At first glance, Charles and Kathleen Moore’s beef with the Internal Revenue Service doesn’t seem like the kind of dispute that would wind up before the Supreme Court, much less result in a landmark legal decision. In 2005, the couple invested $40,000 in KisanKraft, a company based in India that supplies modern tools to small farmers. In return for their investment, the Moore’s received an 11 percent stake in the company.
The enterprise proved profitable, and the couple reinvested their earnings but never pocketed any cash dividends. In 2017, however, former President Donald Trump signed the Tax Cuts and Jobs Act into law. Although the overall thrust of this legislation was to lower taxes for large businesses and the rich, the Act contained a one-time levy on foreign profits—the Mandatory Repatriation Tax (MRT)—that required owners of more than 10 percent of a foreign company to pay a tax on corporate earnings, whether distributed or not.
As a result of the MRT, the Moore’s were hit with a tax bill of $15,000. Displeased, they filed suit, contending the tax was unfair and unconstitutional because they had not yet realized any gains. They lost both at the trial level and on appeal before the Ninth Circuit.
But last June, the U.S. Supreme Court decided to take up their case (Moore v. United States), adding it to its calendar for the 2023-2024 term. The court will now determine not only if the couple’s individual tax bill should be rescinded, but whether any taxes on unrealized sums run afoul of the 16th Amendment, which authorized Congress to establish the federal income tax in 1913.
The court will now determine not only if the couple’s individual tax bill should be rescinded, but whether any taxes on unrealized sums run afoul of the 16th Amendment.
The Moores are represented in the Supreme Court by the powerhouse law firm of Baker & Hostetler, LLP, which is asking for a broad ruling that could go beyond the issue of unrealized income, and bar the United States from taxing any form of accumulated wealth. The case has become a new cause for the radical right, which sees it as an opportunity to score another major political victory before the Republican-dominated tribunal.
The link between the case and rightwing advocacy groups is clear. One of the Moores’ attorneys of record, Baker & Hostetler partner David Rivkin, also represents conservative legal activist and former vice president of the Federalist Society Leonard Leo in an unrelated criminal investigation. Earlier this year, Rivkin, who regularly writes opinion pieces for The Wall Street Journal, participated in two soft-ball interviews of Supreme Court Justice Samuel Alito, in which Alito assailed efforts by Senate Democrats to pass a binding code of conduct for the scandal-ridden court.
On August 3, Democrats on the Senate Judiciary Committee sent a letter to Chief Justice John Roberts, requesting that Alito recuse himself from further participation in the case because of his ties to Rivkin and the appearance of impropriety the interviews created.
On September 8, Alito responded in an angry written statement that was appended to a list of otherwise routine orders issued by the court. Alito claimed he had no reason to recuse himself because Rivkin had acted as a journalist, not as an advocate, in conducting the interviews. He claimed there was nothing unusual with Supreme Court Justices giving interviews to the press.
The link between the case and rightwing advocacy groups is clear.
Alito failed to mention that one of the amicus curiae (“friend of the court”) briefs that had been filed in the case was submitted by the ultra-conservative Manhattan Institute on September 6. As The Guardian has reported, the Manhattan Institute’s chair is the rightwing billionaire hedge fund manager Paul Singer, and its board of trustees includes Kathy Crow, who is married to Republican real-estate mogul Harlan Crow. Both Singer and Harlan Crow have been linked by ProPublica to bestowing lavish and arguably illegal gifts of luxury travel to both Alito and Justice Clarence Thomas.
In addition to the Manhattan Institute, amicus briefs have been filed by an array of influential far-right and libertarian organizations, business lobbies, and prominent activists, including FreedomWorks, the Pacific Research Institute, the Chamber of Commerce, the Cato Institute, and former Attorney General Ed Meese.
It is easy to understand why the right wants the Supreme Court to issue an expansive ruling. As economic inequality in the United States has worsened, wealth taxes have been floated as a remedy to fund social programs and a means to close the federal deficit.
Elizabeth Warren via Flickr, CC-by-2.0
Senator Elizabeth Warren viewing a T-shirt that touts her wealth tax plan at a store in Des Moines, Iowa, October 2019.
In recent years, progressives such as Democratic Senators Elizabeth Warren of Massachusetts and Ron Wyden of Oregon have introduced legislation that would levy a tax on the net worth of the very rich, generating an estimated $3 trillion in revenue over ten years. The Biden Administration has also proposed a “billionaire minimum tax” in its current budget proposal, requiring the wealthiest Americans to pay a tax of at least 25 percent on all of their annual income, including appreciated assets.
In its Supreme Court brief, Baker & Hostetler specifically reference these initiatives, describing them as “no idle threat” to the economy and the Constitution. The Justice Department counters in its brief that the MRT is not a wealth tax but simply a tax on deferred foreign income, which falls well within Congress’s taxing powers and the bounds of the 16th Amendment. The department’s brief also notes that the MRT, if fully implemented, is projected to generate approximately $340 billion in tax revenue.
In the meantime, commentators on both the left and right are sounding alarms about the possible impact of this case. An article by Matt Ford in The New Republic in June warned that the case will give “the justices an opportunity to torpedo a major Democratic policy proposal before it can be enacted.”
An analysis published by Jacobin, also in June, termed the case “another potentially lucrative gift for conservatives justices’ billionaire benefactors and the superrich.”
On the other side of the spectrum, an op-ed in The Hill, published in August, argued that a victory for the Justice Department would “either greenlight the constitutionality of an economically disastrous wealth tax, or destroy critical parts of the U.S. tax system.”
All but lost in the debate is that in 1999, when he flirted with a Reform Party presidential bid, Donald Trump proposed a one-time “net worth tax” of 14.25 percent on individuals and trusts worth $10 million or more.
But that was then. We will know which way the current judicial winds blow in the Moore case by the conclusion of the court’s term at the end of June 2024.