Why Brett Kavanaugh Shot Down a Fake Case That Would Have Blown Up the Tax Code

[Nevilledog]

https://slate.com/news-and-politics/2024/06/supreme-court-opinions-brett-kavanaugh-fake-tax-case.html

On Thursday, the Supreme Court passed up an opportunity to implode the United State tax code on the basis of bogus facts. By a 7–2 vote, the court sided with the government in Moore v. U.S., a case that conservative activists engineered to preemptively kill an Elizabeth Warren–style “wealth tax.” Moore, however, does not mean that a future federal tax on exorbitant wealth will survive SCOTUS. Rather, it seems to stand for the proposition that even this very conservative court has limited patience for oligarchical policy demands dressed up in the shaggy pretext of a fake legal controversy.

Justice Brett Kavanaugh’s majority opinion in Moore recounts the facts as Charles and Kathleen Moore (the plaintiffs) and Andrew Grossman and David Rivkin (their lawyers) presented them. By this account, the Moores beneficently invested just $40,000 in KisanKraft, an American-owned corporation that manufactures farm equipment in India. They received a 13 percent ownership share but no immediate distribution of its income, even as the company made a great deal of money. So they were shocked to discover that they owed $14,729 in “income” on federal taxes after Donald Trump signed the 2017 tax cuts. It turns out that bill included a one-time, “backward-looking” tax on American shareholders of American-owned corporations located oversees that accumulated undistributed income. This provision marked an attempt to encourage Americans to reinvest that money domestically.

Rather than accept this obligation, the Moores sued the government, alleging that the new tax was unconstitutional. This theory was cooked up by BakerHostetler attorneys Grossman and Rivkin, the latter of whom is a good friend of Justice Samuel Alito. These lawyers argued that their clients were caught up in a grossly unfair scheme that penalized magnanimous Americans who tried to assist overseas corporations through investments. In this telling, the new tax punished U.S. citizens, like the Moores, who had little to no direct involvement with these companies, attributing to them a falsely heightened level of control over their operations. Grossman and Rivkin therefore claimed that the tax violated the 16th Amendment, which authorized federal “taxes on income, from whatever source derived.” They insisted that the amendment is implicitly limited to “realized” income, meaning money that’s been paid out to individuals.

There are three problems with the case, best taken in reverse order. First: The 16th Amendment does not include a “realization” requirement. Congress has taxed unrealized gains since long before the 16th Amendment was ratified, and its drafters made an affirmative choice not to impose this limitation. Second: If the plaintiffs’ theory is correct, then “vast swaths” of the modern-day tax code are unconstitutional, as Kavanaugh pointed out. Myriad corporations and partnerships are “taxed on a pass-through basis”; that means the entity’s owners, typically shareholders or partners, pay taxes rather than the entity itself. And these owners pay taxes “on the income of the entity,” Kavanaugh wrote, “even if the entity has not distributed any money or property to them.”

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[Scrivener7]

1. Alito's buddies. Because of course they are.