At The Hill, Travis Nix: Historic Supreme Court case could imperil the entire US tax code. From the introduction:
The Supreme Court has agreed to hear one of the most important tax cases in history, which could either greenlight the constitutionality of an economically disastrous wealth tax, or destroy critical parts of the U.S. tax system.
Unless the justices take a middle road and define the 16th Amendment according to the history and traditions of the U.S. tax system, the case will result in bad law and worse outcomes.
The case (Moore v. United States) concerns the constitutionality of the 2017 Tax Cut and Jobs Act (TCJA). The act imposed a mandatory repatriation tax on pre-2018 profits that companies and some U.S. shareholders stored abroad. Previously, foreign business profits went untaxed until they returned to U.S. shareholders. But under mandatory repatriation tax, passed as part of Republicans’ comprehensive international tax reform, profits were taxed even if shareholders never received the income.
The revenue from the mandatory tax helped raise an estimated $339 billion that contributed to offsetting other individual and corporate tax cuts, as well as broader international tax reform in the 2017 tax cuts.
The court faces a difficult question: Is this mandatory tax on foreign profits that shareholders never actually received constitutional under the 16th Amendment? The Supreme Court has maintained since 1920 that income must be “clearly realized” for it to be taxable. Yet the U.S. tax code is riddled with taxes on unrealized income….
And from later on:
Justices are going to want to uphold tax law to avoid the disastrous consequences they’ve already been briefed on, but originalism and wealth tax will bar their way. The original meaning in Black Law’s dictionary from 1910 claims that income must be “received” to be defined as such, and that any income that has not been received cannot be taxed. As much as the justices want to preserve longstanding principles of the U.S. tax system, they cannot do it without setting precedent against the original meaning of “income” and authorizing a wealth tax.
The Supreme Court’s best option to resolve this case fairly and with minimal destruction is to invoke its history and tradition tests that it is now using in its First and Second Amendment jurisprudence. Under this framework, a tax on unrealized income will be constitutional if it comports with the history and tradition of the income tax code.
Moore is a potentially significant originalism case, as the essay suggests. My prediction (worth very little as I don't know much at all about tax law) is that the Court will rule for the taxpayer on originalist grounds but find a way to make most of the other taxes on arguably unrealized income constitutional.
Posted at 6:35 AM