Speaker 1: You're listening to the Bloomberg Law Podcast. Catch us weekdays
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Speaker 2: Welcome to the Bloomberg Law Show.
Speaker 3: I'm Greg Storr and I'm Lydia Wheeler. We're filling in
Speaker 3: for June Grasso, who's out this week ahead.
Speaker 2: In this hour, we'll talk about a case that asks
Speaker 2: the US Supreme Court to decide if Congress has the
Speaker 2: authority to tax foreign earnings. Cases being closely watched for
Speaker 2: its potential to stop Congress from creating a future wealth tax.
Speaker 3: But first, a federal appeals court issued a ruling recently
Speaker 3: that seemed to gut the Voting Rates Act, or at
Speaker 3: least a key section of it. Joining us now to
Speaker 3: explain it all is Carolyn Shapiro, co director of the
Speaker 3: Chicago Kent College of Law Institute on the Supreme Court. So, Carolyn,
Speaker 3: tell us what the a Circuit Court of Appeals did here.
Speaker 4: Bisuka said that the Voting Rights Act of nineteen sixty
Speaker 4: five cannot be enforced by private litigants. That the only
Speaker 4: way it can be enforced, and in particular the most
Speaker 4: operative part today, which is Section two can only be
Speaker 4: enforced by the federal government. That's a really remarkable, dramatic,
Speaker 4: and just really unwarranted holding. People have been litigating Section
Speaker 4: two cases for decades, and it's sort of true that
Speaker 4: there's no express Supreme Court opinion that says, in so
Speaker 4: many words, there's a private right of action under Section two.
Speaker 4: But that's because it's been clear for so long that
Speaker 4: there's a right of action under Section two. In fact,
Speaker 4: it's been so clear for so long that kind of
Speaker 4: keeps reenacting the law on that assumption. This would be
Speaker 4: it would be just an incredible upheaval of voting right
Speaker 4: litigation and law if this is allowed to stand.
Speaker 2: Can you just remind us and our listeners what the
Speaker 2: Voting Rights Act does, and in particular what Section two does.
Speaker 4: So, the Voting Rights Act of nineteen sixty five is
Speaker 4: the law that basically made the Fifteenth Amendment, which allowed
Speaker 4: African Americans to vote, made it effective. The Fifteenth Amendment,
Speaker 4: of course, was a Reconstruction era amendment shortly after World
Speaker 4: the Civil War, and then for many many decades it
Speaker 4: was largely ineffective. States in the South found ways to
Speaker 4: make it impossible or difficult for African Americans to vote,
Speaker 4: and the courts basically allowed that to happen, including the
Speaker 4: Supreme Court. In nineteen sixty five, Congress enacted the Voting
Speaker 4: Rights Act, and that really changed everything. It made our
Speaker 4: country the multi racial democracy that we support to be.
Speaker 4: So it's an incredibly important piece of let's aslation. People
Speaker 4: often refer to it as the crown jewel of the
Speaker 4: civil rights business. Section two of the of the Voting
Speaker 4: Rights That provides that where there is a practice or
Speaker 4: a set of policies that make it difficult for a
Speaker 4: group of minority voters to elect the representatives of their
Speaker 4: choice it comparably to the way white voters can that
Speaker 4: that can violate the statute. So, for example, the redistricting
Speaker 4: is done in such a way so that African Americans
Speaker 4: can't elect their own, their favored representatives, that can violate
Speaker 4: Section two of the Voting Rights Act. It doesn't require
Speaker 4: intentional discrimination. It looks to the effects of certain types
Speaker 4: of decisions that states and local governments make about voting.
Speaker 4: It's been very important for many years, but it's even
Speaker 4: more important than it used to be because In twenty thirteen,
Speaker 4: the Supreme Court made the other most significant part of
Speaker 4: the voting Right tech inoperative, which is Section five, the
Speaker 4: part that required certain jurisdictions to get approval before they
Speaker 4: made changes in their voting systems.
Speaker 3: Can you back up a little bit for us and
Speaker 3: explain how this case came about. I know it was
Speaker 3: a lawsuit brought by voters in Arkansas. Is that right?
Speaker 5: Yeah?
Speaker 4: This is an Arkansas case, and the district court in Arkansas,
Speaker 4: I believe, said that it found that there was no
Speaker 4: private right of action under section two of the fourteenth Amendment,
Speaker 4: and it reached that decision, if I'm remembering correctly, even
Speaker 4: without the state having raised the question of its own
Speaker 4: accord claiming that there were. It was a jurisdictional question
Speaker 4: and that therefore it was required to consider that. This
Speaker 4: is a really remarkable overreach. I can't emphasize that enough.
