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Ninth Circuit Ruling Against Washington State Couple Opens Door to Wealth Taxes



By Sam Kazman, Competitive Enterprise Institute 


WASHINGTON—A three-judge panel of the Ninth Circuit today ruled against Charles and Kathleen Moore’s constitutional challenge to President Trump’s Mandatory Repatriation Tax.  The panel dismissed both the claim that the tax violates the Constitution’s Apportionment Clause and the claim that, as a retroactive tax, it violates the Due Process Clause.

The Moores challenged as unconstitutional a part of the 2017 tax reform law known as the Mandatory Repatriation Tax. This provision taxes U.S. citizens on certain accumulated foreign earnings of foreign corporations going back 30 years, even if the earnings have not been distributed. The Moores argue the tax violates the Constitution’s requirement that direct federal taxes must be apportioned among the states, as well as the Constitution’s prohibition on harsh retroactive taxation.

At issue are the Moores’ shares in a foreign company founded by a friend that provides agricultural equipment to underserved small farmers in India. The couple has owned the shares for over a decade. They have never received any income from the shares, because the company reinvested all its profits in business. Normally, such profits are not considered income unless shareholders either receive dividends or sell the shares for a capital gain. The new law, however, attempts to tax these funds as income through a legal fiction, by simply declaring them to be taxable income.

Competitive Enterprise Institute General Counsel Sam Kazman, co-counsel for the Moores, stated:

“This is an extreme ruling that removes all limits on Congress’ taxing power.  It eliminates the concept of ‘realization’ from income—that is, that an increase in some asset’s value must first be separated from that asset in order to be taxed as income.  This opens the door to a range of new tax proposals, from Senator Elizabeth Warren’s National Wealth Tax to President Biden’s Billionaire Tax to federal property taxes.  We are examining our options for appeal.”

For more information, please visit our Charles and Kathleen Moore v. United Statescase page.