Supreme Court Justice Brett Kavanaugh preserved the U.S. tax code and averted a potential government-wide catastrophe by shooting down a pre-emptive challenge by right-wing attorneys to try to permanently prohibit the U.S. from ever adopting a wealth tax — and there are several reasons why he wasn't willing to go that far, wrote court analyst Mark Joseph Stern for Slate.
The case in question was Moore v. U.S., which concerned a couple, Charles and Kathleen Moore, who invested in KisanKraft, a U.S. company that makes farm equipment in India, and believed that the one-time shareholder tax implemented by former President Donald Trump's 2017 tax cut law was unconstitutional.
They argued to the Supreme Court that the 16th Amendment, which authorizes a federal income tax, can only be applied to "realized" gains, or money that was already actively paid out.
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A ruling in their favor would have prohibited a wealth tax of the sort Sen. Elizabeth Warren (D-MA) has been advocating to be levied against billionaires — but it also could have blown up huge parts of the tax code that already exist.
Justice Samuel Alito had been urged by some experts to recuse from this case because one of the attorneys bringing it, David Rivkin, also gave a public relations interview to Alito to help him spin a reported luxury fishing vacation he took with a billionaire investor who has business before the court.
Alito did not recuse — but ultimately, he joined Kavanaugh anyway in the 7-2 ruling that shot down the case Thursday.
"There are three problems with the case, best taken in reverse order," wrote Stern. "First: The 16th Amendment does not include a 'realization' requirement. Congress has taxed unrealized gains since long before the 16th Amendment was ratified, and its drafters made an affirmative choice not to impose this limitation.
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"Second: If the plaintiffs’ theory is correct, then 'vast swaths' of the modern-day tax code are unconstitutional, as Kavanaugh pointed out. Myriad corporations and partnerships are 'taxed on a pass-through basis'; that means the entity’s owners, typically shareholders or partners, pay taxes rather than the entity itself. And these owners pay taxes 'on the income of the entity,' Kavanaugh wrote, 'even if the entity has not distributed any money or property to them.'" Prohibiting this, he added, would "deprive the U. S. Government and the American people of trillions in lost tax revenue."
But there's a third issue with the case, Stern noted: the Moores repeatedly misstated the basic facts.
"Charles Moore claims to have invested $40,000 in KisanKraft in a single transaction — but he actually invested $150,000 in three transactions over seven years," wrote Stern.
"He also advanced the company $250,000 for a year, drawing 12 percent interest. Perhaps most egregiously, he served as director of the company for five years, repeatedly traveling to India and receiving at least $14,000 in reimbursements. Moore’s lawyers framed him as a passive investor who had little direct involvement with KisanKraft and merely wished to help it succeed through a relatively small investment. In reality, he was closely and continually involved, making his undistributed income exactly the kind of gains that Congress had traditionally taxed."
None of this means that the court will allow a Warren-style wealth tax if it is actually created and challenged, Stern added — but for now, they are not willing to blow up the whole rest of the tax code to preemptively ban one. This right-wing attempt to do so "failed to make the cut of the conservative supermajority’s aggressive policy agenda."
