This week on Facing the Future Bob and The Concord Coalition’s Chief Economist Steve Robinson plunged into the tax code and tax policy with Steven Rosenthal, a Senior Fellow at the Tax Policy Center. First, they reviewed the U.S. Supreme Court Case Moore vs. United States, which upheld the constitutionality of a one-time tax on undistributed profits imposed on American shareholders of an American-controlled foreign corporation. What questions are left unanswered by the case, and are there bigger implications at play? Later, the focus shifted to the tax policies of presumptive Democratic Presidential Nominee Vice President Harris and those of former President Trump.
The Mandatory Repatriation Tax of 2017 included a one-time tax on the attributed shareholder earnings of an American-controlled foreign corporation. Shareholders, including the Moores, had to pay tax on money earned by the corporation but not actually distributed to the shareholders. The Moores argued that the tax was unconstitutional under Congress’ 16th Amendment power to tax income because they had not realized a gain. The case was not only relevant to this specific scenario. Some thought a broad ruling by the Court in the Moore’s favor could scrap large segments of other existing tax policies and even prospective tax policies like a wealth tax.
“The Moore case is one of the biggest tax cases we’ve seen in a century,” said Rosenthal, “and potentially portended disaster for our tax code. However, the Supreme Court ruled narrowly, sticking to the facts at hand and restraining itself from wider pronouncements about the constitutionality of other swaths of our tax code. In the immediate term, there’s very little to the tax code that will be upended. However, four of the justices signaled that they were skeptical about many of the code provisions that have been drafted, using what is known as a departure from the realization principle. That is, that cash needs to be realized before it’s taxed. So I expect lots of challenges going forward.”
Robinson joined in to explain the greater implications of this case on the tax code, and what income means relative to Congress’ power to tax. “There’s been a lot of debate recently about whether the Congress can enact a wealth tax, and the difference between an income tax and a wealth tax is that if you earn income we tax it under the 16th Amendment. But if you have wealth, if you hold property stocks, bonds – you know, some asset that has a value – you only pay taxes if you sell the stock and you pay taxes on that capital gain. There are some who’ve argued that we should tax the increase in value even if you don’t sell the stock. This argument that we should tax wealth and not income is a distinction that the Moores were trying to make in their case, where they owned stock in a foreign corporation, and they tried to argue they were being taxed on the value of the stock.”
The court ruled that income had been realized by the corporation and it was within Congress’s power to decide whether to tax the corporation on that income or to tax the shareholders on their attributed gain. Robinson concluded,“this case didn’t support a decision on the question of whether or not we tax wealth, and the Court, I think, wisely sidestepped it.”
One of the biggest issues of the 2024 campaign will be the expiration of certain provisions of the 2017 Tax Cuts and Jobs Act in 2025. Former President Trump would extend the expiring provisions. Rosenthal had this to say about Vice President Harris’ stance on the issue, “I think Vice President Harris would like to see the 2017 Tax Cuts and Jobs Act repealed in the whole. Not only would she be resistant to extending the individual tax measures that need extension, but I think Harris would like to revisit those corporate tax cuts and repeal those as well, and move back towards that 35% rate.” He cited a proposal Harris made as a Senator which used repeal of the 2017 tax cuts as a way to partially pay for a new refundable tax credit for low income workers.
Another key talking point in recent months has been the issue of tariffs. Former President Trump has proposed hikes in tariffs across the board. “Historically, both Republicans and Democrats were more free market and less protectionist,” Rosenthal said, “Trump clearly is protectionist. We don’t know where Harris stands on tariffs, although she probably will follow something similar to Biden’s plan and approach to tariffs. We don’t know where she stands on other tax policies, and I actually think she will yet pursue some of her own policies outside of Biden’s.”
Hear more on Facing the Future. Concord Coalition Executive Director Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
