When the Supreme Court hears Moore v. United States in its upcoming term, the justices will technically be hearing a case about a minor one-time repatriation tax that was buried in a federal tax-code overhaul six years ago. What they may actually be deciding is whether Democratic proposals for a federal wealth tax are unconstitutional.
That is the hope, at least, of the dozens of right-wing legal groups and other organizations representing wealthy Americans that filed friend of the court briefs with the justices this month. Uninvolved third parties have already filed around two dozen briefs in Moore, and most of them urge the justices to preemptively declare that a major liberal policy idea can’t be implemented—before it is even enacted into law. If nothing else, the briefs are a revealing look into the conservative legal sausage-making apparatus.
Ironically, the actual law in question is also of conservative origin. In 2017, a Republican-led Congress passed, and then-President Donald Trump signed, the Tax Cuts and Jobs Act, which revamped significant portions of the federal tax code. Part of the law restructured how the government taxes Americans who own all or a significant part of a foreign corporation.
Since a 1986 tax-code change, those Americans had generally only been taxed when the corporations paid out dividends to shareholders. But that approach, according to the Justice Department, “encouraged U.S. shareholders of foreign corporations to avoid payment of U.S. taxes by keeping their foreign earnings offshore.” Between 1986 and 2015, the government said, the gap allowed Americans who owned foreign businesses to avoid taxes on nearly $2.6 trillion in offshore earnings.
The 2017 law eliminated the tax on those dividends as part of a broader overhaul of how U.S. corporate taxes apply to overseas earnings. To avoid effectively rewarding Americans for not repatriating their earnings under the old system, the 2017 law also imposed a one-time tax known as the Mandatory Repatriation Tax on Americans’ post-1986 earnings from shares in foreign corporations. The net effect, according to the government, was $340 billion in federal tax revenue as companies and individuals repatriated hundreds of billions of dollars in offshore earnings.
Not everyone was satisfied with this change. Charles and Kathleen Moore, the named plaintiffs in the lawsuit, owned between 10 and 13 percent of a tool-manufacturing company in India that one of their friends had started. They received no dividends from their share; the profits were instead reinvested into the business. The Washington-based couple learned in 2018 that they would have to pay an additional $14,729 in taxes based on more than $132,000 in deferred income since 2006. The Moores paid the additional tax and then sued the federal government to have it refunded to them, arguing that the repatriation tax went beyond what is allowed by Congress’s Article I powers and the Sixteenth Amendment.
Under the taxing and spending clause, Congress has the constitutional power to “lay and collect taxes, duties, imposts and excises.” Another provision in Article I imposes a major limitation on that power: “No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.” In other words, direct taxes would have to be apportioned based on the population of each state. If Congress somehow found the will or desire to impose a direct federal property tax, for example, Americans in Wyoming would only have to pay 0.17 percent of the national share.
Apportionment of direct taxes is so impractical that Congress did not generally levy them, relying instead on tariffs, excise taxes, and the like to fund the early federal government. Lawmakers did not enact an income tax until the Civil War, to pay for the Union war effort. The Supreme Court later upheld the 1864 version of that tax as an indirect one by concluding that the Framers had meant to apply the apportionment rule to taxes against “real estate and slaves,” essentially treating it as one of the many compromises struck with slaveholders in the early republic. That tax expired in 1873.
When Congress passed a new income tax in 1894, however, a more business-friendly iteration of the court struck it down as an unapportioned direct tax. To overturn that ruling, Congress and the states ratified the Sixteenth Amendment in 1913, which unequivocally established that Congress “shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states,” opening the door to the modern federal tax code.
The question then moved on to what counts as “income.” The Moores argued that unrealized gains do not fall under the Sixteenth Amendment’s scope, citing a 1920 Supreme Court case known as Eisner v. Macomber. But the Ninth Circuit Court of Appeals rejected that interpretation in ruling against them last year. The three-judge panel concluded that the Supreme Court had never required realization to fall under the Sixteenth Amendment’s scope, that the reference to it in Macomber was a nonbinding suggestion made in passing, and that the high court had at times expressly avoided reaching that conclusion.
If all of this sounds mind-numbingly boring, that’s because it is—at least at first glance. Moore would normally be one of the dozens of relatively minor cases that the Supreme Court hears every year. The justices take up between 50 and 75 full cases each term, and most of them don’t really impact people’s day-to-day lives. Most Americans only know about the ones that affect their personal liberties or major policy issues, not the ones about minor procedural aspects of the legal system or hypertechnical legislative arcana.
This case, however, is not as mundane as it first seems. The plaintiffs and their many allies are hoping to use it not just to overturn the repatriation tax but also to prevent Democrats in Congress from enacting a federal wealth tax in the future. As I reported in June, the Moores’ lawyers framed the case in their petition for review as a vehicle for the Supreme Court to decide the constitutionality of a wealth tax before it is passed. They even made similar pleas in the conservative-friendly pages of The Wall Street Journal’s opinion section.
