For years, liberal Democrats have advocated for the United States to tax wealth, not just income, to ensure that rich Americans who get their wealth from real estate, stocks, bonds and other assets pay more taxes.
On Thursday, that dream survived a Supreme Court scare, but only just.
Thanks to a narrow court ruling, a series of plans to use the tax code to close the gaping gap between the very wealthiest Americans and everyone else appear likely to remain in the campaign proposals and official budgets of leading Democrats for years to come.
The idea of a wealth tax was not directly before the court on Thursday. The justices examined the constitutionality of a new tax imposed under former President Donald J. Trump that applies to certain earnings earned by companies abroad. But when the court took the case, it could have preemptively declared federal wealth taxation unconstitutional.
This did not happen, and liberal groups celebrated the victory.
“The Supreme Court could have taken an activist turn of the worst kind by preemptively declaring federal wealth taxes unconstitutional today,” said Amy Hanauer, executive director of the Institute on Taxation and Economic Policy, which advocates higher taxes on corporations and the wealthy, it said in a statement. “To its credit, the court did not do this.”
But the case also offered a glimpse into the legal battle over different versions of a wealth tax if Congress ever passes one. It turned out that a whole series of four judges firmly rejected such a tax – and two more who appeared skeptical.
“This is a close call,” Joe Bishop-Henchman, vice president of the National Taxpayers Union, which opposes wealth tax proposals, said in a statement Thursday. However, he added: “The court makes it clear that it does not open the door to a wealth tax.”
Thursday’s decision in the case was nominally about the constitutionality of a tax that was part of the tax overhaul signed by Trump in 2017. The justices upheld the measure by a vote of 7-2.
The larger debate surrounding the decision, which spanned 83 pages of writings from several justices, centered on the question of whether Congress has the power to impose taxes on wealth.
President Biden and other leading Democrats have pledged to fund sweeping new spending programs such as expanded health insurance or universal paid leave, including by taxing the net worth of some of the wealthiest people in America. They would go beyond the government’s traditional efforts to tax income from work or investments and instead force multimillionaires to pay taxes on the profits their portfolios generate on paper.
Many conservatives have argued that these plans violate constitutional limits on what kinds of taxes the federal government can levy. Some groups had called on the court to agree with this argument and declare wealth taxes off-limits as a precautionary measure.
The question largely depends on what counts as “income.” Is it money that shows up in a person’s bank account, such as from a paycheck or a stock sale? Or so-called unrealized gains on assets that increase in value over time even if they are not sold?
Four conservative justices wrote Thursday in concurring or dissenting opinions that unrealized gains don’t count as income — suggesting that wealth taxes more broadly are a no-go. That’s almost a majority and was enough to alarm proponents of a wealth tax.
“It is now apparent that four Supreme Court justices are excited about the influence of billionaires,” Morris Pearl, the leader of Patriotic Millionaires, a group that advocates higher taxes on the wealthy, wrote in a press release.
But the ruling also showed a path for a wealth tax, albeit a narrow one. Justice Ketanji Brown Jackson, one of the court’s liberals, essentially wrote a blueprint for government lawyers to defend a possible wealth tax in court and a legal theory that judges could follow to uphold it.
She expressed doubts about whether the Constitution requires the realization of income to qualify for federal taxation and said the court should play a “limited” role in tax debates.
She urged the justices to let the public resolve the dispute, knowing that property taxes tend to do well in the polls.
Two other liberal justices are likely to side with Judge Jackson if such a case ever ends up in court. That leaves two conservatives as likely swing votes: Chief Justice John G. Roberts Jr. and Justice Brett M. Kavanaugh, who wrote the court’s majority opinion on Thursday. That opinion was peppered with references to what might or might not count as “realized” income for tax purposes, but specifically declined to comment on future wealth tax issues.
“Those are potential problems for another day,” Judge Kavanaugh wrote, “and we are not addressing or resolving any of those issues here.”
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2024-06-20 18:48:33
www.nytimes.com
