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Supreme Court Upholds Trump-Era Foreign Income Tax in 7-2 Decision

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The U.S. Supreme Court has ruled to uphold a controversial Trump-era tax on foreign income in a 7-2 decision, delivering a significant victory for the federal government. The case, Moore v. United States, centered around a Washington state couple’s challenge to a tax provision introduced in the 2017 Tax Cuts and Jobs Act.

Justice Brett Kavanaugh, writing for the majority, stated that “Congress has long taxed the shareholders and partners of business entities on the entities’ undistributed income,” affirming the constitutionality of the Trump-era tax.

The decision was supported by Chief Justice John Roberts and the court’s three liberal justices, with Justices Amy Coney Barrett and Samuel Alito concurring in the judgment but disagreeing with parts of the majority’s reasoning.

The case involved Charles and Kathleen Moore, who contested a $14,729 tax bill on their investment in an Indian company. They argued that the Trump-era tax was unconstitutional under the 16th Amendment as it taxed unrealized gains. However, the Court rejected this argument, with Kavanaugh noting that accepting it could render “vast swaths of the tax code” unconstitutional.

In his dissent, Justice Clarence Thomas, joined by Justice Neil Gorsuch, argued that the Moores never received any investment gains and therefore couldn’t be taxed on them. Thomas accused the majority of “changing the subject” to uphold the tax.

While the case was seen by some as a potential precursor to debates over a wealth tax, the Court emphasized that this decision does not address such questions. Kavanaugh wrote, “Those are potential issues for another day.”

The ruling has significant fiscal implications, as the government had warned that invalidating the tax could have cost hundreds of billions to trillions of dollars in tax revenue. Christine K. Lane, a tax law expert at Crowell & Moring, noted that a decision in favor of the Moores “had the potential to upend many areas of current U.S. tax law.”

This case has also sparked discussions about judicial ethics, with some calling for certain justices to recuse themselves due to potential conflicts of interest. However, these calls were ultimately rebuffed.

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