Supreme Court Turns Back Stealth Attack On Wealth Tax — For Now

The Supreme Court issued a narrow 7-2ruling on June 20rejecting a sweeping constitutional argument that a wealthy Washington state couple brought before them that was viewed as a stalking horse aimed at preemptively striking down a future tax on wealth.

The couple, Charles and Kathy Moore, had challenged the constitutionality of the Mandatory Repatriation Tax, which was enacted as part of Republicans’ 2017 Tax Cuts and Jobs Act. The MRT imposed a one-time retroactive tax on Americans who received “undistributed” income — meaning income not distributed to them by a company — from foreign corporations in which they held more than a 10% stake. The Moores argued that the tax was unconstitutional because the 16th Amendment only authorizes taxes on income, and that the unrealized gains they received from undistributed income in foreign corporations is not income.

The court’s decision, written by Justice Brett Kavanaugh, upheld the MRT, but did so without reaching the constitutional question of whether unrealized gains counted as income for the purposes of the 16th Amendment. Instead, the justices ruled that the gains taxed by the MRT were income for the foreign corporation because they were just income that remained undistributed to shareholders.

“So the precise and narrow question that the Court addresses today is whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income. This Court’s longstanding precedents, reflected in and reinforced by Congress’s longstanding practice, establish that the answer is yes,” the decision read.

Justices Ketanji Brown Jackson and Amy Coney Barrett each wrote