Speaker 2: Tell us about the circuit decision and the reasoning there.
Speaker 2: Why did they say there was no avoute for.
Speaker 4: Private They looked at the language of the statute, and
Speaker 4: they looked at the language of the statute in extremely
Speaker 4: isolated detail. And it is true. The language of the
Speaker 4: statute doesn't contain the words private right of action, and
Speaker 4: the language of the statute doesn't say in so many
Speaker 4: words that private individuals can do under the statute. There
Speaker 4: are many many statutes like that in the federal legislation,
Speaker 4: and historically the Court used to be somewhat more open
Speaker 4: to inferring of private right of action into particular statutes
Speaker 4: than it has become in more recent years. However, it
Speaker 4: has also said that where it's been clear that there's
Speaker 4: a private right of action in the past, that that
Speaker 4: had been inferred in the past, and in particular, where
Speaker 4: Congress has reenacted the statute, the Court shouldn't go back
Speaker 4: and reparse the language of the statute under the wonders
Speaker 4: that did not exist when it was originally enactive. So
Speaker 4: it looks what the atificate is to look at the
Speaker 4: words of the statute in complete isolation of how the
Speaker 4: statute has been applied for decades, and in complete isolation
Speaker 4: of the legislative history. With a reenactment of the statute,
Speaker 4: where it is extremely clear that Congress intended for people
Speaker 4: to be able to bring lawsuits to enforced Section.
Speaker 3: Two, what's exactly is the state arguing in this case, the.
Speaker 4: State is arguing that they just can't be sued unless
Speaker 4: they're being sued by the federal government, which basically means
Speaker 4: that if the federal government doesn't have the resources or
Speaker 4: the ability, or depending on the administration, that desire to
Speaker 4: enforce the Voting Rights Act, the Voting Rights Act doesn't
Speaker 4: get enforced. They're saying that a private person or a
Speaker 4: private individual such as the NAAFP, or individual voters or
Speaker 4: a community organization just simply can't do anything about it,
Speaker 4: regardless of how blatant the violation of their voting rights are, you.
Speaker 2: Know, cal And one thing that struck me about this
Speaker 2: decision is that reading parts of it, at least there
Speaker 2: was a congressional report from i think the House and
Speaker 2: Senate Judiciary committees that said, we understand this law to
Speaker 2: allow for private lawsuits. Is this one of these cases
Speaker 2: where the legislative history what Congress intended and was talking
Speaker 2: about says one thing, but the language of the statute
Speaker 2: at least arguably says something else.
Speaker 4: Well, I think that's how the Eighth took it, interpreted
Speaker 4: the statute, or chose to interpret with the statute. But
Speaker 4: I think that that is a real triumph of form
Speaker 4: over substance. The statute itself doesn't expressly say one way
Speaker 4: or the other whether there's a private right of action.
Speaker 4: It certainly doesn't prohibit there from being one, and historically
Speaker 4: it's been appropriate for courts to infer a private right
Speaker 4: of action. The Court has again in recent years changed
Speaker 4: that approach. But Congress, the Congress that enacted the law
Speaker 4: before Congress changed that approach, of course, didn't know that
Speaker 4: that was going to happen. They were operating on the
Speaker 4: assumption that people have been doing to enforce the voting
Speaker 4: right back for a long time and would continue to
Speaker 4: do so. And we'll say that in our explanation of
Speaker 4: our we enactment of the law. So it's I would
Speaker 4: not say that the law says one thing, in the
Speaker 4: legislative history says another. But that is at least in part,
Speaker 4: how the Eighth Circuit tries to defend its position.
Speaker 2: Well.
Speaker 3: Coming up in the program, we'll dive deeper into the
Speaker 3: recent voting rates ruling out of the Eighth Circuit Court
Speaker 3: of Appeals with Carolyn Shapiro. Remember, you can always get
Speaker 3: the latest legal news by listening to Bloomberg Law podcast
Speaker 3: on Apple, Spotify, or wherever it is you get your podcasts.
Speaker 2: I'm Lydia Wheeler and I'm Greg store. This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Law Podcast. Catch the program
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Speaker 2: I'm Lydia Wheeler and I'm Greg Store in for June Grosso.