“If the courts confirm the Sixteenth Amendment’s limited reach now, that would relieve them from having to do so in a politically explosive case directly challenging a wealth tax,” the two lawyers wrote in a 2021 op-ed. “The courts would do well to remind Congress at this opportune time that its taxing power is not without limits.” One of the two lawyers who wrote that op-ed, David Rivkin, later interviewed Justice Samuel Alito for the Journal along with one of the paper’s employees to discuss the court’s work in general terms. Alito publicly declined to recuse himself from the Moores’ case last week for participating in the interview after Democratic lawmakers called upon him to do so.
A sizable host of conservative and libertarian legal organizations have also joined the chorus. FreedomWorks, a right-wing policy group that receives the bulk of its funding from wealthy donors, urged the court in no uncertain terms to address the wealth tax concerns. “The government argues that this Court should avoid any examination of a wealth tax as premature,” the group’s brief said. “It is important, however, to explain how that tax works and why a wealth tax will give rise to grave constitutional concerns.” The brief’s authors were Richard Epstein and John Yoo, two prominent conservative law professors.
The Cato Institute, a libertarian legal and policy group, urged the court to take decisive action. “It is not a ruling in favor of [the Moores], but a ruling against [the Moores], that would be sweeping,” it argued in its brief. “Such a ruling would jettison over a century of this Court’s jurisprudence. And it would embolden Congress to use the Sixteenth Amendment as a cloak to unconstitutionally tax other amounts, without apportionment, that are not income.” The organization concluded with an even more direct warning: “If the Ninth Circuit’s decision stands, Congress may be emboldened to unconstitutionally subject other amounts to the income tax.”
Echoing that warning was a group called Saving America’s Family Enterprises. It described its mission to the court as “educating the public about the risks of tax proposals that complicate the tax code, incentivize tax avoidance, or harm family businesses, family farmers, homeowners, and the middle class.” Its brief, authored by Neal Katyal, a former acting solicitor general in the Obama administration, built hypotheticals upon hypotheticals by arguing that a future wealth tax on wealthy Americans could lead to an even-more-future wealth tax on everyone else.
“This is no idle threat,” the group claimed. “Recent years have seen a slurry of proposals to impose ‘wealth taxes’ targeting the unrealized gains of wealthy families and successful family businesses. Although these proposals initially take aim at economic elites, history teaches that a tax on the unrealized gains of middle-class Americans is not far behind.” No policy organization or elected official has argued for such a thing—and it’s hard to imagine that anyone who actually wanted to win an election would—but such fanciful imaginings still led the group to urge the justices to take action.
Other organizations were even more blunt in their predictions. In its brief, the Manhattan Institute argued that the Ninth Circuit’s ruling was the first time a federal appeals court had ever ruled that realization was not necessary for constitutionality. “That is a stark departure from this Court’s precedents, the history of the Sixteenth Amendment, and common sense alike,” the group argued. “And if allowed to stand, it will invite continued experimentation with taxation of wealth—an outcome that would be as harmful to the nation as it would be startling to the Framers.”
The Manhattan Institute’s brief doubles as both a legal argument and a policy paper. “Taxes on wealth undermine fundamental principles of economic liberty, discouraging entrepreneurship, innovation, and upward mobility,” the group argued. It claimed that wealth taxes “simply do not work” because valuation is difficult, that they do “far more harm than good,” that they shrink the tax base because wealthy people will just “seek out friendlier tax environments,” and that they “rot out the rungs of upward mobility” by making it harder for entrepreneurs to start new businesses. None of this has anything to do with the Sixteenth Amendment, but it might nonetheless resonate with the court’s conservative justices.
Even a coalition of 18 Republican-led states joined the chorus. Although state governments have no direct stake or interest in how federal taxes apply to foreign corporations, the GOP attorneys general expressly worried about the effects of a hypothetical wealth tax. “By defining income without an eye toward realization, the Ninth Circuit has granted the federal government a permission slip to start taxing in all manner of new ways—ways better seen as the ‘direct taxes’ with which our Constitution is most concerned,” they claimed in their brief. “Perhaps a federal property tax could be on the table. Perhaps a federal wealth tax. Perhaps some other new and destructive idea.”
Perhaps? The Supreme Court’s job, which is also defined in the Constitution alongside the Sixteenth Amendment, is to hear “cases and controversies,” not answer hypothetical questions. These barriers have been weakened as of late, thanks to the court’s generous view of legal standing and its willingness to take up cases where the basic facts are strongly disputed. Even by those standards, it would be extraordinary for the court to prospectively block Congress from enacting a law before a single lawmaker casts a vote on it.
It’s worth noting that these briefs are not necessarily representative of all the third-party briefs that might be submitted in Moore. The Justice Department will submit its own merits brief later this fall, and third-party legal experts and public policy groups that support the government’s position would typically submit their own friend of the court briefs right after that. No such individuals or groups filed briefs during the petition stage, however. As a result, the federal government might find itself arguing alone against not only the Moores but also a broad swath of the conservative legal apparatus about something that hasn’t even happened yet.