This case is still in the Petition stage, having just been filed on February 21, 2023. The Response of the United States is not due until April 26, 2023 and the court will likely make its decision to grant or deny certiorari in the late May time frame.
They should definitely grant certiorari and rule in favor of the Petitioners.
Because the Moore’s have not received any ACTUAL income, the tax essentially functions as a direct tax and thus is unconstitutional as a unapportioned direct tax. The Supreme Court should strike this tax down under the Eisner v Macomber precedent.
@johnwk2 Looks like we have something we can agree on, at least as far as this one tax in particular goes. While it claims to be an income tax, it actually functions as a tax on accumulated assets and thus is an unapportioned direct tax and unconstitutional.
I would also make the point that if the 9th Circuit’s judgement is allowed to stand, it will be a standing invitation for Congress to enact wealth taxes in the guise of income taxes, as several amici have warned.
The Supreme Court needs to slam the door shut on this forever by taking this case and ruling for Petitioners.
The best part of this is that it arose out of Trump’s “America First!” tax plan as a way to try and entice people to repatriate their money back to the US.
This is a textbook example as to how that idea can be misguided.
I. The MRT does not violate the Apportionment Clause
The Constitution’s Apportionment Clause provides that “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” U.S. CONST. art. I, § 9, cl. 4. “This requirement means that any ‘direct Tax’ must be apportioned so that each State pays in proportion to its population.” NFIB , 567 U.S. at 570, 132 S.Ct. 2566. The Apportionment Clause traditionally applied to only capitations and land taxes. See id. at 571, 132 S.Ct. 2566 (“[D ]irect taxes , within the meaning of the Constitution, are only capitation taxes, as expressed in that instrument, and taxes on real estate.” (quoting Springer v. United States , 102 U.S. 586, 602, 26 L.Ed. 253 (1881) )).
The irrefutable fact is, there is a fatal flaw in the Court citing Springer as to confirm what is, and what is not a direct tax, as understood by our Founders, and that fatal flaw is found in Justice Swayne’s own words who delivered the written opinion in Springer v. United States. Justice Swayne states:
"The very elaborate researches of the plaintiff in error have furnished us with nothing from the debates of the State conventions, by whom the Constitution was adopted, which gives us any aid. Hence we may safely assume that no such material exists in that direction . . . "
Well, the assumption was wrong! In fact, there is evidence in the State ratification debates by our Founders which do articulate characteristics which distinguish a direct tax from one which is indirect.
As an advocate in adopting the Constitution, James Wilson (who was a prominent delegate to the Constitutional Convention) pointed out during Pennsylvania’s ratification debates that:
“In this Constitution, a power is given to Congress to collect imposts [an indirect type of tax], which is not given by the present Articles of Confederation. A very considerable part of the revenue of the United States will arise from that source; it is the easiest, most just, and most productive method of raising revenue; and it is a safe one, because it is voluntary. No man is obliged to consume more than he pleases, and each buys in proportion only to his consumption."Elliots VOL II, page 467, Wilson
And this very characteristic identifying an indirect tax as a voluntary payment when buying articles of consumption, is again articulated, and more in depth during the Connecticut State Ratification debates by Oliver Ellsworth, who provides the following characteristics distinguishing a direct tax from one which is indirect.
January 7, 1788. [On this Power of Congress to lay Taxes.]
”Direct taxation can go but little way towards raising a revenue. To raise money in this way, people must be provident; they must constantly be laying up money to answer the demands of the collector. But you cannot make people thus provident. If you would do any thing to the purpose, you must come in when they are spending, and take a part with them. This does not take away the tools of a man’s business, or the necessary utensils of his family: it only comes in when he is taking his pleasure, and feels generous; when he is laying out a shilling for superfluities, it takes twopence of it for public use, and the remainder will do him as much good as the whole.”
Ellsworth goes on to note:
“The experiments, which have been made in our own country, show the productive nature of indirect taxes. The imports into the United States amount to a very large sum. They never will be less, but will continue to increase for centuries to come. As the population of our country increases, the imports will necessarily increase. They will increase, because our citizens will choose to be farmers; living independently on their freeholds, rather than to be manufacturers, and work for a groat a day.”
”On the other hand, direct taxes are not voluntary, nor, in general, are they avoidable. And with respect to direct taxes, the anti-federalist minority of the Convention of Pennsylvania warned that direct taxation “…is a tax that, however oppressive in its nature, and unequal in its operation, is certain as to its produce and simple in its collection; it cannot be evaded like the objects of imposts or excise …” ___ See Connecticut ratification debates Elliot’s VOL II, page 191, Ellsworth
So, a few characteristics which define an indirect tax are, it is voluntarily paid during the taxpayer’s consumption, and safe because no man is obliged to consume more than he pleases, and such a tax are costs added by government to things which individuals are free to acquired or reject, while direct taxes are those which are assessed to the individual by government, are oppressive, and not avoidable.