Speaker 2: We've been speaking with Carolyn Shapiro of Chicago Kent College
Speaker 2: of Law about the recent ruling out of the Eighth
Speaker 2: US Circuit Court of Appeals on the Voting Rights Act. So, Carolyn,
Speaker 2: we talked a lot about this ruling coming out of
Speaker 2: the Circuit of a very conservative appeals court.
Speaker 5: There was a.
Speaker 2: Supreme Court decision a couple of years ago that perhaps
Speaker 2: laid the groundwork for this, a concurring opinion by Justice
Speaker 2: Neil Gorsich. Can you tell us a little bit about that.
Speaker 4: Yeah, So this is a case called Burnovitch that came
Speaker 4: out of Arizona, and in this case, it was a
Speaker 4: Section two lawsuit that challenged a number of practices in
Speaker 4: Arizona having to do with the ability for people to
Speaker 4: use mail in ballots and things like that. It was
Speaker 4: what's called a vote denial claim as opposed to vote dilution,
Speaker 4: So it didn't have to do with redistricting. It had
Speaker 4: to do with other practices. And the Supreme Court read
Speaker 4: Section two in that context fairly narrowly, but did not
Speaker 4: address the question of whether there's a private right of action,
Speaker 4: and in fact that wasn't presented. Scursich wrote a concurrence
Speaker 4: in which joined by Justice Thomas. In that concurrence, he said,
Speaker 4: you know, nobody's raised this question, but it's been a
Speaker 4: sort of a question that other courts have asked in
Speaker 4: the past, and he cited a district Court opinion from
Speaker 4: the nineteen eighties as his example of why this is
Speaker 4: remains an open question, which I have to say not
Speaker 4: it might be very persuasive, but he put it out
Speaker 4: there for litigants to pick up, and of course they did.
Speaker 4: That's that's why he did it. And people who read
Speaker 4: the court opinions are looking for those kinds of invitations.
Speaker 4: So both courts, as in the District Court in this
Speaker 4: Arkansas case, and the litigants in the Arkansas case and
Speaker 4: in other cases now as well, are starting to make
Speaker 4: that argument and to say, hey, this is an open question,
Speaker 4: maybe there's no private right of action, and pushing the
Speaker 4: appeals courts to make rulings on that question.
Speaker 3: So, Carolyn, we talked about how the Eighth Circuit Court
Speaker 3: of Appeals here ruled there's no private right of action
Speaker 3: for litigans to come and sue to enforce Section two
Speaker 3: of the Voting Rights Act. But the New Orleans based
Speaker 3: Fifth Circuit Court of Appeals issued a ruling recently on
Speaker 3: this too. What did that court say?
Speaker 4: That court said that there is a private right of action.
Speaker 4: It didn't do a super deep dive into the statute
Speaker 4: of this quite the same sort that the Eighth Circuit
Speaker 4: did in sort of parsing the language the way the
Speaker 4: Eighth Circuit did, but it basically said, you know, there's
Speaker 4: always been a private right of action here, and we
Speaker 4: don't think that this is there's a basis for changing
Speaker 4: that in this moment. That's the law of our circuit,
Speaker 4: and that's the law we're going to apply.
Speaker 2: You know, Carolyn, some listeners may be thinking that there
Speaker 2: was this case out of Alabama in the Supreme Court
Speaker 2: in its last term, and that was a lawsuit brought
Speaker 2: by private litigants, and the Supreme Court did something pretty
Speaker 2: significant in rejecting a republican drawn congressional map there. So,
Speaker 2: can you explain how it can be if there is
Speaker 2: an explanation that the Supreme Court keeps acting like there
Speaker 2: is a private right of action and yet this issue
Speaker 2: apparently is open enough that a federal appeals court decided
Speaker 2: that there is no private right of action.
Speaker 4: Well, I would dispute that really is an open question,
Speaker 4: in part for exactly the reason that you say everybody
Speaker 4: has assumed and has assumed is maybe the wrong word.
Speaker 4: It is. It's an established feature of the law, and
Speaker 4: Congress itself has assumed that there's a private right of
Speaker 4: action in its re enactment of the law repeatedly. But
Speaker 4: it's because it is the case that there is not
Speaker 4: an opinion that says, in so many words, there is
Speaker 4: a private right of action. And you have Justice cour
Speaker 4: Such issuing this invitation, joined by Justice Thomas. Suddenly there's
Speaker 4: an opportunity for forlitigants and courts to say, well, wait
Speaker 4: a minute, let's see how clever we can be and
Speaker 4: come up with an argument that what everybody's always thought
Speaker 4: was true isn't true. Which this is sort of a
Speaker 4: strange way, in my view, to the law to operate,
Speaker 4: and I do think it's quite inconsistent with the case
Speaker 4: you mentioned out of Alabama, Alan versus Milligan. In Alan
Speaker 4: versus Milligan, the court went out of its way to say,
Speaker 4: there's forty years of precedent here. It was not. The
Speaker 4: question was not what whether there's a private right of action.
