(June 21): The US Supreme Court upheld a 2017 tax on American-owned businesses\u2019 foreign profits, rejecting an appeal that could have saved companies hundreds of billions of dollars.Voting 7-2, the justices said Congress has the constitutional power to tax people and companies on their share of undistributed corporate income, at least when it comes to so-called pass-through businesses. Writing for the court, Justice Brett Kavanaugh said the disputed tax wasn\u2019t fundamentally different from other levies imposed by Congress over the years.<\/p>\n
The case was being closely watched because of its potential implications for Democratic proposals to impose a wealth tax. Kavanaugh said the court didn\u2019t need to rule on that or other hypothetical taxes, casting the decision as a \u201cnarrow\u201d one.<\/p>\n
\u201cThose are potential issues for another day, and we do not address or resolve any of those issues here,\u201d Kavanaugh wrote for five justices in the majority. \u201cCongress has long taxed shareholders of an entity on the entity\u2019s undistributed income, and it did the same\u201d with the 2017 tax.<\/p>\n
The provision, known as the mandatory repatriation tax, was set up to offset other parts of a Republican-backed tax cut passed during Donald Trump\u2019s presidency. The government has estimated that the tax would bring in US$340 billion (RM1.6 trillion) over 10 years, much of it from multinational companies like Apple Inc and Pfizer Inc.\u00a0<\/p>\n
A ruling striking the tax down might have required the Internal Revenue Service to refund sums companies have already paid. It also could have upended other parts of the federal tax code, including rules governing partnerships and bonds, and have spinoff effects on the states.\u00a0<\/p>\n
The case marked a rare test of the Constitution\u2019s 16th Amendment, ratified in 1913 to let Congress levy an income tax. That amendment authorises Congress \u201cto lay and collect taxes on incomes, from whatever source derived\u201d without having to divide the bill among the states according to their population, as is required for other types of taxes.<\/p>\n
Two Washington state residents, Charles and Kathleen Moore, contended the 2017 provision improperly taxes them on corporate income that was never distributed to them. The Moores were fighting a US$14,729 tax bill stemming from a minority stake in an Indian company.<\/p>\n
The left-leaning Institute on Taxation and Economic Policy previously estimated that a ruling striking down the tax would have meant US$271 billion in tax relief for almost 400 multinational corporations.<\/p>\n
Justices Clarence Thomas and Neil Gorsuch dissented, saying that the 16th Amendment doesn\u2019t authorise taxation unless income is realised. \u201cRealization is what distinguishes income from property,\u201d Thomas wrote for the pair.<\/p>\n
Two other conservative justices, Amy Coney Barrett and Samuel Alito, were in the majority but didn\u2019t join Kavanaugh\u2019s reasoning. Writing for the pair, Barrett wrote that a tax on shareholders of a domestic or widely held corporation \u201cwould present a different case\u201d.<\/p>\n
Kavanaugh hinted he didn\u2019t share that view. \u201cWe do not agree that the court\u2019s precedents draw such a line,\u201d he wrote in a footnote, referring to Barrett\u2019s comment. \u201cNor does our opinion today draw such a line.\u201d<\/p>\n
Alito had faced calls to recuse in the case. One of the lawyers challenging the tax co-wrote two Wall Street Journal<\/em> articles that cast Alito in favourable terms. The articles included blunt comments from the justice about the leak of the court\u2019s abortion 2022 opinion and calls for stronger ethics rules.<\/p>\n Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan and Ketanji Brown Jackson joined Kavanaugh\u2019s opinion.<\/p>\n \u201cAmericans can take a sigh of relief that the Supreme Court in Moore chose not to run roughshod over the Constitution in deciding tax policy by \u2018judicial say-so,\u2019 as Franklin D Roosevelt once put it,\u201d said Niko Lusiani, director of the corporate power programme at the progressive Roosevelt Institute.<\/p>\n Democratic calls to tax assets in addition to income have grown since Senator Elizabeth Warren ran for the White House on the issue in 2020, with President Joe Biden\u2019s 2024 budget requesting a \u201cbillionaire minimum tax\u201d to ease the federal deficit.\u00a0<\/p>\n \u201cThose who hoped for a green light on a wealth tax, and those like myself who wanted the court to slam that door shut, will both be disappointed with this decision,\u201d said Ilya Shapiro, senior fellow constitutional studies at the conservative Manhattan Institute. \u201cBut at the end of the day it doesn\u2019t mean much for anyone not affected by a somewhat obscure tax on foreign profits.\u201d<\/p>\n The case is Moore v United States, 22-800.<\/p>\n