Does the Court's Aggressive Overreach in the Trump Disqualification Case Suggest (Oddly) that the Rich Cannot be Taxed?
It is somewhat head-spinning to note that the Supreme Court's gift to Donald Trump in the Colorado case -- keeping him on all presidential ballots nationwide, despite the Fourteenth Amendment's disqualification of insurrectionists and those who have "given aid or comfort to the enemies thereof" -- was issued only four days ago. Trump v. Anderson now counts as old news, it seems, but on this quiet Friday afternoon, I want to return to that case and draw a somewhat counterintuitive connection with another pending case before the Court.
Professor Dorf's brilliant critique of Anderson covers all of the relevant issues, of course, but I want to focus solely on a particular matter that caused some understandable outrage among critics. The per curiam opinion concluded that federal legislation is necessary to enforce Section 3's Disqualification Clause, yet even Barrett's concern-trolling concurrence argued that it was unnecessary to reach "the complicated question whether federal legislation is the exclusive vehicle through which Section 3 can be enforced," because the Court could have saved Trump's hide simply by ruling that Colorado could not disqualify him. Meanwhile, the three dissenting-in-all-but-name justices argued that the per curiam decided more than was necessary and that it did so because the Trump Five wanted "to limit how Section 3 can bar an oathbreaking insurrectionist from becoming President."
My question here is whether the Court's hyper-conservative supermajority will do something similar in other cases. After all, this gang has been flouting precedent and grabbing power with increasing shamelessness for years. Will they soon become so brazen as to use future cases as mere vehicles to say anything that they want -- taking, say, a case about a book ban and then ruling that the Constitution requires that America be a Christian nation -- or will they "only" do so when they have an outcome in mind with a tenuous connection to the case that they truly want to achieve (which would, admittedly, probably include that book banning case)?
Recall that the Dobbs majority was guilty of similar overreach, with a different group of five Republican appointees deciding not to limit their ruling to the question at hand -- whether a ban on abortion at 15 weeks was unconstitutional. If they had any restraint, they could have held that the ban was acceptable on some narrow ground (perhaps citing some inconclusive evidence about advances in neonatal care pushing up the date of fetal viability). Instead, they shouted that Roe itself was super-duper-blasphemously wrong. No judicial minimalists they.
And that brings me to my unusual connection to a pending case, US v. Moore. That is a tax case that I have recently analyzed twice here on Dorf on Law, arguing that the Republicans on the Court seem eager to bring back a terrible Lochner-era case to declare that rich people are Constitutionally protected against taxation of their "unrealized" income. The question is whether this Republican-installed majority will go far beyond the income question and possibly reach the extreme point of holding that taxing all wealth and income is unconstitutional.
As a reminder, gains in the value of one's assets are income, such that if I hold a piece of property (land, stocks, crypto, whatever) and it goes up in value from $5 to $500 (not likely with crypto, but stay with me), I have received income in the sense that I am $495 richer, just as I would be if I had received a $495 bonus at work. Increases in the value of assets must be income, both as a definitional matter and as an anti-abuse rule, because treating such gains as anything other than income (and thus nontaxable) would encourage everyone who can do so -- read: rich people -- to take their incomes in that form rather than in cash. (We know this because Congress for the past century has unwisely created just such a loophole. It did so, however, not because it was constitutionally required but because Congress often lavishes benefits on the rich. In case you hadn't noticed.)
Increases in asset values are definitionally income, so what is the issue in Moore? The Court is supposed to decide whether Congress can tax as income any gains that have not yet been (and might never be) "realized," that is, turned into cash or exchanged for other assets. If I sit on my $495 gain, I have not realized it. But it is income, and the Sixteenth Amendment allows Congress to tax all incomes from whatever source derived, so is the gain not obviously taxable as income? It appears from oral argument that Gorsuch will use the case to say that it is not income unless and until it is realized.
Would that be bad? Yes, but not too, too bad. Again, we already live in a ridiculous world in which Congress has shielded rich people from paying taxes on most unrealized gains, so this would not change the big picture. Even so, there are some unrealized gains that are currently taxable (including exit taxes on rich people who try to flee the US for tax or other reasons), and all of those would be gone.
The question presented in Moore is whether a tax on unrealized income "is a 'tax[] on incomes ... within
the meaning of the Sixteenth Amendment," which ScotusBlog reworded as "[w]hether the 16th Amendment authorizes Congress to tax unrealized sums without apportionment among the states." Again, if the Republicans-in-robes rule the wrong way but stick to this question, the immediate damage would be relatively small. There could be longer-term damage, however, if the US continues as a constitutional democracy and a future Democratic-majority Congress tries to repeal or pare back the realization requirement.
As I noted earlier, the right-wing jurists on the Court might limit their overreach to cases about which they truly care. Do they care enough to use Moore as a vehicle for an expansive ruling? I think so, and although I might be wrong about that, it is worth thinking about what they might do if they want to push the envelope.
In an excellent New York Times op-ed published shortly after oral argument in Moore, Joey Fishkin and Willy Forbath described the possibly much higher stakes in the case:
An activist lower court judge, most likely inspired by right-wing constitutional scholars and think tanks, cleverly framed Moore as a grand occasion to rule against some future wealth tax, and the high court took it up.
Supporters of the Moore litigation probably hope to persuade conservatives on the court to issue a broad ruling that would declare unconstitutional any attempt to enact a tax on wealth (like proposals that Senator Elizabeth Warren of Massachusetts and others have floated).
But how could any court issue a decision in Moore that has anything to do with taxing wealth? Again, the question in the case is whether unrealized income is income. (Weird, right?) Well, Gorsuch et al. could point out that the change in the value of assets is sometimes called "a change in wealth," and although taxing a change in wealth is not at all a tax on wealth itself, these guys might decide to say that it is. They could then say that taxes on wealth are unconstitutional (even though they are not), so taxes on changes in wealth would also not allowed.
Fishkin and Forbath agreed that this Court might go there: "It would not be a shock if some justices are tempted to go big and declare Congress powerless under the Constitution to tax the wealthiest Americans." They added: "Even if the court chooses to resolve Moore on narrow grounds, it may still use the occasion to signal ... that a future wealth tax would be struck down."
Note that doing so would be even more damaging than it seems, because if the holding is that Congress cannot tax changes in wealth, then that would even eliminate the current distinction between realized and unrealized gains, making all taxes on gains exempt from taxation. I could sell my $500 piece of property and say that the $495 cannot be taxed. Why? Because wealth. And that would mean that anyone who can change the form of their income from salaries into appreciating assets could be subject neither to income taxation nor wealth taxation.
Will this Mitch McConnell-created majority on the Court go there? What would stop them? They overreached in Trump's Colorado case when it was not even necessary to do so. Would their billionaire benefactors be displeased if they were now to pass up this golden opportunity to leave their gold untaxed? Why would they risk finding out? There are too many luxury trips yet to be had. Friends take care of friends.