The Supreme Court last week left the issue of wealth taxes up to Congress in its decision in Moore v. United States, a case that involved trillions of dollars in government revenue and far-reaching areas of federal law and precedent.
The ruling carefully avoided the most far-reaching questions about taxation raised in the case, leaving the overall structure of the U.S. tax system intact in a 7-2 decision against the plaintiffs.
But the bill also left open the possibility of a potentially politically contentious net worth tax as Congress prepares for a fight over new tax legislation.
The Moore case adds new uncertainty to future fights, with key parts of former President Trump’s 2017 tax cut law set to expire next year.
“It’s still up to Congress to actually implement a wealth tax. They haven’t taken it off the table, but they’ve shown they’re more than ready to catch the fly ball if Congress decides to propose it,” Leila Carney, a tax attorney at law firm Caplin Drysdale, told The Hill.
The justices made clear the limitations of their ruling, saying their analysis did not address “issues raised by taxes on holdings, wealth or net worth.”
While the court left open the possibility of an explicit wealth tax, it also expressed significant skepticism about the idea, effectively putting pressure on lawmakers of both parties to craft a workable bill if they decided to tackle the issue.
“Lawmakers who are happy with the tax system as it is need not change anything. Lawmakers interested in a wealth tax now know that there is skepticism from at least four members of the court, and likely a majority, of a tax that targets either net worth or the increase in the value of a taxpayer’s assets,” Swift Edgar, a tax attorney at law firm Cleary Gottlieb, told The Hill.
The larger constitutional questions raised by the Moores’ petition were not addressed by the Court, and the decision was limited in scope to other parts of the law. The specific tax brought by the Moores, known as the deportation tax, was not fundamentally changed by the decision.
The constitutional question relates to the concept of “realization,” which refers to the transfer of value through the economic process. The question of when income is realized and therefore taxable was left open by the court.
Had the court accepted Moore’s arguments regarding the level of realisation, it would have had an impact on other areas of the law that count income as “realised” before an investor actually has access to the cash.
These include broad areas of financial and economic law with international implications, such as Subpart F and mark-to-market regimes.
The Supreme Court’s decision in Moore comes ahead of a pivotal year for domestic and international tax policy.
Tax cuts passed in President Trump’s 2017 Tax Cuts and Jobs Act are set to expire at the end of next year, sparking increased legislative activity from lawmakers in both parties.
Republicans on the House Ways and Means Committee, which has jurisdiction over tax policy, have split into working groups on areas of taxation in the economy beyond the expiring Trump-era tax cuts for individuals and pass-through entities.
Some Republicans on the Ways and Means Committee, including Rep. Vern Buchanan (R-Fla.), vice chairman, have expressed interest in lowering the corporate tax rate below the current 21%, which was cut from 35% in 2017. Buchanan also leads the committee’s Republican Working Group on Manufacturing Tax Legislation.
To appeal to service workers, Trump has also proposed eliminating the tip tax, an idea he first floated while campaigning in Nevada, a battleground state where gambling and hospitality are major parts of the economy.
Meanwhile, Democrats are also expanding their tax agenda beyond the deadlines set by Trump’s tax cuts and even rethinking the party’s past actions.
Earlier this month, Sen. Elizabeth Warren (D-Mass.) criticized former President Obama for extending tax cuts enacted by his predecessor, thereby widening the budget deficit.
“As soon as President Obama made that tax-cut deal with Republicans, the federal deficit ballooned,” Warren said in prepared remarks earlier this month.
“The next chapter in the saga was Five Star hypocrisy in action. Shortly after the deal was reached, Republicans claimed to be seriously concerned about the budget deficit. Then they manufactured the debt ceiling crisis and used it to extract devastating budget cuts. These cuts cost the U.S. economy more than seven million jobs and helped set the stage for the election of Donald Trump in 2016,” she said.
On the administrative side, the IRS is responding to realities on the ground while also communicating with Congress on legislative priorities.
The tax deal stalled in the Senate would include expanding the corporate tax credit and the child tax credit, but would be paid for by eliminating the Employee Retention Credit (ERC), which has been flooded with bogus claims and has caused problems for the IRS.
Even though the ERC suspension was put into effect after the pandemic hit the economy, the IRS is still receiving about 17,000 applications each week, IRS Commissioner Danny Wuerfel told reporters last week.
“IRS employees worked hard to make these claims happen, and as members of Congress noted, the program worked as intended during the crisis. But then promoters took control, and over time, aggressive marketing overwhelmed this well-intentioned program,” Wurfel said.
At the international level, which tends to move slower than domestic policy, tax treaties on a global 15 percent minimum tax rate and on where companies are taxed are in various stages of ratification and implementation.
Politico reported that the Treasury Department’s top negotiator at the Organization for Economic Cooperation and Development (OECD) recently made no concessions on a provision in one of the international tax packages that deals with marketing and distribution activities.