Speaker 4: The question was how that private right of action operates
Speaker 4: or what it takes to prove a violation of Section
Speaker 4: two of the Voting Rights Act. The court went out
Speaker 4: of its way to say, we are not up ending
Speaker 4: forty decades of present forty years of precedent. It's this
Speaker 4: is the way the law has been, and we don't
Speaker 4: think it appropriate to change it. So well, it didn't
Speaker 4: speak directly to the question that the Eighth Circuit has
Speaker 4: now ruled on. It certainly indicated a significant fidelity to
Speaker 4: an understanding of the statute that has been widespread, again
Speaker 4: not just in the Court, also in Congress.
Speaker 3: It sounds like there's a real circuit split here between
Speaker 3: the Eighth Circuit and the Fifth Circuit. So isn't this
Speaker 3: now present a question that the Supreme Court is going
Speaker 3: to have to resolve?
Speaker 4: Yes, I think it does. The only possibility that would
Speaker 4: prevent that from happening would be if the Eighth Circuit
Speaker 4: Court of Appeals takes the case en banc, which would
Speaker 4: mean that the full Court would reconsider the question issued
Speaker 4: the decision made by the three judge panel and there
Speaker 4: was a dissent, so there were two judges who ruled
Speaker 4: that there's no private right of action and one judge
Speaker 4: who dissented. I don't know how likely it is that
Speaker 4: Theates if it will do that, and on the assumption
Speaker 4: that it doesn't, or if it does take it on blank,
Speaker 4: that it comes out the same way, then yes, I
Speaker 4: think the Supreme Court will certainly have to take this
Speaker 4: case and we'll have to settle a question once and
Speaker 4: for all. Based on the Alabama case, I think it's
Speaker 4: quite unlikely that the Supreme Court would affirm the eighth
Speaker 4: of it.
Speaker 2: That sounds right to me in terms of where the
Speaker 2: Supreme Court seems to be on this question. But in
Speaker 2: the event we're both wrong. In the Supreme Court agrees
Speaker 2: with the Eighth Circuit and says no private right of action.
Speaker 2: Can you just describe the implications of that? What would
Speaker 2: be left of the Voting Rights Act after that sort
Speaker 2: of decision?
Speaker 4: The Voting Rights Act would be really astonishingly ineffective. We
Speaker 4: have already lost Section five, as I mentioned before, the
Speaker 4: part of Voting Rights Act that required covered jurisdictions to
Speaker 4: get permissions for making changes and they're voting and election system.
Speaker 4: That was within hours after the Supreme Court issued that opinion,
Speaker 4: and Shelby County versus Holder States that had been required
Speaker 4: to get that kind of preclearance started enacting laws literally
Speaker 4: immediately that would never have been able to be pre
Speaker 4: cleared and that have had the effect of making it
Speaker 4: harder for minority voters to exercise their rights. Section two
Speaker 4: was actually one of the reasons that the Supreme Court said, well,
Speaker 4: it's okay in that opinion. It's not the end of
Speaker 4: the world for us to get rid of the operation
Speaker 4: of Section five because there's still Section two lawsuits and
Speaker 4: its specifically noted that those losses can be brought by individuals,
Speaker 4: by private litigants. So on that point, the Court itself
Speaker 4: has operated on that assumption in the absence of private plaintiffs,
Speaker 4: the only way these lawsuits could be brought would be
Speaker 4: by the Partment of Justice, and the Department of Justice
Speaker 4: just simply doesn't have the resources to bring all of
Speaker 4: the lawsuits that are brought by private plaintiffs, and under
Speaker 4: some administrations really has indicated no interests at all and
Speaker 4: enforcing the voting like that.
Speaker 3: So, Carolyn, if you and Greg are both right here
Speaker 3: and the Eighth Circuit Court of Appeals decision is overturned
Speaker 3: by the Supreme Court, does that settle all future disputes
Speaker 3: over Section two of the Voting Rights Act.
Speaker 4: Well, certainly doesn't settle all future disputes over Section two.
Speaker 4: Litigates are going to come up with other arguments. There
Speaker 4: are always going to be questions about its scope and
Speaker 4: its application in different circumstances. But it would settle that
Speaker 4: question whether or not there's a private light of action.
