Today, in Moore v. United States, the Supreme Court fumbled an important tax case that would have made wealth tax schemes harder for Congress to pass. Justice Brett Kavanaugh’s majority opinion avoided the legal question presented to them: whether the Sixteenth Amendment allows Congress to tax unrealized gain without apportionment among the states. Instead, Justice Kavanaugh focused on a different issue: whether Congress may attribute a business entity’s realized and undistributed income to its shareholders or partners, and then tax the shareholders or partners on their portions of that income.

To illustrate the realization concept, if you sell your home at a profit, you have “realized” a gain for income tax purposes. When your home just increases in value, however, you might be wealthier on paper than you were a year ago, but you haven’t realized a gain. (The same logic applies to your retirement accounts.) What happens if you, like the Moores in this case, own stock in a foreign corporation that has earned income, but you never sold your shares or received dividends? Today, the Court said Congress can attribute the corporation’s realization of income to you and tax you on it. As Justice Clarence Thomas noted in his dissent, the
majority created this new attribution of income doctrine out of thin air.

The federal government has not directly taxed wealth the way states do, such as the local property taxes on your home or state taxes on your car, because the procedural hurdles of the Apportionment Clause in the Constitution make it difficult to do. Congress has not passed an apportioned tax since the Civil War. But progressives like Joe Biden, Bernie Sanders, and Elizabeth Warren all want the federal government to tax wealth directly, triggering those hurdles.

“The Supreme Court missed an opportunity to uphold the Constitution’s delicate balance in the taxing power between the federal government and the states,” said Landmark’s Executive Vice President Matthew Forys. “The silver lining to today’s cloud is that there are four justices who believe that realization is constitutionally required. Given the repeated calls from progressives to tax the wealthy’s assets directly, this issue is sure to return to the Court.”