The bottom line is, the Court in Moore v. United States, 36 F.4th 930 (2022) needs to reassess its reliance on Springer v. United States for the distinctions between an indirect tax from one which is direct, as understood by those who framed and helped to ratify the Constitution of the United States.
JWK
The whole aim of construction, as applied to a provision of the Constitution, is to discover the meaning, to ascertain and give effect to the intent of its framers and the people who adopted it._____HOME BLDG. & LOAN ASSOCIATION v. BLAISDELL, 290 U.S. 398 (1934)
After reading the Cato Institute’s amicus brief, it seems a bit lacking in defining the actual meaning of “incomes” as it was understood by those who debated and framed the Sixteenth Amendment and was later addressed by the Supreme Court which actually provided the characteristics which define incomes within the Sixteenth Amendment.
The brief states:
This Court has consistently interpreted “income,” as used in the Sixteenth Amendment, to require a realization event—that is, an event in which something of value is conferred on the taxpayer.
In fact, it is not simply something of value which must be conferred on the taxpayer which triggers a tax on incomes, “. . . but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being “derived,” that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; — that is income derived from property. Nothing else answers the description.” ___EISNER v. MACOMBER , 252 U.S. 189 (1920)
How much of a difference will this make in the case, I certainly do not know. What I do know is, the tax on the Moores does not meet constitutional muster and if not struck down, as stated in the brief “Congress may be emboldened to unconstitutionally subject other amounts to the income tax. See, e.g., U.S. Dep’t of the Treasury, General Explanations of the Administration’s Fiscal Year 2024 Revenue Proposals, at 78–82 (providing for a tax on unrealized capital gains); see also Pet. 25 (recounting recent proposals to enact a federal wealth tax). For all these reasons, review is warranted here so that this Court can consider the Ninth Circuit’s endorsement of an unprecedented expansion of Congress’s taxing power.”
Then let’s look at what the court is actually saying. “There is no constitutional ban on congress disregarding the corporate form.” In some instances people may have a partnership but they can’t use that form to avoid income taxes by not individually distributing the income. So this is not really a new concept, according to the court.
This is not a tax on appreciated property but on income that has been realized by the corporation. There is a difference. This case offers nothing new in the way of taxing appreciated property as income as the income was realized by the corporation. It hinges instead on accepting the corporate form as determinative of realization.
"Now, more than a century after its ratification, our court upsets the balance reached by the people. We become the first court in the country to state that an “income tax” doesn’t require that a “taxpayer has realized income” under the Sixteenth Amendment. Moore v. United States, 36 F.4th 930, 935 (9th Cir. 2022). Instead, we conclude that the Sixteenth Amendment authorizes an unapportioned tax on unrealized gains because the “realization of income is not a constitutional requirement.” Id. at 936. We thus endorse the constitutionality of a federal tax on the share of undistributed earnings of a foreign corporation owned by a U.S. taxpayer—despite (in this case) the U.S. taxpayer being a minority shareholder of the foreign corporation. In other words, we allow a direct tax on the ownership interest of a taxpayer—even when the taxpayer has yet to receive any economic gain from the interest and has no ability to direct distribution of gain from the interest.
Neither the text and history of the Sixteenth Amendment nor precedent support levying a direct tax on unrealized gains."
why, regardless of the facts of the case the courts will not strike down the “tax”:
The possible effect on earned income credits and child tax credits among others. The AGI of a lot of recipients is zero (less than zero) and taxes “owed” are negative. Recipients effectively have no income (profit).
Did you get a chance to study Judge Bumatay’s dissent in Moore vs United States? The dissent is awesome, but I did find something questionable in it. Bumatay writes:
“In 1913, the people created a limited exception to the apportionment requirement. By ratifying the Sixteenth Amendment, the people gave Congress the authority to “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States.” U.S. Const. amend. XVI. So, today, Congress may enact a direct tax on “incomes”—and only on “incomes”—without apportioning the tax.”
Jumping to the conclusion that, “So, today, Congress may enact a direct tax on “incomes”—and only on “incomes”—without apportioning the tax”, appears to be wanting and creates a constitutional conflict between two of its provisions, namely, while Congress does have power to “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States …”, U.S. Const. amend. XVI, our Constitution also commands “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” U.S. Const. art. I, § 9, cl. 4, which has not been repealed, nor was it specifically mentioned, to the best of my knowledge, during the 1909 Congressional Debates on the Sixteenth Amendment to be modified to allow a direct tax on incomes without apportionment.
Let us keep in mind that the Sixteenth Amendment does not read “The Congress shall have power to lay and collect direct taxes on incomes, from whatever source derived, without apportionment among the several States . . . “The allowance for “direct taxes on incomes” is not there!