Speaker 3: Our thanks to Carolyn Shapiro, co director of the Chicago
Speaker 3: Kent College of Law Institute on the Supreme Court. Coming
Speaker 3: up next on Bloomberg Law Show, we'll talk about a
Speaker 3: tax case that could have big implications for a future
Speaker 3: wealth tax. I'm Lydia Wheeler and I'm Greg Store.
Speaker 2: This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Lawn Podcast. Catch us weekdays
Speaker 1: at ten pm Easter on Bloomberg dot Com, the iHeartRadio
Speaker 1: app and the Bloomberg Business app, or listen on demand
Speaker 1: wherever you get your podcast.
Speaker 2: I'm Lydia Wheeler and I'm Greg Storr in for June Grosso.
Speaker 2: Let's get now to that big tax case the Supreme
Speaker 2: Court is hearing over foreign earnings. It's been closely watched
Speaker 2: for its potential to upend other parts of the tax
Speaker 2: code and potentially affect a future wealth tax. Joining us
Speaker 2: to discuss it is Michael Rappaport. He is a Bloomberg
Speaker 2: Industries reporter covering tax Michael, thanks so much for joining us.
Speaker 5: Thanks for having me so tell us.
Speaker 2: A little background about this case. Who are the people
Speaker 2: involved in How did they get to the Supreme Court?
Speaker 5: Sure the planeff Sir Charleston Kathleen Moore, a retired couple
Speaker 5: from Washington State, and they are challenging a tax bill
Speaker 5: of fourteen thousand, seven or twenty nine dollars that they
Speaker 5: had to pay on the earnings of Kisen Kraft, which
Speaker 5: is a machine tool company. Based in India, in which
Speaker 5: they'd invested because Charles Moore was a friend and former
Speaker 5: colleague of the company's CEO. They contend that the tax
Speaker 5: that was imposed on them is unconstitutional because it was
Speaker 5: based on corporate earnings from kisen Kraft that were not
Speaker 5: actually distributed to them. The lower courts ruled against them,
Speaker 5: but they took their Supreme Court and the High Court agreed.
Speaker 1: To hear it.
Speaker 3: What exactly is this tax? Is a new and where
Speaker 3: did it come from?
Speaker 5: The tax is known as the Mandatory Repatriation Tax or
Speaker 5: the Transition Tax, which was part of the Tax Cuts
Speaker 5: and Jobs Act, the Big Tax the Overhault back in
Speaker 5: twenty seventeen. This is a one time tax on companies
Speaker 5: accumulated foreign earnings. Big US companies had been stashing their
Speaker 5: foreign earnings overseas for many years rather than bring them
Speaker 5: back to the US and have them taxed at US
Speaker 5: corporate tax rates, which at the time were relatively high.
Speaker 5: What the twenty seventeen law did, besides lowering the corporate
Speaker 5: tax rate, was to change the whole time system so
Speaker 5: that all earnings of US companies would be tax going forward,
Speaker 5: no matter where in the world they were located. The
Speaker 5: mandatary repatriation tax was a one time catchup tax imposed
Speaker 5: on those accumulated earnings to make sure that they wouldn't
Speaker 5: be entirely free from US taxation. But it also applies
Speaker 5: to people like the Moors who had a significant stake
Speaker 5: in a foreign company about thirteen percent of their case,
Speaker 5: at thirty percent stake in Kis and craft And they
Speaker 5: were taxing kins and Crafts earnings even though they didn't
Speaker 5: actually receive any distribution of those earnings that falls out
Speaker 5: of the same military repatriation tax. And the Mores claim
Speaker 5: that that's unconstitutional.
Speaker 2: And so why do they claim it's unconstitutional? What's the
Speaker 2: argument that the Moors are making in this case?
Speaker 5: This hinges on what's called realization. The Moors claim that
Speaker 5: it's improper on the sixteenth Amendment of the Constitution, which
Speaker 5: established the USN Tax, to tax them in this fashion
Speaker 5: because they didn't realize didn't actually receive any distribution of
Speaker 5: those earnings. The government's response to that is that the
Speaker 5: tax is legal in the sixtieth Amendment, that it does,
Speaker 5: in fact Congress to tax a shareholder's share of undistributed
Speaker 5: or unrealized corporate earnings. As income to the shareholders. In fact,
Speaker 5: the government says Congress has done so numerous times in
Speaker 5: the one hundred and ten years since the sixteenth Membal
Speaker 5: was ratified. It's imposed taxes like taxes on companies, foreign income,
Speaker 5: and partnership taxes to follow the same principle that you
Speaker 5: don't always have to realize income in order to tax
Speaker 5: on it, and the court has upheld those provisions in
Speaker 5: the past.
