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You probably haven’t heard of Moore v. United States, a little-known case working its way through the courts that could have major implications for America’s savers and business owners. The case revolves around the government’s power to tax unrealized gains. These are gains on assets that an owner hasn’t locked in yet, and which could disappear with any swing in the market. Tobias Burns and Zach Schonfeld report in The Hill, writing [Your Survival Guy’s emphasis in bold]:
The Supreme Court will hear oral arguments in early December on a case that has the potential to broadly reshape the U.S. tax code and cost the government hundreds of billions of dollars in revenue.
At issue in Moore v. United States is the question of whether the federal government can tax certain types of “unrealized” gains, which are property like stocks or bonds that people own but from which they haven’t directly recouped the value, so they don’t have direct access to the money that the property is worth.
Large portions of the U.S. tax code require that income be “realized” before it can be taxed, but critics say it’s an inherently wishy-washy concept that courts have just been ignoring for years due to administrative impracticalities.
Even if the court limits the scope of its decision to the specific tax referenced in the case, known as the mandatory repatriation tax, a ruling in favor of the plaintiffs could cost $340 billion over the next decade, according to the Justice Department.
Don’t be confused by the wording from Burns and Schonfeld. When they write that the decision could “cost the government” $340 billion, that really means it will save taxpayers that money, which they earned and the government did not. The government has no preexisting claim on your wealth.
As for the “administrative impracticalities,” there are many. Imagine owning a rental property. The value of the property increases and the government would like to tax you on the increase in the value, but you don’t have the cash on hand to pay. You could be forced to sell your rental property, just to pay the taxes on the notional increase in value. That’s not very efficient. The reason wealth taxes on unrealized gains haven’t been used before is that they could force investors into fire sales of their assets and potentially bring down the entire economy.
Action Line: An old saying explains that anything you tax, you get less of. If America starts taxing wealth, as a nation, it can expect to have less of it. If America is lucky, the Supreme Court will stop such wealth taxes before they begin. When you want to talk about wealth preservation, I’m here.
Originally posted on Your Survival Guy.
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