Lawmakers are showing increasing interest in taxing the ultra-rich, however, a recent Supreme Court ruling has raised concerns about the future of wealth tax proposals. In the case of Moore v. United States, the Supreme Court blocked a challenge to the “mandatory repatriation tax,” which is a one-time levy on certain foreign investments that was enacted in 2017. This ruling could have significant implications for the taxation of unrealized earnings.
While the Supreme Court ruling did not directly address the issue of taxing unrealized earnings, it did provide some clues about the constitutionality of certain versions of a wealth tax. The 83-page ruling included comments from Justice Brett Kavanaugh that suggested potential roadblocks for wealth tax proposals that tax unrealized gains.
Four justices, Amy Coney Barrett, Samuel Alito, Clarence Thomas, and Neil Gorsuch, argued that the 16th Amendment requires the realization of income for taxation. This stance could pose a challenge to proposed wealth taxes, such as Biden’s billionaire tax, which calls for a 25% tax on unrealized gains for households with wealth exceeding $100 million.
President Joe Biden has been a vocal proponent of increasing taxes on the ultra-wealthy, stating that “no billionaire should pay a lower federal tax rate than a teacher, a sanitation worker, or a nurse.” However, the clash between Supreme Court opinions and Biden’s tax proposals is creating uncertainty about the future of such measures.
One of the key obstacles facing wealth tax proposals is whether they would be considered a “direct tax” under the Constitution. The requirement for direct taxes to be apportioned among the states based on their population could present a significant challenge for implementing wealth taxes, as no taxes are currently apportioned in this manner.
The Supreme Court ruling in the Moore case and Justice Kavanaugh’s majority opinion have raised concerns about the constitutionality of wealth tax proposals from lawmakers like Elizabeth Warren and Bernie Sanders. The use of “mark-to-market” or yearly taxes on capital gains may also face legal challenges in light of the recent court decision.
The future of wealth tax proposals is uncertain in light of the Supreme Court ruling and the potential constitutional barriers they face. While there is growing interest in taxing the ultra-rich, legal challenges and conflicting opinions are likely to shape the direction of tax policy in the coming years.