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Some of the anti-tax movement’s splashiest advances are well-known. Most obviously: Several rounds of multi-trillion-dollar tax cuts, signed into law by Presidents George W. Bush and Donald Trump. They and their anti-tax allies assured the public that such overhauls would pay for themselves. Instead, the measures worsened the shortfall between what the government spends and what it brings in.
Meanwhile, Republicans have undermined the government’s ability to collect taxes that do remain on the books. They have done so by slashing funding for the Internal Revenue Service, thereby reducing enforcement capacity and audit rates, especially of corporations and the highest earners. Each year hundreds of billions of dollars of taxes that are legally owed go unpaid; cutting the budget of the IRS further would mean leaving even more money on the table. Yet the GOP-controlled House has made defunding the tax police a top priority this year.
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Now enter Moore v. United States, which the Supreme Court heard last week.
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If other battles in the war on taxes are about constraining the government’s ability to collect taxes, this case is about constraining Congress’s ability to write tax law in the first place — and has the potential to blow up huge swaths of the existing tax code and preempt future reforms.
The Moore case, argued and supported by conservative anti-tax groups, challenges a provision of the 2017 Trump tax cuts. You might wonder why this ideological contingent might object to Trump’s tax law since it generally wanted it to pass. The answer is it objects to the law’s one-time repatriation tax of corporate profits held abroad, part of the GOP’s transition to an arguably more generous corporate tax system.
The plaintiffs argue that this transition tax is unconstitutional, using a convoluted argument about whether they ever “realized” the income being taxed. The case is complicated, as tax cases usually are. The main thing to know is that it’s widely seen as a stalking horse to prevent a wealth tax, which some Democrats have proposed.
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But, depending on how the justices rule, they could easily bulldoze much of the rest of the tax code, too. Even supporters and architects of the Trump tax law have voiced concerns about this.
“A lot of the tax code would be unconstitutional if that thing prevailed,” former House speaker Paul D. Ryan said at a Brookings Institution event that I moderated recently. “I’m not for a wealth tax, but I think if you use this as the argument to spike a wealth tax, you’re going to basically get rid of, I don’t know, a third of the tax code.”
During oral arguments, the justices seemed hesitant to upend the entire tax code. But the U.S. tax system is sufficiently complex and interconnected — and the justices sufficiently inexperienced with tax law (the high court rarely accepts such cases) — that they might not even realize which threads could unravel it. Tax experts have warned that the justices might think they’re crafting a narrow ruling but still inadvertently spawn litigation against other tax provisions or create opportunities for new tax shelters. (This has basically happened before.)
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“I suspect the court will go out of its way to say they don’t mean to undermine existing taxes, or other measures created to avoid abusing the tax system,” Michael J. Graetz, a law professor and author of a forthcoming book about the anti-tax movement, told me in a phone interview. “But it’s hard to know how much damage the court might do without having an opinion in front of you.”
Indeed, other big-ticket tax cases are already waiting on the Moore decision. Some tax advisers have suggested to clients that they preemptively file refund claims for taxes they’d already paid — in some cases, for taxes beyond just the repatriation tax at issue before the court, such as taxes on income from partnerships or other pass-through entities.
Striking down the transition tax alone would cost the government hundreds of billions of dollars over the next decade. If other parts of the tax code fall too, the cost could be in the trillions.
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And this isn’t the only litigation affecting the government’s ability to fund itself. Other recent rulings have constrained the IRS’s ability to issue “guidance” about, for example, disclosure of tax shelters. Another, broader case coming before the Supreme Court next month could upend the executive branch’s ability to write tax regulations.
All these efforts have two things in common: One is that they are designed to “starve the beast” — that is, reduce the revenue coming into Treasury’s coffers. The second is that the beneficiaries of resulting changes to tax law are disproportionately those with the deepest pockets.
In a few days, the country will notch the 250th anniversary of the Boston Tea Party. The spirit of that foundational event persists — except that now anti-government types aren’t merely dumping a bit of tea; they’re working to dump virtually all the country’s tax money, too.
