SCOTUS: Moore v United States - Tax on unrealized income

JayDubya said:

So if the SCOTUS agrees that unrealized gains should be considered as taxable income does that mean that every year my property taxes go up (they always go up) that in addition to paying the property tax I also have to pay a tax on my unrealized gain as well?
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Goldhedge said:

This would be a total disaster for America.
I know a liberal lawyer up in Boulder and he's already doing this with tenant's rents and landlords.
Suing landlords who rent for market prices!

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Taxing unrealized capital gains on property, stocks, and other assets is not just a bad idea, it’s an economic fallacy that undermines economic growth and personal liberty. Unfortunately, President Biden’s $7.3 trillion budget proposes such a federal tax. Vermont and ten other states have made similar moves.

This tax should be rejected, as it is fundamentally unjust, likely unconstitutional, and would hinder prosperity and individual freedom.

A tax on unrealized capital gains means that individuals are penalized for owning appreciating assets, regardless of whether they have realized any actual income from selling them.
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Adam Michel of Cato Institute explained two types of unrealized taxes in President Biden’s latest budget:

Under current law, capital gains are taxed when the gain is realized — when the investment is sold and there is an actual profit to tax… The budget proposes eliminating step‐up in basis, making death a taxable event. The change applies to unrealized capital gains over $5 million for single filers ($10 million married).

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And secondly,

The budget proposes a new minimum tax of 25 percent on income and unrealized capital gains for taxpayers with more than $100 million in total wealth. This new minimum tax would be a third, parallel income tax system, adding to the existing alternative minimum tax. The new minimum tax applies to two entirely new tax bases — wealth and unrealized capital gains. Defining and taxing wealth and unrealized capital gains pose numerous practical challenges and high economic costs.

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The Supreme Court on Thursday upheld a provision of a 2017 corporate tax reform law, known as the mandatory repatriation tax, that taxes the undistributed profits from U.S. shares of foreign corporations in which Americans own a majority. An American couple had challenged the constitutionality of the one-time tax, which was imposed on earnings after 1986 and would increase the couple’s tax bill by approximately $15,000. But by a vote of 7-2, the court ruled that the tax does not violate the Constitution.

Justice Brett Kavanaugh wrote for the majority. Stressing that the court’s ruling was a narrow one, Kavanaugh noted that a contrary decision “could render vast swaths of the Internal Revenue Code unconstitutional.”
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In its 24-page ruling, the majority did not resolve the question whether – as the Moores contended and the government disputed – the Constitution requires income to be realized before it can be taxed. Instead, Kavanaugh explained, the real “precise and narrow question” before the justices was whether Congress can attribute income that an entity has realized but not distributed to its shareholders or partners and then tax that income. For Kavanaugh and the four justices who joined his opinion – Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson – the answer was clear from the Supreme Court’s “longstanding precedents”: yes, although they stressed that their ruling was a narrow one that “applies when Congress treats the entity as a pass-through.”

Moreover, Kavanaugh continued, “in an effort to contain the blast radius of their legal theory,” the Moores have conceded that other taxes – such as partnership taxes, taxes on S-corporations, and taxes under subpart F of the Internal Revenue Code, which applies to American-controlled foreign corporations – are constitutional. Because the Moores “cannot meaningfully distinguish” the mandatory repatriation tax from those other taxes, Kavanaugh reasoned, their argument, “taken to its logical conclusion,” would mean that other parts of the code are also unconstitutional – which could in turn cost the federal government “trillions in lost tax revenue.”

“The logical implications of the Moores’ theory would therefore require Congress to either drastically cut critical national programs or significantly increase taxes on the remaining sources available to it — including, of course, on ordinary Americans.” “The Constitution,” Kavanaugh concluded, “does not require that fiscal calamity.”
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pmbug said:

So they based their ruling upon how it would affect tax revenues instead of it's actual legal merit?

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The big news that I glean from reading the opinions in Moore v. United States is that both Biden Supreme Court appointee, Justice Ketanji Brown Jackson and Joe Biden himself, though his Justice Department, think that Congress has limitless power to tax unrealized capital gains or to enact a wealth tax on your net worth. ...

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pmbug said:

Justice KBJ is awful - just awful.

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