December 4, 2023

Dec 05, 2023

When my friend Joanne Freeman and I were hosting the Now & Then podcast, it became a joke at our weekly planning meetings that I almost always suggested we should focus the following week’s episode on tax policy. Since it appeared that other people have a lower tolerance for tax policy than I do, we usually didn’t end up landing on that topic.

But I remain fascinated by it. Tax policy shows what a society values.

Tomorrow the Supreme Court will hear arguments in the case of Moore v. United States. The case illustrates today’s Supreme Court’s tendency to hear cases based on fictional stories in order to shape society to a right-wing ideology.

As Lisa Needham points out in Public Notice today, the plaintiffs in the case, Charles and Kathleen Moore, have presented themselves as “minority shareholders without any role in” the management of an Indian company that works to provide power tools to small farmers in India. But according to Ann E. Marimow and Julie Zauzmer Weil of the Washington Post, Charles Moore was a director of the company from April 2012 until March 2017, had contributed about $250,000 to the company and been repaid at 12% interest, and in 2019, the year after he filed the lawsuit, sold about 20% of his holdings for close to $300,000.

The court is supposed to decide cases based only on facts, not fiction, but this court has shown a willingness to overlook fictions that enable actions the majority wants to take. As Needham notes, earlier this year it decided 303 Creative v. Elenis protecting a web designer from having to make a wedding website for a gay couple, even though it turned out that the alleged gay client in the case was actually a man who had been married to a woman for years, had never asked anyone to design a website for a wedding, and had no idea he had been named in the case.

Such lies permit these test cases to get before the court, Needham writes, teeing up court decisions to change the United States.

These cases, based on fictional accounts, dovetail with the fictional history in amicus briefs. These are so-called friend-of-the-court briefs from someone who is not a party in the case to offer analysis of the issues. Yesterday, Heidi Przybyla of Politico showed how right-wing lawyers connected to Leonard Leo, co-chair of the board of the activist right-wing Federalist Society, have filed amicus briefs that invent a past that the right-wing justices then lift into the decisions themselves to shape modern society.

The Moore v. U.S. case concerns the federal government’s ability to tax wealthy people. The Moores argue that the federal government cannot tax wealth until it has been “realized.” That is, increased value of stock, for example, cannot be taxed until it is realized through that stock’s sale.

According to Ian Millhiser of Vox, what is really at stake is the ability of the government to tax the wealthy to begin to address the extremes of wealth that have expanded since 1981.

Forestalling the use of tax policy to address how drastically our laws have redistributed wealth upward fits with Republican lawmakers’ exclusive focus on addressing the nation’s budget deficit by cutting services. At last month’s Republican presidential primary debate, for example, the candidates expressed support for cutting Social Security benefits, with former South Carolina governor Nikki Haley telling the audience that “any candidate who tells you that they’re not going to take on entitlements is not being serious.”

But it is tax cuts, primarily those of presidents George W. Bush and Donald Trump, that have been the primary drivers of the budget deficit, so it would seem logical to end them, especially since they have never boosted the economy as promised. And yet, rather than ending them, the Republicans are eager to extend them. They embrace the idea that the best course for the nation is to slash taxes and services and to concentrate wealth at the top of the economy.

Ironically, it was the early Republican Party that set out the blueprint for rejecting that idea. When the outbreak of the Civil War in 1861 created a crisis in the cash-strapped U.S. Treasury, Republicans in Congress invented the nation’s first national income tax.

Initially, they levied a 3% tax on income over $800; in 1862, concerned that the level of taxation necessary to pay for the war would be too much for most Americans to bear, they created a progressive income tax, taxing income over $600 at 3% and income over $10,000 at 5%. “The weight must be distributed equally,” Representative Justin Smith Morrill (R-VT) said, “not upon each man an equal amount, but a tax proportionate to his ability to pay.” In 1864, Congress revised those numbers upward.

Morrill claimed that the federal government had a right to “demand” 99% of a man’s property for an urgent necessity. When the nation required it, he said, “the property of the people…belongs to the Government.”

With their money behind the war effort, Americans became more and more committed to their nation. As the war costs mounted, far from objecting to taxes, Americans concerned about the growing national debt asked their congressmen to raise them. In 1864, Senator John P. Hale (R-NH) said: “The condition of the country is singular…I venture to say it is an anomaly in the history of the world. What do the people of the United States ask of this Congress? To take off taxes? No, sir, they ask you to put them on. The universal cry of this people is to be taxed.”

The Civil War income tax expired in 1872, and by the 1890s, after money had concentrated at the top of the economy, wealthy industrialists and others thriving in the new economy rejected their earlier understanding of tax policy.

In 1894, in the midst of a depression that was crushing farmers and workers, Democrats in Congress levied a 2% tax on incomes over $4,000. Immediately, Republicans said the measure was unconstitutional because it gave too much power to the federal government and would force states like New York, which had financial centers, to pay more in taxes than states like Mississippi. “The income tax was born of a mixture of sectionalism, communism, and demagogy,” wrote the Pittsburgh Gazette.

In 1895 a staunchly pro-business Supreme Court agreed with opponents of the tax, deciding in Pollock v. Farmers' Loan & Trust Company that the income tax was unconstitutional, giving far too much power to the federal government. In 1909, as Democrats and progressive Republicans continued to call for an income tax to address the concentration of wealth, those hoping to kill the idea once and for all proposed a constitutional amendment for one, thinking it could never be ratified.

They were wrong. State legislatures backed the Sixteenth Amendment, which became part of the U.S. Constitution in 1913, an important symbol of the Progressive Era.

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Notes:

https://www.washingtonpost.com/politics/2023/11/27/supreme-court-tax-case-offshore-earnings/