US Supreme Court sidesteps wealth tax question in closely watched case

The US Supreme Court avoided ruling on the constitutionality of a wealth tax, disappointing both supporters and opponents. In a 7-2 decision, the court sidestepped the issue in a case involving a couple, the Moores, who contested a $15,000 tax on offshore profits, arguing it was an unconstitutional tax on unrealized gains. The court’s narrow ruling, which did not resolve whether income must be “realized” to be taxed, left future wealth tax debates open, with justices expressing varied opinions on the matter.

Justice Brett Kavanaugh, writing for the majority, stated that the court did not need to address the disagreement over the requirement of realization for income taxation in this case. The dissenting justices, Clarence Thomas and Neil Gorsuch, argued that the Constitution only permits taxes on realized income, as per the 16th Amendment. Meanwhile, Justices Amy Coney Barrett and Samuel Alito agreed with the ruling but supported the need for income realization, contrasting with Justice Ketanji Brown Jackson’s opinion that realization is not required.

Tax experts and campaigners had closely watched the case, hoping for a definitive ruling that could influence future wealth tax policies. The decision, which avoided challenging other existing taxes on unrealized gains, left both sides partially satisfied. It highlighted the court’s cautious approach to potentially sweeping tax law changes, setting the stage for continued legal battles over the constitutionality of taxing unrealized income.

For more information see Stephen Foley “US Supreme Court sidesteps wealth tax question in closely watched case“, The Financial Times, June 20, 2024.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.