Speaker 3: So what's the government arguing here?
Speaker 5: Then?
Speaker 3: On the other side, as I.
Speaker 5: Said, the government's argument is that the repatriot text is legal,
Speaker 5: that in fact, there have been cases in which unrealized
Speaker 5: income is taxable, such as tax on foreign income, tax
Speaker 5: tax on partnerships, and courts have upheld those provisions.
Speaker 2: What are the key precedents here? It seems pretty remarkable
Speaker 2: that the sixteenth Amendment has been around this long and
Speaker 2: the Court has never clearly answered what seems to be
Speaker 2: a pretty basic question about what it covers.
Speaker 5: Well, I wanted to keep precedents certainly from the standpoint
Speaker 5: of what the Moors are claiming, is a case called
Speaker 5: Eisner versus Macomber, which is from nineteen twenty. The Moors
Speaker 5: claim that that case rules out taxes unrealized income. What
Speaker 5: the government says and responses is that, well, that case
Speaker 5: was in a very limited context. It was limited to
Speaker 5: cases in which a company pays a stock dividend to
Speaker 5: a shareholder, and that the court has repeatedly refused to
Speaker 5: extend that principle beyond that limited sort of circumstances.
Speaker 3: So if the court strikes down this tax, what are
Speaker 3: the implications for the rest of the tax code.
Speaker 5: Well, the first and most obvious implication is if you
Speaker 5: strike down the mandatary repatriation tax, it could trigger enormous
Speaker 5: tax refunds for some of the giant multinational companies that
Speaker 5: had been paying billions of dollars in these taxes over
Speaker 5: the last several years, such as Apple, Microsoft, Pfiser. The
Speaker 5: government has projected that the tax would bring in a
Speaker 5: total of three hundred and forty billion dollars over ten years.
Speaker 5: So we're talking about something that could hugely benefit big companies,
Speaker 5: that could really blow a hole and government revenue. Beyond that,
Speaker 5: though that, there's a lot of concern among people in
Speaker 5: tax world, and it's kind of much roomed. Ever since
Speaker 5: the court agreed to hear the case, that if you
Speaker 5: strike down the repatriation tax. It also calls into question
Speaker 5: other parts of the tax code that similarly are levied
Speaker 5: on corporate income that hasn't been distributed to the shareholder.
Speaker 5: The same principle behind the repatriation tax also applies in
Speaker 5: a lot of existing provisions in tax code. So, for instance,
Speaker 5: you have taxes on foreign income what's called Subpart F,
Speaker 5: which applies to certain taxes on certain kinds of income
Speaker 5: from the foreign affiliates of US companies guilty, the tax
Speaker 5: on Global Intangible Low tax Income, which is the US
Speaker 5: mindium tax on the company's foreign income. Taxes on partnerships
Speaker 5: because their profits are taxable to the individual partners even
Speaker 5: when they are even when the earnings aren't distributed. Mark
Speaker 5: to market situations, taxes leving on the current market value
Speaker 5: of certain kinds of assets like regulative futures contracts, even
Speaker 5: something like taxes on the zero coupon bonds, which taxpayers
Speaker 5: have to pay taxes on each year but don't actually
Speaker 5: receive payment until the bond's mature. All those kinds of
Speaker 5: wa under the same kind of principle as the mandatory
Speaker 5: repatriation tax, and there are other such situations. Paul Ryan
Speaker 5: the former Speaker of the House has suggested that ruling
Speaker 5: in favor of the Moors could affect a third of
Speaker 5: the entire tax code.
Speaker 2: So do the Moors in their allies acknowledge what you
Speaker 2: just said, agree with what you just said.
Speaker 5: Do they.
Speaker 2: Accept that this will have such a big effect on
Speaker 2: the tax code or are they arguing, Hey, this is
Speaker 2: actually a narrow case and there's a way you can
Speaker 2: resolve it in our favor without having all these big implications.
Speaker 5: But the Mores, in their supporters claim is that the
Speaker 5: mandatary repatriation tax is distinguishable from all these other provisions,
Speaker 5: and the details are very in the weeds and legalistic,
Speaker 5: but basically they claim that this is something separate from
Speaker 5: things like Subpart F and some of the other provisions,
Speaker 5: so that you can rule in the Moor's favor and
Speaker 5: strike down the repatriation tax and not have any of
Speaker 5: this other stuff affected. Some of the more supporters the
Speaker 5: US Chamber of Commerce claimed in it's front of the
Speaker 5: court brief that the people who are concerned about this
Speaker 5: were engaging in hysteria and barely overstating the potential impact.
