Moore v. US Avoids Radical Tax Shake-up, but Judicial Threat Looms

June 28, 2024

Last week, the Supreme Court of the United States chose not to blow up the tax code. 

In Moore v. US, seven justices upheld the constitutionality of a tax on foreign income, known as the Mandatory Repatriation Tax. In a brief last September, my coauthors and I argued that the provision, passed as part of the Tax Cuts and Jobs Act of 2017, was as constitutional as it was overly generous to US multinational companies. Had the plaintiffs—backed by well-heeled anti-tax groups with extreme legal theories—prevailed, almost 400 multinational corporations, especially highly profitable tech and pharma firms, would have been granted $271 billion in retroactive relief for decades of tax avoidance. 

One way or another, American workers, families, and small businesses would have had to pay that bill instead, deepening inequality and stunting the economy. So, this time at least, Americans can take a sigh of relief that SCOTUS chose not to decide tax policy by “judicial say-so,” as Franklin D. Roosevelt once put it.

But looking ahead, we can’t let this small victory take our eyes off the looming battle. That the court even took this case raises the real possibility of future SCOTUS overreach in tax policy. The plaintiffs’ fundamental legal premise—that the Constitution requires income to be “realized” before it is taxed—is a radical reinterpretation of precedent and, if affirmed, would have invalidated decades of tax rules. Not only was the plaintiffs’ case substantively flawed, it also suffered from factual inaccuracies and deep conflicts of interest, with two justices directly owning shares in several of the companies set to receive billions in tax relief. Moreover, the plaintiffs’ campaign was clearly fueled by many of the same ultra-wealthy parties that would have profited handsomely from the outcome. Yet, despite the minefield surrounding Moore, the court took time in its extremely busy calendar for this case.

Many factors could explain why the justices granted certiorari in the Trojan horse that was Moore. Some justices may have wanted to preempt the taxation of unrealized capital gains by finding it unconstitutional to tax unrealized income. Others might have seen an opportunity to affirm the constitutionality of taxing unrealized income. But what cuts across all of this is that the Supreme Court today—as attested to in Moore—believes that it has the legal authority and the political legitimacy to override the will of the American people on tax matters. 

At their core, debates about tax policy revolve around competing sets of values and principles: equity or hierarchy, shared sacrifice or self-interest, democracy or minority rule. As eminent fiscal sociologists put it, “Taxes formalize our obligations to each other. They define the inequalities we accept and those that we collectively seek to redress.” These are not strictly legal questions that can be hashed out by elite, unelected jurists in robes, but fundamental debates about the nature of our democracy and who should pay the price to protect the common good.

While the Moore decision was an important victory for countering corporate tax avoidance, the case does not bode well for judicial deference to democratic tax policymaking. Clearly concerned with future SCOTUS overreach, Justice Ketanji Brown Jackson in her concurring opinion quotes former Justice John Marshall Harlan: “The remedy for [tax] abuses is to be found at the ballot-box, and in a wholesome public opinion which the representatives of the people will not long, if at all, disregard, and not in the disregard by the judiciary of powers. . . ” 

Looking beyond Moore, tax policy by Supreme Court fiat would only serve to advance a vision of America that is unreflective of, unprepared for, and fundamentally vulnerable to the rapidly changing needs of building a 21st-century economy for all.