The Supreme Court’s recent decision to uphold the mandatory repatriation tax, a core component of the 2017 corporate tax reform law, further entrenches what many view as a gross overreach into the finances of hardworking Americans. This contentious tax move, derogatorily termed the Biden administration’s “wealth tax,” has sparked widespread debate about its constitutionality and impact on U.S. shareholders’ rights.
At the center of this judicial affirmation is the case of Charles and Kathleen Moore, a couple from Washington state who filed a challenge against the $15,000 increase in their tax bill precipitated by the Mandatory Repatriation Tax (MRT). The couple argued that this tax on undistributed profits from U.S. shares in foreign corporations, majority-owned by Americans, was unjust as it targeted unrealized income—a concept that raises serious equity and fairness concerns.
This corporate tax law was enacted under the Trump administration in 2017 and is one of the most controversial pieces of the so-called “tax reform” bill that was passed and signed by Trump. Although that bill had some positive impact on individual and corporate tax rates that had immediate impact on the economy, this feature of the bill and the ability for illegal aliens to claim and receive individual earned child tax credits (despite not paying any income tax) remained as the dark underside to that bill.
Justice Brett Kavanaugh, in a 7-2 decision, declared that the MRT was constitutional under longstanding precedents established by Article I, Sections 8 and 9, and the Sixteenth Amendment. According to Kavanaugh, these provisions allow Congress to enact taxes on income that foreign corporations have received, even if those earnings are linked to U.S. shareholders but remain undistributed. This interpretation has significant implications for the scope of congressional power over taxation and the government’s latitude in imposing financial obligations on American citizens.
Congress now has an open lane to pass legislation that would effectively tax Americans on paper profits that have never been realized which could also negatively affect small businesses, retirement accounts and capital investments. Â For example, if an individual owned a stock that was bought for $10 per share and the current share price was $100 on the open market, it could be taxed at the net $90 gain despite the fact the stockholder hasn’t ever sold his/her shares and realized that profit.
The administration’s argument, upheld by the Court, posits that the MRT serves as a necessary guardrail to prevent U.S. shareholders from evading their tax responsibilities by keeping profits in foreign entities. This stance reflects a broader intention to close loopholes and ensure tax compliance, underpinned by the rhetoric of fairness and economic patriotism. However, it also unfurls a controversial expansion of the government’s reach into private financial matters.
During the proceedings, U.S. Solicitor General Elizabeth Prelogar emphasized the dire fiscal consequences should the MRT be invalidated, projecting “several trillion dollars” in lost revenue. The government’s assertion underscores the law’s critical role in the broader tax ecosystem, aiming to maintain stability and continuity in the tax code. Yet, it also highlights the administration’s reliance on taxing foreign-held profits to buoy federal revenues—an approach that finds little favor among proponents of limited government and economic freedom.
The Supreme Court’s decision marks a definitive moment in the ongoing tension between robust taxation and the preservation of individual financial autonomy. The MRT’s upholding reaffirms the considerable authority vested in the federal government to tax income and profits, irrespective of their realized status. This precedent sets a demanding standard for future legal challenges to tax laws perceived as overreaching or inequitable.
As the nation navigates the implications of this ruling, it is essential to consider its broader impact on American shareholders and the principles of property rights and economic liberty. The balance between preventing tax evasion and respecting private financial sovereignty remains a perennial debate, illustrating the complex dynamics at play in modern fiscal policy. This decision, therefore, not only affects immediate tax obligations but also shapes the landscape of taxpayer-government relations, heralding an era where meticulous scrutiny and robust defense of constitutional liberties become paramount.