Speaker 5: What the people opposed to the More say, the people
Speaker 5: who want to see the court uphold the mandatary repatriation tax.
Speaker 5: Is that it's not that simple. You can't really strike
Speaker 5: down one and preserve the rest. So if you strike
Speaker 5: down the mandatary repatriation tax, then really could have ripple
Speaker 5: effects and call into question a lot of these other provisions.
Speaker 3: You mentioned that there's about three hundred and forty billion
Speaker 3: dollars at stake here and that you know, overturning this
Speaker 3: could really blow a hole in government revenue. Has the
Speaker 3: government talked about kind of what they use that revenue
Speaker 3: for and what you know the implications could be.
Speaker 5: Well, the government attended the mandatary repatriation tax its kind
Speaker 5: of a pay for for some of the other things
Speaker 5: that it was some of the other changes that it
Speaker 5: made in the tax cuts and job sects, such as
Speaker 5: lowering the corporate tax rate from what had been thirty
Speaker 5: five percent down to twenty one percent. This was intended,
Speaker 5: as I said, to make up for some of that
Speaker 5: lost revenue, and also to make sure that some of
Speaker 5: these accumulator earnings that companies had piled up overseas over
Speaker 5: many years wouldn't go completely untaxed. When the government decided
Speaker 5: to change its tax system and tax all of us
Speaker 5: companies income going forward.
Speaker 2: Michael, let's talk briefly and we can continue after the
Speaker 2: break that you want to about implications for a wealth tax.
Speaker 2: These our hypothetical proposals right now, But what does this
Speaker 2: case mean for those proposals.
Speaker 5: A ruling in the Moors favor might preclude attempts to
Speaker 5: impose a wealth tax because it's based on the same
Speaker 5: kind of principles. A wealth tax would be based on
Speaker 5: the accumulated value of a wealthy person's assets. In other words,
Speaker 5: value that hasn't actually been monetized by the taxpayer. If
Speaker 5: you own a stake in a public company that has
Speaker 5: accumulated tremendously in value that's pay per wealth. You have
Speaker 5: not actually realized that income. You haven't even sold the shares.
Speaker 5: You haven't received that as income. As long as you
Speaker 5: don't sell that asset, that means accumulative value is an
Speaker 5: unrealized game. And if the court strikes down the mandatary
Speaker 5: repatriation tax because it says you can tax unrealized games,
Speaker 5: that could mean you can oppose a well tax because
Speaker 5: it would tax on realized gains.
Speaker 2: Michael tell us a little bit about this kind of
Speaker 2: side dispute, or maybe it's a central dispute about Charles
Speaker 2: Moore's involvement with his company. Why is that a controversy
Speaker 2: and how might it affect the case?
Speaker 5: Charles Moore has portrayed himself and his wife as simple
Speaker 5: passive outside shareholders and kisen Kraft, the Indian company, issue
Speaker 5: here that they had no control of what the Kis
Speaker 5: and Craft distributed its urnings to shareholders. Since this case
Speaker 5: hinges on whether undistributed corporate income can be taxed, that
Speaker 5: could be significant. But what Charles Moore didn't say in
Speaker 5: his followings to the Supreme Court is that and this
Speaker 5: is shown in kisen Kraft's corporate documents. In India, Charles
Speaker 5: Moore was essentially a corporate insider there. He was a
Speaker 5: director of the company for five years. He received thousands
Speaker 5: of dollars in travel reingbursons for the company, even though
Speaker 5: he claimed in his followings that he never received any
Speaker 5: payments from the company. He advanced only twoitter fifty thousand
Speaker 5: downlished the Kais and Craft and the form what was
Speaker 5: called share application money that was later refunded to him.
