With “far-reaching ramifications” that might cost the nation more than $5 trillion, the Supreme Court has disputed a Washington state couple’s almost $15,000 tax bill.
Whether or not Congress may collect taxes on funds that have not yet been “realized” as income is at the heart of the matter, some have argued that the highest court’s decision would have far-reaching consequences for taxing the nation’s wealthiest people, who use tax havens and other investment loopholes to avoid paying their fair share.
The 13% minority ownership that Charles and Kathleen Moore, a retired couple from Redmond, Washington, have in KisanKraft—an Indian company that provides power tools to small farms in that Asian nation—is being challenged by the taxation authorities. According to the married pair, their income shouldn’t be taxed since the firm used its profits to grow instead of paying out dividends or other incentives to its shareholders.
In 2017, Congress enacted, and then-President Trump signed a substantial corporate tax reform into law, which included the clause in the issue. All deferred profits of American shareholders in overseas firms are subject to a one-time payment called the “mandatory repatriation tax.” This includes gains that have not yet been “realized” or passed on to the owners. Over a decade, the provision can potentially bring in $340 billion for the government, according to the IRS.
Even though the Moores may not have gotten any hard currency, pro-government groups claim their original $40,000 investment abroad has grown to over $500,000. On a broader scale, organizations such as the U.S. Chamber of Commerce, which is sympathetic to the Moores’ plight, state that this case may be used as an early warning against any wealth tax on the assets of the wealthiest Americans, including stocks that are only subject to taxation upon sale.
Massachusetts Senator Elizabeth Warren (D) has long supported this kind of tax. The Billionaires Income Tax was introduced last week by Senator Ron Wyden (D-OR), the chairman of the Senate Finance Committee, along with fifteen other Democrats. For American families with a net worth of over $100 million, President Biden has proposed a “billionaire’s tax” that would impose an annual minimum tax of 25% on capital gains, regardless of whether the assets were sold or retained.
The tax issue has been plagued by an underlying ethical challenge that the Supreme Court has been unable to resolve. Democrats asked Justice Samuel Alito on the Senate Judiciary Committee to stand down in September, but he refused. He asked several pointed questions throughout the Moore case, claiming he was worried about the consequences of the Moores’ stance and wanted to know where it stopped.