Supreme Court upholds tax on foreign earnings

By: Maureen Griooe
USA Today

WASHINGTON - The U.S. Supreme Court on Thursday [06/20/2024] uphold a controversial Trump-era tax on foreign income, a win for the federal government that had cost the government perhaps trillions of dollars in tax revenue.
...... Although the case was viewed by some as a proxy debate for a wealth tax that Democrats have floated to tax the ultra-rich, the Supreme Court emphasized that the decision does not address that issue.
..... "Those are potential issue for another day," Justice Brett Kavanaugh wrote for the majority.
..... The court ruled 7-2 against Charles and Kathleen Moore, a retired couple form Washington state who challenged their $14,729 tax bill on an investment they made in a company in India.
..... A massive changes in tax laws passed by a Republican Congress and signed by former President Donald Trump in 2017 reduced the corporate tax rate and included a one-time tax on earnings of U.S. shareholders in some foreign companies. Before the law, companies could indefinitely defer paying U.S. taxes on foreign earnings by parking the profits aboard.
..... The Moores argued the tax was unconstitutional under the 16th amendment, which allows the government to tax income. Because their profits in the form if dividends were reinvested into the company, the couple said, the earnings can't be considered income for tax purposes.
..... The Biden administration, which defended the tax provisions because of its concern about upending federal taxers, countered that nothing in the Constitution bars Congress form taxing unrealized income. The Justice Department also said similar taxes have been in place since the mid-19th century.
..... During the December [2023] arguments the justices appeared to be searching for a narrow way to decide the case.
..... If the court invalidated the tax, the Justice Department warned, the government could lose $340 billion. A broader ruling invalidating all taxes on undistributed business earnings could have cost several trillion of dollars in tax revenue, the government said.
..... The majority upheld the lower courts' decision, saying the company generated income that Congress can attribute to shareholders and partners for tax purposes, even if income has not been distributed.
..... "Congress has long taxed the shareholders and partners of business entities on the entities' undistributed income," Kavanaugh wrote. "That longstanding congressional practice reflects and reinforces this Court's precedents upholding those kinds of taxes."
..... In a dissent joined by Justice Neil Gorsuch, Justice Clarence Thomas said the Morres never received any of their investment gains and so cannot be taxed on them.
..... Thomas accused the majority of "changing the subject' to uphold the tax through an "unsupported invention." and he scoffed of his colleagues' efforts to write a narrow opinion to avoid weighing in on a wealth tax.
..... Justice Samuel Alito rebuffed calls from Senate Democrats that he not participate in the case after speaking with lawyer David Rivkin, who represented the Moores.
..... Alito said their was "no valid reason" to recuse himself as he and Rivkin never discussed the case.

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