Don't worry, you can afford to pay tax on the appreciation you've enjoyed on your home, and stocks. Remember from each according to their need, to each....how does that go again.
Oh, yah...the exact opposite of what Reagan stood for. I'm at a loss for words.
The Wealth Tax You May Already Owe
If the Supreme Court rules for the government in Moore v. U.S., all unrealized gains will be taxable under existing law.
By Ilya Shapiro, WSJ
Dec. 6, 2023 1:09 pm ET
Elizabeth Prelogar appears before the Senate Judiciary Committee for her nomination hearing to be U.S. solicitor general in Washington, Sept. 14, 2021.
Imagine receiving a tax bill for the appreciation on your investments, including the equity in your home, before you’ve even sold them. It could happen if the government has its way at the Supreme Court.
During Tuesday’s oral arguments in Moore v. U.S., the justices focused on the question of whether the 16th Amendment’s authorization of “income” taxes allows for the taxing of unrealized gains. It has long been understood that income taxes apply only to realized gains—those that have been actually received by the taxpayer, or effectively so such that the taxpayer has control over the funds, which is called “constructive realization.”
Out of the tax code’s nearly 10,000 provisions, the government seized on a handful it contends would be imperiled by a holding in the Moores’ favor. The Moores argue these provisions could be justified either based on constructive realization or as excise taxes. But no one acknowledged the maelstrom that would descend on the tax code if the court accepts the government’s position.
Solicitor General Elizabeth Prelogar told the justices that the “ordinary conception of income” means any “economic gain between two points in time.” Ms. Prelogar encouraged the justices “to not rely on concerns about . . . far-fetched hypotheticals” as to what sort of taxes this position might justify, like a tax on home appreciation.
But concerns about the limits of the government’s position aren’t hypothetical. If the court holds that the realization of income isn’t required for purposes of the 16th Amendment, the necessary implication will be that the tax code already reaches all unrealized gains.
The most important provisions of the code tax individuals (26 U.S.C. 1) and corporations (26 U.S.C. 11) on all their “taxable income.” This taxable income is computed based on the taxpayer’s “gross income,” which the code has long defined to mean “all income from whatever source derived” (26 U.S.C. 61). The government has accepted the long-settled principle that these provisions assert “the full measure of Congress’s taxing power” under the 16th Amendment. The Constitution and the tax code are thus coextensive with respect to the definition of taxable income.
If “income” for purposes of the 16th Amendment doesn’t require realization, therefore, neither does “income” for purposes of the current tax code. And if the government is right that “income” means any economic gain between two points in time, without regard to whether that gain is realized, then Americans should have been paying taxes on the appreciation of their homes and other investments since the dawn of the income tax in 1913. One wonders why the Biden administration has been lobbying Congress to pass a billionaire capital-gains tax when, according to its own Justice Department, the tax code already includes one.
The same problem remains even if the court accepts a narrower argument Ms. Prelogar offered—that the court doesn’t need to decide whether realization is required because the gains realized by the corporation in the Moores’ case can be “attributed” to them and taxed on a pass-through basis. Have the justices been paying taxes on the retained earnings held by corporations whose stock they hold? I know I haven’t. I doubt Ms. Prelogar has either. Buckle up for tax year 2024, however, if the government wins this case.
The “havoc” the government contends the Moores’ position would wreak on the tax code seems quaint in comparison to the nuclear fallout from a ruling in the government’s favor. Forget the implications of the Moores’ position on obscure provisions like an expatriation tax that hits perhaps a dozen people a year—one of the levies the government raised in its parade of horribles. The government’s position would transform the tax code’s very definition of income.
Mr. Shapiro is the director of constitutional studies at the Manhattan Institute, on whose behalf he filed a friend-of-the-court brief supporting the Moores. He is author of “Supreme Disorder: Judicial Nominations and the Politics of America’s Highest Court.”
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