As a matter of historical fact, during the Congressional debates on adopting the Sixteenth Amendment we find confirmation that on June 17th, 1909, Senator Brown offered the following Joint Resolution (S. J. R. 39) to amend the Constitution relative to TAXES ON INCOMES:
”Resolved by the Senate and House of Representatives of the United States of America in Congress assembled (two-thirds of both Houses concurring), That the following section be submitted to the legislatures of the several States, which, when ratified by the legislatures of three fourths of the States, shall be valid and binding as a part of the Constitution of the United States:
But the wording “The Congress shall have power to lay and collect direct taxes on incomes without apportionment”, etc., never made it into the final version of the Sixteenth Amendment, nor is there any wording in the Constitution repealing the command that “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken” U.S. Const. art. I, § 9, cl. 4
Thus, to give full force and effect to both provisions of our Constitution, while Congress is granted power to lay and collect taxes on incomes without apportioning such a tax, an exception remains that in doing so if the tax on incomes takes the form of a direct tax, it must be apportioned.
For an example of laying and collecting a tax calculated from incomes which is indirect and not requiring apportionment see Flint vs. Stone Tracy, and for a tax on incomes which is direct and requires apportionment, see Eisner v. Macomber.
With the above in mind it is important to note that, under the rules which govern constitutional construction, in situations where there appears to be constitutional provisions that are in conflict with each other, as is the current case in which there is no repeal of the constitutional requirement that “direct” taxes must be apportioned, while Congress is granted power to lay and collect taxes on incomes without apportionment, the two provisions must be harmonize in such a manner that effect be given to each.
Until the Constitution is amended allowing Congress “ . . . to lay and collect direct taxes on incomes without apportionment . . .” it is the duty of the Court to give effect to all its provisions, and thus forbidding Congress to lay and collect any tax on incomes which takes the form of a direct tax unless such taxing observes the protection of apportionment, which was intentionally written into our Constitution and agreed to by the people.
It is an assault on our constitutional system to ask the Court to do for the people that which they have not knowingly and willingly done for themselves when agreeing to their constitutional provisions. The 9th Circuit’s ruling must be overturned in favor of the Petitioners, Mr. and Mrs. Moore, who rightfully seek the protection of apportionment.
And this brings to mind Justice Story who wrote: “If the Constitution was ratified under the belief, sedulously propagated on all sides that such protection was afforded, would it not now be a fraud upon the whole people to give a different construction to its powers?”
I’m not going to go deep here. I have no real desire to. I wil say only that it is well established, and has been since the founding, that restrictions on what the government cannot do in the constitution cannot be used to negate authority it is granted in the same instrument. The restrictions apply to all except where the authority is granted.
" Indeed, such a rule would open the door for the federal government to impose a future wealth tax entirely divorced from any connection to actual income."
Let’s hope they find this unconstitutional. I always looked at the income tax as a type of Slavery.
If they can just start taxing your wealth without income then it is just pure slavery!
Let us not forget, the Democrat Leadership’s “Temporary Victory tax of 1942/3” was to start and get working class people used to the idea of allowing the federal government to confiscate the bread earned by the sweat of their labor. They even got Walt Disney to produce a propaganda film clip to encourage wage earners to pay a direct un-apportioned tax they were not subject to.
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JWK
When Federal Reserve Notes were made a legal tender in violation of our Constitution, and a direct un-apportioned tax was imposed upon the people without their consent, America’s free enterprise, free market system was subjugated, and the tools of oppression and thievery were made available to some very immoral and nefariously evil people.
Seems that the Department of Justice, on June 12th, 2023, filed a brief in opposition to the petition for a writ of certiorari in Moore v. United States.
Hopefully the Supreme Court will review this case. If they don’t, there will no longer be any meaningful limit on the definition of “incomes” within the Sixteenth Amendment, and the protection requiring an apportionment of any direct tax will likewise be totally subjugated.
SEE:
Art. I, § 2, Cl. 3 "Representatives and direct Taxes shall be apportioned among the several States . . . "
Art. I, § 9, Cl. 4 “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.”
JWK
If, by calling a tax indirect when it is essentially direct, the rule of protection [apportionment] could be frittered away, one of the great landmarks defining the boundary between the nation and the states of which it is composed, would have disappeared, and with it one of the bulwarks of private rights and private property. POLLOCK v. FARMERS’ LOAN & TRUST CO., 157 U.S. 429 (1895) JUSTICE FULLER
"The Supreme Court announced Monday it will weigh in on the constitutionality of wealth taxes by deciding whether Congress may require taxpayers to pay their share of earnings from a foreign company, even if they received no dividends or income.
The case of Charles and Kathleen Moore, and their $14,729 tax bill, has garnered much attention on the right because of what it could mean if progressive Democrats take control of Congress."
Well, it seems we will finally get some clarity on the meaning of a “direct tax” and whether or not a direct tax, as in the Moore’s case, must be apportioned.
JWK
If, by calling a tax indirect when it is essentially direct, the rule of protection [apportionment] could be frittered away, one of the great landmarks defining the boundary between the nation and the states of which it is composed, would have disappeared, and with it one of the bulwarks of private rights and private property. POLLOCK v. FARMERS’ LOAN & TRUST CO., 157 U.S. 429 (1895) JUSTICE FULLER
