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Some see the lawsuit as an attempt to preemptively block Congress from creating a wealth tax.
Justice Brett M. Kavanaugh, writing the majority opinion, said challenges to taxes on foreign income could hold “far-reaching provisions of the Internal Revenue Code” unconstitutional.
“If these tax provisions were suddenly repealed, the United States government and the American people would lose trillions of dollars in tax revenue,” he wrote, adding that the opponents’ argument means Congress would have to “either make significant cuts to vital national programs or dramatically increase taxes on the remaining available resources, including, of course, on ordinary Americans. The Constitution does not require such fiscal ruin.”
Justices Clarence Thomas and Neil M. Gorsuch dissented.
The decision came near the end of an unusually slow Supreme Court term marred by new ethics issues.
The Supreme Court is expected to issue a series of important decisions by the end of June or early July, including on when prosecutions of Donald Trump’s election interference allegations can move forward in Washington, the feasibility of bringing significant charges against the mob that stormed the U.S. Capitol on January 6, 2021, access to emergency abortion care, and the future of free speech on social media platforms.
It’s unusual for so many high-profile cases to remain undecided this late in the term. Metal barricades lined the street outside the courthouse on Thursday, a sign of heavy security that reflects the possibility of protests. The justices are due to return to court for further arguments at 10 a.m. Friday.
The foreign income tax at issue in Thursday’s ruling has been defended by an unusual political coalition ranging from the Biden administration to conservatives including former House Speaker Paul D. Ryan — not because they support a wealth tax, but because they worry that a ruling on a little-known provision could undermine broad swaths of existing taxes on investments, partnerships and foreign income. Combined, these generate billions, or even trillions, of dollars in revenue.
The lawsuit was brought by a Washington couple backed by the Competitive Enterprise Institute, an anti-regulatory advocacy group. Charles and Katherine Moore are facing a $15,000 tax bill from an investment in an India-based company that supplies equipment to small farmers because of a 2017 law that imposed a one-time tax on certain overseas earnings that were previously tax-free unless taxpayers brought the money back to the U.S.
The Moores told the court they never made a profit on their investment and sued the federal government for their money. A district court dismissed the case. The U.S. 9th Circuit Court of Appeals upheld the decision, The tax was within Congress’s power and authorized under the Sixteenth Amendment to the Constitution, regardless of whether the Moores received or “realized” the income.
The specific tax that the Moores are fighting, known as Section 965, would have raised taxes by more than $300 billion over 10 years. Some large corporations already pay billions of dollars in this specific tax, and the ruling to repeal it would have been a huge blow to the economy. If it goes down completely, the government could have to pay tens of billions of dollars in refunds.
Some tax experts said the Moores were more involved in the company than they disclosed in court filings and urged the court not to base its unconstitutionality decision on inaccurate and incomplete records. One of the couple’s lawyers defended the records as accurate and candid.
During oral argument in December, Moore v. United StatesSeveral judges noted that the taxation of certain foreign income is substantially similar to the taxation of other major forms of income, including business partnerships, limited liability companies and other income derived from foreign sources.
This is a developing story and will be updated.
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