Supreme Court Hesitant to Hand Biden Win on Tax Plans

By Robert Cunningham, updated on December 6, 2023

A tense air filled the Supreme Court as it deliberated on the future of a controversial 2017 tax law.

The Supreme Court appears primed to back a 2017 tax law mandating U.S. owners of foreign businesses to pay a one-time tax on overseas profits but hesitates on issuing a broad approval for potential future wealth taxes.

The law in question, passed by the GOP Congress and signed by President Trump, obligates U.S. owners with at least a 10% stake in a foreign company to pay a one-time tax on the value of their holdings. This applies to profits gained since 1986 and to those who acquire over 10% of an overseas business after the law's passage. The Biden administration, supporting the law, insists that it falls within Congress's constitutional taxing authority and is in line with legal precedent.

Dispute Over the Interpretation of the Tax Law

Challenges to the law arose when a couple from Washington state received a $14,729 tax bill under this mandate. They argue that it unjustly taxes them on corporate income that they did not actually receive. Their argument has found resonance with some of the conservative justices of the Supreme Court.

These justices expressed concern that upholding the law could open the doors for more assertive taxes like a wealth tax on the assets of wealthy Americans. Their apprehensions were echoed in the words of Justice Samuel Alito, who questioned:

"So let's say that somebody graduates from school and starts up a little business in his garage, and 20 years later, 30 years later, the person is a billionaire. Can Congress, under your argument, can Congress tax all of that on the ground that it's income?"

Furthermore, Justice Neil Gorsuch added, "I'm just asking what the limits of your argument are."

Political Repercussions of the Verdict

The ruling could have significant implications for tax legislation. It comes at a time when Congressional Democrats have recently reintroduced a proposal for a billionaire minimum income tax, which President Biden has promoted. Upholding the 2017 tax law could provide more solid legal ground for such a billionaire tax.

Former House Speaker Paul Ryan, although opposing a wealth tax, expressed concern about the potential impact of the legal challenge to existing tax laws.  He stated, "I'm not for a wealth tax, but I think if you use this as the argument to spike a wealth tax, you're going to basically get rid of, I don't know, a third of the tax code."

Senator Ron Wyden warned, "The Moore case could make it impossible to close those loopholes."

The Court's Delicate Balancing Act

As the court deliberates, it seems to be treading a careful path. On the one hand, it appears prepared to uphold the 2017 tax law; on the other, it seems hesitant to issue a broad ruling that could potentially validate future wealth taxes.

Research fellow Thomas Berry commented:

"The court seems likely to draw a line past which Congress may not go when imposing federal taxes, which means courts will still have a role to play in keeping Congress in check. The uncertain question is where exactly the court will draw that line."

The Supreme Court's decision on this matter is eagerly awaited, as it could shape the trajectory of U.S. tax law for years to come.

Conclusion

  • The Supreme Court is deliberating on a 2017 tax law that subjects U.S. owners of foreign companies to a one-time tax on overseas profits.
  • The Court seems ready to uphold the law but is cautious about potential future wealth taxes.
  • A Washington state couple opposes the law, claiming it taxes income they did not receive.
  • The Biden administration maintains that the law is within Congress's constitutional taxing authority.
  • Conservative justices worry that upholding the law could pave the way for more assertive taxes like a wealth tax.
  • Upholding the law could make legislation like a billionaire tax more legally feasible.

About Robert Cunningham

With years of experience at the forefront of political commentary, Robert Cunningham brings a blend of sharp wit and deep insight to his analysis of American principles at the Capitalism Institute.

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