
Wow, will the IRS guarantee you that you will live that long!!!!
According to the USSC decision on the ObamaCare tax, they could tax anything for any reason; logic and reasoning be damned.
I had a foreign long term capital gain on which I paid foreign capital gains tax.
Tax laws seemed strait forward, however IRS language made it impossible to do my own taxes (turbotax). CPA did a great job.
Also, if I ever have a large capital loss, I would fire my financial advisor.
I inherited the capital loss—it was my grandfather that had the lousy financial advisor.
;-)
Yep, like that guy said about the millstones of taxation and inflation.
We go in between them.
Someone should check his fishtank in Russia, I bet he’s smiling.
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