The Supreme Court case that could forever change the U.S. tax code

December 18, 2023
by Michael Santos, Associate Director, U.S. Poverty Policy

In 2017, Congress made permanent changes to the tax code, as part of the Tax Cuts and Jobs Act (TCJA).  Part of this law is the Mandatory Repatriation Tax, a one-time tax imposed by the U.S. on money that multinational corporations make overseas. Prior to 2017, many major U.S. corporations avoided paying U.S. taxes by making their legal residence outside of the country, ensuring that they were not taxed on overseas earnings. But with Moore v. United States (“Moore”), wealthy companies and people may soon have the power to avoid paying these taxes. 

Moore v. United States could redefine “income” 

Currently with the Moore case, the U.S. Supreme Court is considering the constitutionality of this mandatory repatriation tax. This means there is a question about if Congress had the right to enact this tax in the first place. The plaintiffs, Charles and Kathleen Moore, are shareholders of a foreign corporation that was subjected to this tax. The details of the case are complicated, but essentially, the Moores argue that the federal government cannot tax their wealth and earnings until they have been “realized.” To put it simply, they argue that unless those earnings have become actual cash in the bank, the government cannot tax it. This logic could apply to stocks and property, too: Earnings on stocks cannot be taxed until the stock is sold, the increasing value of a home cannot be taxed until sold. How the Supreme Court rules on this case will affect the whole tax system. At stake is the ability of the federal government to tax wealthy people. The Moores are asking the high court to decide the definition of “income,” and therefore which earnings the government can tax as income.  

This ruling could mean the highest earners pay far fewer taxes and less revenue for the government 

The impact of the court’s ruling is so profound that many states have weighed in to either support the Moores (West Virginia, Alabama, Louisiana, Arkansas, Mississippi, Georgia, Montana, Idaho, Ohio, Indiana, Oklahoma, Iowa, North Dakota, Kentucky, South Carolina, Texas, and Virginia) or support the government’s authority to tax (Arizona, California, Colorado, Connecticut, Hawai’i, Illinois, Maine, Maryland, Michigan, Minnesota, New Jersey, New York, Oregon, Pennsylvania, Vermont, Washington, and the District of Columbia). A ruling in favor of the Moores would open up the tax code to challenges when taxing similar earnings that are not “realized.” This shift would reduce the number of people the U.S. government can tax and make it even more difficult for the government to raise money for federal programs. The federal budget deficit would grow while multinational corporations and those with the most wealth would amass larger fortunes. The country will end up with a smaller tax base (for example, fewer people who can be taxed), so everyday people earning regular paychecks would have to pay even more to keep the government and its programs running. Wealth inequality will likely worsen. Poverty would likely deepen.  

We must continue to raise our voices in support of a just tax code that fights poverty 

The Supreme Court will likely make its Moore decision before it goes on recess in June 2024. The outcome of this case may forever change the federal (and even state) tax policy landscape. With many tax cuts for the wealthy and corporations under TCJA expiring in 2025, RESULTS’ work with Congress to achieve economic justice in the tax code remains critical in the years to come, as we continue to make the tax code more accessible to those living in poverty.  

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