The Supreme Court is preparing to hear arguments in a case that challenges a key provision of the Trump administration’s 2017 tax law. This case could potentially have significant implications for the nation’s tax code, especially as the White House seeks to increase taxes on billionaires.
A Refund Request Sparks Controversy
Charles and Kathleen Moore, the plaintiffs in the case, are seeking a $14,729 refund from the Internal Revenue Service (IRS). They argue that they should not be taxed on the unrealized income they have accumulated since investing in an India-based company almost twenty years ago. However, their arguments were rejected by two lower courts.
Potential Impact on Multinational Companies and Investors
The 2017 law imposed a one-time levy on profits earned outside the U.S., affecting major multinational companies like Apple, Alphabet, and Microsoft. Additionally, partnerships and bond investors could also be impacted. The outcome of this case, known as Moore v. U.S., could determine whether income must be “realized” before it becomes taxable. According to the couple, they did not receive any income from their stake.
Far-Reaching Consequences
A decision in favor of the plaintiffs could lead to demands for billions of dollars in IRS refunds from investors and companies. Moreover, it could hinder recent Democratic proposals to tax the wealthy. Legal experts anticipate that such a ruling would result in a surge of lawsuits against various other aspects of the tax code.
Political Implications and Future Tax Reform
This case holds particular significance as it precedes the 2024 presidential election and foreshadows the expiration of several of the Trump tax cuts in two years. In the absence of congressional action, five out of seven income tax brackets will revert to their previous rates. The current top rate of 37% will increase to 39.6%. President Joe Biden has introduced a proposal for a minimum income tax of 25% for billionaires, aiming to generate $440 billion over the next decade. Congressional Democrats have recently reintroduced the plan, with Senator Elizabeth Warren (D., Mass.) arguing that opposition to wealth taxes contradicts existing laws.