The Supreme Court just agreed to hear a case next term that could preempt Congress and the Biden administration from instituting a federal wealth tax — another potentially lucrative gift for conservative justices’ billionaire benefactors and the superrich. A think tank affiliated with some of those benefactors recently pressed the court to accept the case and outlaw such taxes.

Days after the high court accepted the case, President Joe Biden reiterated his opposition to progressives’ demand that he add justices to the panel, which has a 6-3 conservative supermajority.

“If we start the process of trying to expand the court, we’re going to politicize it — maybe forever — in a way that is not healthy, that you can’t get back,” he declared.

The new case, Moore v. United States, is tailored to try to block Democrats’ promised agenda by defining what can — and cannot — count as taxable “income” under the Constitution. It specifically challenges a onetime levy on some shareholders for their foreign corporate earnings that was included in the 2017 Republican tax law.

The plaintiffs are a Washington state couple who faced a $15,000 tax bill under that provision for a stake they owned in an Indian company. They argue that their corporate earnings should not count as taxable income under the Constitution because they had not been distributed to shareholders as dividends.

Tax law experts told the Lever that the petitioners’ narrow definition of “income” misreads the historical record — and pointed to several past examples of Congress enacting similar taxes.

The real goal of the case is “to slam shut the door on a federal wealth tax,” as the couple’s lawyers wrote in a 2021 column. The couple’s petition to the Supreme Court expressly decries previous wealth tax proposals from Democrats, including Biden, and urges the justices to “head off a major constitutional clash down the line.”

A host of powerful interests, including the nation’s top business lobby, pressed the Supreme Court to take up Moore. So did a conservative think tank with financial ties to two of the central names in the Supreme Court’s recent ethics scandals: Elliott Management hedge fund chief Paul Singer and Texas real estate magnate Harlan Crow. Both billionaires could benefit if Supreme Court justices were to preemptively declare that taxes on wealth are unconstitutional.

“If the Republicans on the Supreme Court take the petitioners’ side, they’d be handing a massive windfall to multinational corporations and could potentially lock in a right for billionaires to opt out of paying anything remotely close to a fair share in taxes,” said Sen. Ron Wyden (D-OR) in a statement.

Biden and Wyden have each pitched their own versions of wealth taxes on billionaires’ unrealized gains. Their proposals could face additional legal hurdles if the Supreme Court sides with the Moore petitioners.

“A Clean and Timely Vehicle” for SCOTUS

The Supreme Court case in question deals with the treatment of Charles and Kathleen Moore’s foreign investments under President Donald Trump’s 2017 tax bill. In 2006, the Moores invested $40,000 to help launch an Indian farm equipment manufacturer, KisanKraft, and received an equity stake in the company. The firm quickly became profitable, but the Moores, as shareholders, never paid a tax on those profits until the 2017 Republican tax law.

That law imposed a new, onetime tax on the income of multinational corporations, whose foreign earnings had previously only been taxed upon being distributed to US shareholders.

The purpose of this “mandatory repatriation tax” was to tap more than $2.5 trillion in undistributed earnings of US corporations through foreign subsidiaries — and raise a projected $340 billion over a decade, a key revenue booster in a tax law that overall greatly increased the deficit by cutting income tax rates on corporations and the wealthy.

Since the Moores owned a substantial stake in KisanKraft, they were taxed on a portion of the company’s income and ended up with a $15,000 tax bill.

They sued, arguing that the tax was unconstitutional because even though KisanKraft had made money, it hadn’t yet been paid out to them.

While the 16th Amendment allows the federal government to levy income taxes, the lawsuit claims that it does not permit taxes like the one the Moores paid — because, they claim, the undistributed profits counted as “unrealized gains,” and cannot be considered taxable income.

The case was dismissed by a federal district court in Washington state, and the Ninth Circuit Court of Appeals upheld the district court decision.

In their February petition asking the Supreme Court to hear the case, the Moores argue it provides “a clean and timely vehicle” for the court to establish that gains must be “realized” — meaning the underlying asset is sold — in order to be subject to federal taxes. The 2017 law, they claim, “taxes them on ownership of personal property (their KisanKraft shares), not on income they had realized.”

But the idea that income must be “realized” in order to be taxable is not rooted in history or the Constitution, argued tax law experts John Brooks, a professor at Fordham University School of Law, and David Gamage, a professor at Indiana University Maurer School of Law, in a recent paper.

The two scholars reviewed the definitions of income cited by judges in the lower court decisions, the Moore plaintiffs, the amicus briefs in the case, and definitions of income at the time the 16th Amendment was ratified, and found that “none of the definitions . . . includes the words ‘realize’ or ‘realization.’”

“Realization is explicitly not part of the definition of income,” Brooks told the Lever.

Brooks added that realization isn’t really the issue in the Moore case, because the company, KisanKraft realized the income.

“It is real earnings, not just fluctuation in asset values,” Brooks said.

