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Supreme Court hands government a victory in offshore tax ruling


In an important decision today, the Supreme Court ruled against a couple who challenged the constitutionality of a Trump-era tax provision. The ruling was narrow. It was also a major victory for both the Trump and Biden administrations and a defeat for anti-tax groups. NPR legal affairs correspondent Nina Totenberg reports.

NINA TOTENBERG, BYLINE: At issue was a tax enacted in 2017 to pay for then-President Trump's massive corporate tax cut and to prevent offshore tax dodges. It was challenged by Charles and Kathleen Moore, who were required to pay a one-time $15,000 tax on an investment in India that grew in value from 40,000 to over a half million dollars. Backed by conservative groups, the couple claimed that, because they had received no payments or dividends from the company, there was no income to be taxed and that the tax thus violated the 16th Amendment to the Constitution, which authorizes taxes on income.

But the high court, by a 7-2 vote, rejected that argument. Writing for the court majority, Justice Brett Kavanaugh said that Congress has broad constitutional power to impose taxes and not just on income that's been realized into cash. He noted, for instance, that, for generations, the court has upheld provisions that impose taxes on shareholders and partners of a business, even though the income has not yet been distributed.

The Moores' argument, taken to its logical conclusion, he said, could render vast swaths of the Internal Revenue Code unconstitutional. Those provisions, if suddenly eliminated, would deprive the American people of trillions in lost tax revenue with the consequence that Congress would either have to drastically cut critical national programs or significantly increase taxes on ordinary Americans.

The Constitution, Kavanaugh said, does not require that fiscal calamity. I agree, said Justice Clarence Thomas, who dissented with Justice Neil Gorsuch. But they said, if Congress invites calamity by building a tax based on constitutional quicksand, this court does not have the power to fashion an emergency escape.

That said, today, tax experts of varying political stripes were greatly relieved by the court's decision. Among them, George Callas, who served for 15 years as a key GOP staffer for the tax-writing committees of Congress. He particularly praised Kavanaugh's careful and narrow opinion, both for what it said and didn't say.

GEORGE CALLAS: The court just can't possibly anticipate what sophisticated taxpayers are going to try to do and so shouldn't preemptively prevent Congress from stopping future games that they can't even conceive of right now.

TOTENBERG: University of Chicago law professor Aziz Huq was more blunt. He saw the Moores' challenge as...

AZIZ HUQ: An overall conservative strategy to essentially drown the government in the bathtub by limiting its power to gather and then pass through money to government services.

TOTENBERG: Columbia Law School tax expert David Schizer notes that the 2017 tax law marked a change from earlier tax provisions that had left untaxed an estimated $2.5 trillion from multinational subsidiaries of U.S. companies. So in an effort to bring some of that money back to the U.S., Congress enacted a one-time tax on foreign investors who hold a controlling interest in foreign companies - a tax that the Supreme Court today up held. What the court did not decide is whether Congress could do the same thing for American companies operating in the U.S. as opposed to through foreign subsidiaries.

The court also did not take any position on the so-called wealth tax that Senator Elizabeth Warren has proposed but that few realistically think has a chance of passage. The Moores' challenge was widely seen as a preemptive attempt to kill off that proposal. Professor Schizer says that while the justices technically did not take a position on the Warren proposal...

DAVID SCHIZER: I do think the court is heavily suggesting that the wealth tax is unconstitutional without saying so.

TOTENBERG: Nina Totenberg, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Nina Totenberg is NPR's award-winning legal affairs correspondent. Her reports air regularly on NPR's critically acclaimed newsmagazines All Things Considered, Morning Edition, and Weekend Edition.