In a ruling that analysts say could save the federal government trillions of dollars, the U.S. Supreme Court on a 7 to 2 vote has decided to uphold a controversial tax on foreign income.
The tax was part of President Trump’s $1.5 trillion Tax Cuts and Jobs Act that was passed in December of 2017 and was referenced as a one-time “mandatory repatriation tax” applying to those who owned at least 10% of a foreign company controlled by an American entity.
A retired couple living in Redmond, Washington named Charles and Kathleen Moore challenged the tax in court, asserting that “income” as referenced in the Trump legislation only applied to gains in the form of a payment to a taxpayer, not in an increase in the value of a property.
Supported by the Washington-based Competitive Enterprise Institute, the couple in Moore v. US maintained that they were owed a refund of nearly $15,000 due to taxes they paid as shareholders in an Indian company, even though they never actually received a return on their investment.
In their suit, the Moores also argued that the tax violated the Constitution’s requirement that all direct federal taxes must be apportioned among the states.
In his written opinion, Justice Brett Kavanaugh said the issue at hand revolved around the question of whether Congress had the right to tax shareholders or partners on matters of both realized and undistributed income.
“This Court’s longstanding precedents, reflected in and reinforced by Congress’s longstanding practice, establish that the answer is yes,” said Kavanaugh.
The decision was hailed by the Adam Green, co-founder of the Progressive Change Campaign Committee, who saw it as a form of a wealth tax. The ruling, Green was quoted as saying in USA Today, “means the fight to tax wealth and rein in billionaire power is alive and well.”
A statement issued by the Competitive Enterprise Institute said the decision “lets the government levy income taxes on foreign shareholders who have never received income. We think that is unfair.”
As to whether the decision amounted to a wealth tax, Kavanaugh said the Supreme Court was addressing itself to the “precise and very narrow question” of the Trump tax legislation. The wealth tax matter, he continued, suggests “potential issues for another day, and we do not address or resolve any of those issues here.”
By Garry Boulard
Image Credit: Courtesy of the US Supreme Court