Moreover, as Brooks and Gamage point out in their paper, Congress has on various occasions — including in 1864 and 1913 — taxed shareholders for undistributed corporate income.

Billionaires’ Think Tanks Boosting the Case

While the Moore case takes aim at a onetime tax on foreign income, the Supreme Court’s ruling could make it harder to design a wealth tax that can survive legal challenges.

Democrats designed their wealth tax proposals to capture unrealized capital gains or appreciation on assets before they’re sold — the types of income that the plaintiffs claim can’t be taxed.

Conservative groups want the Supreme Court to issue a sweeping ruling that would nullify Trump’s repatriation tax and “reaffirm the constitutional limitations on the federal government’s taxing power,” as Americans for Tax Reform, an anti-tax advocacy group, wrote in an amicus brief.

Ironically, many of the groups disputing the constitutionality of the onetime repatriation tax were key proponents of the 2017 Republican law that enacted the measure.

The US Chamber of Commerce, the nation’s top business lobbying group, filed an amicus brief boosting the Moore petitioners, suggesting that taxing their unrealized gains amounted to taxing “the collector of baseball cards still under a childhood bed.”

The chamber previously heralded the GOP tax law as helping workers “achieve their very own American Dream,” and ran ads praising Republican lawmakers for supporting the legislation. Americans for Tax Reform has a running list on its website tracking “1,233 examples of pay raises, new job creation, facility and product line expansions, special bonuses, utility rate reductions, 401(k) match increases, and employee benefit increases” attributed to the 2017 tax law.

The Moore family has also received support from the Manhattan Institute, a New York–based think tank with financial ties to Singer and Crow, the billionaires at the center of the ethics scandals looming over the Supreme Court.

The Manhattan Institute filed an amicus brief in May lobbying the Supreme Court to agree to hear Moore and use it as an opportunity to “clarify that taxes on unrealized gains, such as wealth taxes, are direct taxes that are unconstitutional” unless they are levied on the states in proportion to their populations.

Singer is the Manhattan Institute’s chairman. His charitable foundation, the Paul E. Singer Foundation, has donated more than $7 million to the institute since 2010, tax records show. Crow’s wife joined the Manhattan Institute’s board of trustees last year.

Crow and Singer’s gifts to conservative Supreme Court justices — including Justice Clarence Thomas’s undisclosed luxury vacations, real estate deals, and other gifts, as well as a secret private jet flight provided to Justice Samuel Alito — have been the subject of several recent blockbuster ProPublica investigations.

Singer has also reportedly funded conservative legal activist Leonard Leo’s dark money operation, which ran advocacy campaigns boosting the confirmations of five of the six Republican-appointed justices on the Supreme Court — including Alito.

According to the Washington Post, Leo has steered consulting payments from his dark money network to Justice Thomas’s wife, Ginni.

A conservative Washington-based nonprofit, the Competitive Enterprise Institute, is also helping argue the Moore case before the Supreme Court.

While there’s no record of Singer or his foundation donating directly to the Competitive Enterprise Institute, the organization has received significant funding from a donor-advised fund that Singer has used to funnel hundreds of millions into charities.

Singer’s foundation has donated at least $247 million to the National Philanthropic Trust since 2012, according to Internal Revenue Service (IRS) tax records. The National Philanthropic Trust has donated $1.6 million to the Competitive Enterprise Institute over the past decade. The institute had an annual budget of roughly $8 million in 2022.

Donor-advised funds are extremely opaque. The funds effectively function as pass-through vehicles for donors to distribute contributions to other charities, providing an extra layer of anonymity. It’s nearly impossible to trace whose money is going where.

However, the National Philanthropic Trust’s regular donations to the Competitive Enterprise Institute appear to have started in 2013 or 2014, shortly after Singer started using the fund to distribute much of his charitable donations.

Elliott Management and Singer’s foundation did not respond to questions about whether he has ever donated or routed contributions to the Competitive Enterprise Institute.

Singer has funded several other organizations opposing the notion of a wealth tax.

Since 2010, his foundation has donated at least $850,000 to the Philanthropy Roundtable, a nonprofit for large conservative charitable donors that gave Singer an award for “philanthropic leadership” in 2018.

The Philanthropy Roundtable’s policy research director Jack Salmon recently published a column supporting the Moore case and opposing a wealth tax broadly, as well as a brief entitled: “Taxing Unrealized Gains Is Unconstitutional.”

Salmon argues in the piece that taxing wealth “could have a chilling effect on charitable giving as there will be less funds available to make charitable contributions.”

The Washington Free Beacon, a right-wing news site funded by Singer, has published numerous articles slamming Democrats’ wealth tax proposals, claiming they will not reduce inequality and questioning their constitutionality.

In 2020, a group called the “Campaign for New York’s Future” was formed to fight proposed New York state tax hikes on the superrich. The group was reportedly bankrolled by Singer — although a spokesperson denied he was funding it — and dissolved shortly after its launch. That fall, Singer’s hedge fund announced it was moving its headquarters from Manhattan to Florida.

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