Balkinization: Less is Moore

Less is Moore

Joseph Fishkin

The Supreme Court today took the narrowest and simplest route to upholding an obscure tax provision in Moore v. United States. It thus avoided throwing a large bomb into the tax system whose “blast radius” (actual quote from majority opinion at p.16) would have been considerable, destroying both a plethora of current tax code provisions and, in addition, a lot of future avenues for taxing the large fortunes of the economic elite of our time, such as a wealth tax. Instead the Court went narrow, pointing out that in this particular case, a company has some income, and the government is allowed to attribute that income to the company’s shareholders such as the plaintiffs. Done.

The majority for that narrow result looks solid enough (7-2). But a slightly closer look reveals that on the question of real import for the future—is this Supreme Court inclined to do a modern reprise of Pollock and strike down some future tax aimed at economic elites such as a wealth tax—the real vote was 5-4, at best. The concurrence in the judgment by Justice Barrett with Justice Alito (that’s 2 of the 7) would uphold the relevant obscure tax provision on even narrower grounds than the majority. Essentially, according to the last sentences of that concurrence, the plaintiffs should lose today because of concessions they made; the plaintiffs were a little too clever in conceding the constitutionality of various provisions hard to distinguish from the one they challenged. Meanwhile Justice Kavanaugh, writing the majority opinion, purports to leave all the big questions for future cases, but even he can’t resist throwing in an entire paragraph (p.23) whose only purpose is to note that the Solicitor General conceded at oral argument that a wealth tax might raise different questions.

But Kavanaugh’s majority opinion got the bottom line right, and it also gets one more big thing right. Like Justice Jackson’s excellent concurrence, which makes this point more forcefully, the majority comes very close to simply saying straight out that Pollock was wrongly decided—at least, the majority states, it was a major departure from existing law. This is true and surprisingly important. Pollock was the 1895 case that overturned a century of precedent to invalidate the income tax. The American people overruled Pollock with the Sixteenth Amendment. Today’s anti-tax heroes—such as Justice Thomas, writing a dissent in today’s case joined by Justice Gorsuch—want to view the Sixteenth Amendment as carving out a targeted exception to Pollock’s still-basically-good rule, an exception that would cover only an income tax on “realized” income. As Bruce Ackerman, Willy Forbath, and I argued in a brief in this case, Pollock was wrong the day it was decided, and the Sixteenth Amendment completely repudiated its wrong logic. Congress has a broad power to tax—a power broad enough to reach the concentrated wealth of 1895, 1913 (when the Sixteenth Amendment was ratified), and today. Indeed, we argued, Congress has a constitutional duty to enact the kind of broad and equitable tax scheme that Pollock wrongly upended. Today’s majority opinion by Justice Kavanaugh doesn’t go anywhere close to that far. But it correctly frames the overruling of Pollock in the following way: “the Sixteenth Amendment expressly confirmed what had been the understanding of the Constitution before Pollock” (p.7), that Congress has the power to tax income, including “income from property,” without running afoul of the direct tax clause and its unworkable apportionment requirement. Kavanaugh leaves for some future case whether Congress can tax unrealized income or the “appreciation” of property (p.8 n.2), leaving future courts various options for straying way beyond the original understanding of the constitutional limitations on Congress’s taxing power in 1789 or 1913, as Pollock did, disastrously.

I’m old enough now to remember that conversations about concentrated wealth sounded a bit different twenty years ago than they do today. Back then, I was in grad school, and Thomas Piketty’s book was still a decade in the future, but some of us who studied wealth and opportunity were beginning to worry that the United States, along with much of the world, might be entering a new Gilded Age, similar to the one a century ago (in which defenders of concentrated wealth used the Supreme Court to win cases like Pollock protecting their fortunes from tax). One of the strongest rejoinders to this worry at the time was as follows. Look at lists of the wealthiest people, in the U.S. or globally. Very few of them (at the time) had inherited most of their wealth. This was in the early 2000s, and the point was fair enough. Although most of the richest people did inherit quite a lot of privilege and some wealth, the new billionaires weren’t literally the heirs of other billionaires. But there was a rejoinder to the rejoinder, and many of us said it at the time: bookmark that list now, because the future list is going to look very different. The super-rich are eventually going to bequeath these billions to their kids. Estate taxes are unfortunately quite limited and avoidable. And sure enough, last year, the bank UBS, which studies each year’s crop of new billionaires, found that for the first time, the majority of all the wealth of 2023’s new class of billionaires came directly from inheritance (and by that they mean straight inheritance of the billions—not making a small fortune into a large one, which UBS counts as “self-made”). This is the tip of the iceberg of the greatest wealth transfer in history, which is reinforcing problems of concentrated economic and political power—oligarchy—in the United States and across the world.

In the U.S., Congress has ample power to restrain the excessive concentration of wealth through progressive taxation. The taxing power is one of our most powerful bulwarks against oligarchy, and as Willy Forbath and I argue in The Anti-Oligarchy Constitution, Congress has a duty to use it. A wealth tax is only one of many tactical approaches to this problem; much stronger taxation of inherited wealth would also work. None of this will be easy, in Congress or in court, given the way economic and political power go together. But today, the Supreme Court avoided unnecessarily reaching out to create new limits on the federal power to tax. It’s June, the month of really bad decisions, this year and every year of late. So the American people should, I suppose, count this incredibly narrow, leave-it-for-the-future, wow-that-shouldn’t-have-been-anywhere-near-this-close decision as a win.

Posted 3:31 PM by Joseph Fishkin [link]