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For decades, the American right has been trying to gut the U.S. tax system, especially provisions borne by the richest Americans. But lately the multi-front war on government financing has tried to enlist a new ally: the U.S. Supreme Court.
Some of the anti-tax movement’s splashiest advances are well-known. Most obviously: Several rounds of multi-trillion-dollar tax cuts, signed into law by Presidents George W. Bush and Donald Trump. They and their anti-tax allies assured the public that such overhauls would pay for themselves. Instead, the measures worsened the shortfall between what the government spends and what it brings in.
Meanwhile, Republicans have undermined the government’s ability to collect taxes that do remain on the books. They have done so by slashing funding for the Internal Revenue Service, thereby reducing enforcement capacity and audit rates, especially of corporations and the highest earners. Each year hundreds of billions of dollars of taxes that are legally owed go unpaid; cutting the budget of the IRS further would mean leaving even more money on the table. Yet the GOP-controlled House has made defunding the tax police a top priority this year.
Now enter Moore v. United States, which the Supreme Court heard last week.
If other battles in the war on taxes are about constraining the government’s ability to collect taxes, this case is about constraining Congress’s ability to write tax law in the first place — and has the potential to blow up huge swaths of the existing tax code and preempt future reforms.
The Moore case, argued and supported by conservative anti-tax groups, challenges a provision of the 2017 Trump tax cuts. You might wonder why this ideological contingent might object to Trump’s tax law since it generally wanted it to pass. The answer is it objects to the law’s one-time repatriation tax of corporate profits held abroad, part of the GOP’s transition to an arguably more generous corporate tax system.
The plaintiffs argue that this transition tax is unconstitutional, using a convoluted argument about whether they ever “realized” the income being taxed. The case is complicated, as tax cases usually are. The main thing to know is that it’s widely seen as a stalking horse to prevent a wealth tax, which some Democrats have proposed.
But, depending on how the justices rule, they could easily bulldoze much of the rest of the tax code, too. Even supporters and architects of the Trump tax law have voiced concerns about this.
“A lot of the tax code would be unconstitutional if that thing prevailed,” former House speaker Paul D. Ryan said at a Brookings Institution event that I moderated recently. “I’m not for a wealth tax, but I think if you use this as the argument to spike a wealth tax, you’re going to basically get rid of, I don’t know, a third of the tax code.”
During oral arguments, the justices seemed hesitant to upend the entire tax code. But the U.S. tax system is sufficiently complex and interconnected — and the justices sufficiently inexperienced with tax law (the high court rarely accepts such cases) — that they might not even realize which threads could unravel it. Tax experts have warned that the justices might think they’re crafting a narrow ruling but still inadvertently spawn litigation against other tax provisions or create opportunities for new tax shelters. (This has basically happened before.)
“I suspect the court will go out of its way to say they don’t mean to undermine existing taxes, or other measures created to avoid abusing the tax system,” Michael J. Graetz, a law professor and author of a forthcoming book about the anti-tax movement, told me in a phone interview. “But it’s hard to know how much damage the court might do without having an opinion in front of you.”
Indeed, other big-ticket tax cases are already waiting on the Moore decision. Some tax advisers have suggested to clients that they preemptively file refund claims for taxes they’d already paid — in some cases, for taxes beyond just the repatriation tax at issue before the court, such as taxes on income from partnerships or other pass-through entities.
Striking down the transition tax alone would cost the government hundreds of billions of dollars over the next decade. If other parts of the tax code fall too, the cost could be in the trillions.
And this isn’t the only litigation affecting the government’s ability to fund itself. Other recent rulings have constrained the IRS’s ability to issue “guidance” about, for example, disclosure of tax shelters. Another, broader case coming before the Supreme Court next month could upend the executive branch’s ability to write tax regulations.
All these efforts have two things in common: One is that they are designed to “starve the beast” — that is, reduce the revenue coming into Treasury’s coffers. The second is that the beneficiaries of resulting changes to tax law are disproportionately those with the deepest pockets.
In a few days, the country will notch the 250th anniversary of the Boston Tea Party. The spirit of that foundational event persists — except that now anti-government types aren’t merely dumping a bit of tea; they’re working to dump virtually all the country’s tax money, too.
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