The Supreme Court took up a case on Monday that could make it nearly impossible for Congress to pass a federal wealth tax, giving the justices an opportunity to torpedo a major Democratic policy proposal before it can be enacted. The plaintiffs who brought the case have all but urged the court to do exactly that.
In Moore v. United States, the justices will consider whether a provision of former President Donald Trump’s tax-reform law in 2017 violated the Sixteenth Amendment, which allows Congress to collect federal income taxes. As part of a complex restructuring of federal corporate tax laws, the 2017 law imposed a one-time “mandatory repatriation tax” on American taxpayers who owned more than 10 percent of a foreign corporation.
Charles and Kathleen Moore, the titular plaintiffs, owned 11 percent of an Indian farm-equipment company when the 2017 law went into effect. Thanks to the provision in question, they paid roughly $15,000 in additional taxes the following year. The Moores filed a lawsuit against the federal government and argued that the tax was unconstitutional because their partial ownership of the company did not count as “income” under the Sixteenth Amendment.
The lower courts rejected that argument, however, and ruled that the tax had essentially targeted years of deferred foreign income. That prompted the couple to ask the Supreme Court to intervene. While the case hinges on a tax passed by Trump and a Republican-led Congress, the petition invited the justices to use it to prevent Democrats from imposing a federal wealth tax in the future.
“This is no idle threat,” the Moores said in their petition for review, referring to a federal wealth tax. They cited proposals by the Biden administration and Oregon Senator Ron Wyden to tax billionaires based on their assets, none of which have passed Congress. “There is every reason for the Court to resolve the pivotal constitutional question of realization now, when its judgment can inform lawmakers and stands to head off a major constitutional clash down the line,” the couple told the justices.
In a Wall Street Journal op-ed published in 2021, two of the Moores’ lawyers also declared unambiguously that the lawsuit “stands to slam shut the door on a federal wealth tax like the one Sen. Elizabeth Warren wants to enact.” They made a direct pitch to “the courts” to hear the Moores’ case “now” to make it easier to block a wealth tax in the future.
“If the courts confirm the Sixteenth Amendment’s limited reach now, that would relieve them from having to do so in a politically explosive case directly challenging a wealth tax,” the two lawyers concluded. “The courts would do well to remind Congress at this opportune time that its taxing power is not without limits.”
The Justice Department had urged the justices to reject the case, noting there was no split on the issue in the lower courts and arguing that the Ninth Circuit Court of Appeals had correctly applied the relevant precedents. On the wealth-tax question, the government also pointedly noted that the Supreme Court does not have the constitutional power to issue advisory opinions about hypothetical legislation that has not been enacted into law by Congress.
Debates over a wealth tax’s constitutionality are not new, of course. After Massachusetts Senator Elizabeth Warren made her proposal to enact one as a centerpiece of her 2020 presidential campaign, more than a few legal scholars argued that such a tax would not fall within the Sixteenth Amendment’s parameters. (Warren and other wealth-tax proponents disagree.) If Congress implemented such a tax in the future, a legal challenge to it in the courts would be virtually guaranteed.
The court’s decision to hear the Moores’ case also comes at an awkward time for the justices, to say the least. ProPublica and other major news outlets have reported extensively on Justice Clarence Thomas’s fruitful relationship with Harlan Crow, a billionaire and GOP megadonor, in recent months. Last week, the publication also reported that Justice Samuel Alito went on a free luxury fishing trip in Alaska in 2008 with billionaire Paul Singer, who gave the justice a free ride on his private jet to get there. Both Thomas and Alito have denied that they acted improperly by not disclosing the billionaires’ gifts on their annual financial-disclosure forms; Alito even took to the Wall Street Journal’s op-ed section to defend himself.
Only four votes are needed for the justices to take up a particular case. The court does not disclose how the justices vote on petitions for review, so it is not known if Thomas or Alito voted to hear the Moores’ lawsuit. Americans will get a clearer perspective on their views in the case when the court hears oral arguments in the fall term. As the justices wrestle with rapidly declining public esteem and multiple ethics controversies, taking up a case that could protect billionaires from wealth taxes before Congress can even pass them is an interesting choice.