TaxProf Blog – Paul Caron: WSJ: Can Congress Tax Wealth by ‘Deeming’ it Income? (September 8, 2021)

Paul Caron has published an article on the TaxProf Blog, titled “WSJ: Can Congress Tax Wealth by ‘Deeming’ it Income?”which discusses a Wall Street Journal op-ed concerning the right of Congress to categorize inherited wealth as income in order to tax it. The article begins as follows:

Charles and Kathleen Moore have done well, but they certainly aren’t billionaires. Yet the couple’s constitutional challenge stands to slam shut the door on a federal wealth tax like the one Sen. Elizabeth Warren wants to enact.

The story is complicated, though less so than the tax code. In the 1990s Mr. Moore, a software engineer, worked at Microsoft on its Office applications and grew close to a fellow programmer, Ravi Agrawal. … Mr. Agrawal needed capital to get [his] business off the ground. He approached friends to invest in his new company, KisanKraft, and the Moores put up $40,000. … The Moores have never received a dime from their investment. … 

Then the tax bill came. As part of the Tax Cuts and Jobs Act of 2017, Congress reworked the way multinational corporations are taxed, limiting the amount that they had to pay on foreign income. Offsetting part of the cost was a new, one-time tax on earnings that certain foreign corporations had accumulated over the preceding 30 years but not distributed to their shareholders through dividends. The law deemed those earnings as 2017 income to the shareholders and taxed them on it. The Moores’ bill amounted to $15,000. They paid and are now suing for a refund, on grounds that the new tax is unconstitutional.

Click here to see the full article: “WSJ: Can Congress Tax Wealth by ‘Deeming’ it Income?”

Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.

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