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Monday, January 30, 2023
WSJ Op-Ed: The Ninth Circuit Upholds A Wealth Tax
Wall Road Journal Op-Ed: The Ninth Circuit Upholds a Wealth Tax, by Christopher Cox (Former Rep. (1989-2005) & SEC Chair (2005-2009)) & Hank Adler (Chapman):
The sixteenth Modification authorizes the federal authorities solely to tax earnings, however some members of Congress would like to tax wealth as nicely. That’s extensively understood to be unconstitutional, however a current ruling from the Ninth U.S. Circuit Courtroom of Appeals upholding a type of wealth tax might upend that typical knowledge whether it is allowed to face.
The case, Moore v. U.S., entails a novel provision of the 2017 Tax Cuts and Jobs Act, which imposed a one-time retroactive tax relevant to particular person U.S. shareholders of overseas companies. Beneath earlier legislation, U.S. taxpayers needed to pay taxes on abroad company earnings when that earnings was repatriated to the U.S. within the type of dividends. The 2017 act abolished the tax on abroad earnings, bringing the U.S. tax system into line with these of most different developed nations. But it surely additionally created a “necessary repatriation tax” on the company’s undistributed earnings since 1986, payable not by the company however its shareholders.
The end result was that with out promoting their inventory or receiving a dividend, U.S. buyers had been deemed to have obtained “earnings” and abruptly grew to become chargeable for the brand new tax. …
The ruling upends a bedrock precept of taxation, which is that to create taxable earnings, there should be a transaction, or “realization.” That’s what distinguishes an earnings tax from a tax on property or wealth. …
A lot hangs on the way forward for this case. If Moore is allowed to face, Congress would have a inexperienced mild to tax each U.S. investor in a home company in the identical approach. There can be no constitutional bar to requiring that shareholders pay earnings tax on their proportionate share of collected and undistributed earnings of each company during which they, and even their 401(ok) plan, maintain inventory. …
If the justices settle for the case for evaluate, they’ll lastly lay to relaxation the notion that the sixteenth Modification is predicated on a time period with “no set definition.” What if they do not want? The Ninth Circuit’s dissenters answered that query: “Divorcing earnings from realization opens the door to new federal taxes on different varieties of wealth with out the constitutional requirement of apportionment.”
https://taxprof.typepad.com/taxprof_blog/2023/01/wsj-op-ed-the-ninth-circuit-upholds-a-wealth-tax.html
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