Speaker 5: He appears to have sold some of the shares to
Speaker 5: the company's CEO, as I said, was a friend and
Speaker 5: former colleague of his. All the suggests that he would
Speaker 5: have had at least some sort of voice in what
Speaker 5: the COIs and Craft did in fact distrie of its
Speaker 5: turnings to the shareholders. Now the question is does all
Speaker 5: this matter to the case, And people in the tax
Speaker 5: world are kind of split about that. Some people think, yes,
Speaker 5: it does matter that the Wars haven't told the full
Speaker 5: story to the court, that it speaks to their credibility
Speaker 5: and to their portrayal of themselves as ordinary taxpayers and
Speaker 5: kind of a David versus Golide situation. Other people contend well,
Speaker 5: even if Charles Wore was more deeply involved with the
Speaker 5: company that he said, it doesn't affect the central issue
Speaker 5: in the case. It doesn't speak to whether the mandatary
Speaker 5: repatriation tax is unconstitutional. It doesn't speak to whether it's
Speaker 5: legal the tax income that the taxpayer hasn't realized. So
Speaker 5: these people think that at the end of the day,
Speaker 5: it does not matter to the ultimate outcome of the case.
Speaker 5: For what it's worth, the government has not shown any
Speaker 5: sign that it intends to make an issue out of this,
Speaker 5: so it's very possible. It might not come up during
Speaker 5: the oral arguments on Tuesday. We don't know whether any
Speaker 5: of the justices have taken note of this issue, so
Speaker 5: we'll have to wait and see about that.
Speaker 3: You mentioned earlier about the implications that this case could
Speaker 3: have on a future wealth tax. Can you talk about
Speaker 3: who has been calling for a wealth tax and kind
Speaker 3: of the history there and kind of why we don't
Speaker 3: already have that.
Speaker 5: Well, it's actually kind of started before the Court agreed
Speaker 5: to take the case, because some conservative groups urged the
Speaker 5: Court to accept to hear this case exactly for that reason,
Speaker 5: because they want the Court to use this case to
Speaker 5: rule future wealth tax off limits. Now, Democrats continue to
Speaker 5: press andw with proposals for a wealth tax. The latest
Speaker 5: attempt was introducing the Senate ships a few days ago
Speaker 5: by Senator Ron Wide and the chairman of the Center
Speaker 5: Finance Committee. He insists that such a tax would be constitutional.
Speaker 5: President Biden has called for a wealth tax also or
Speaker 5: a billionaire's tax, as a court where assets above a
Speaker 5: certain level would be taxed, whether or not would be realized.
Speaker 5: As of right now, however, a wealth tax is still
Speaker 5: very much in the nascent stages. There's no indication that's
Speaker 5: going to pass anytime soon. Congress is having difficulty agreeing
Speaker 5: on anything much these days, and even Wide admits that
Speaker 5: proposal of this nature probably wouldn't be acting on for
Speaker 5: some time yet.
Speaker 2: Michael, we only have thirty seconds left or so. But
Speaker 2: do you have any strong feelings, based on what the
Speaker 2: quarters that are done in the past, about how this
Speaker 2: case is likely to come out?
Speaker 5: It's really hard to say. I mean, part of the
Speaker 5: reason that some of the people in tax world have
Speaker 5: been trumpeting the potential implications of this so loudly is
Speaker 5: because they know that the justices, while they obviously are
Speaker 5: legal experts, are not tax law experts. Tax flow is
Speaker 5: extremely in the weeds and detailed and complex, and they
Speaker 5: want to make sure that the justices before they rule,
Speaker 5: or aware of the potential implications for the rest of
Speaker 5: the tax code. And it's really hard to say but
Speaker 5: how the court is going to come down this, But
Speaker 5: this particular court has shown a tendency to not confine
Speaker 5: its rulings to narrow issues, so it's certainly in the
Speaker 5: realm of possibility that they could rule broadly in this case.
Speaker 5: And if they do, in factor, won't favor the Moores issues,
Speaker 5: something that could have significant implications for other provisions in
Speaker 5: the tax code.
Speaker 3: That's Michael Rappaport, a senior reporter at Bloomberg Tax and Accounting.
Speaker 3: Thanks so much for joining us. Well, Greg, One thing
Speaker 3: we didn't chat about with Michael is the controversy here
Speaker 3: involving Justice Alito in this case. You know over one
Speaker 3: of the attorneys that's actually arguing, I think David Rivkin,
Speaker 3: you know he's going to be before the court. Can
Speaker 3: you talk about the relationship with Alito there and what's
Speaker 3: going on?
Speaker 2: Yeah, really unusual situation. David ri Rivken, a well known
Speaker 2: conservative lawyer, co wrote to Wall Street Journal Articles opinion
Speaker 2: pieces with an opinion a writer at the Wall Street
Speaker 2: Journal in which basically gave Justice Alito a four to
Speaker 2: say some things, and he talked about he talked about
Speaker 2: the leak of the ruling in the abortion case. People
Speaker 2: have said that was an inappropriate thing to happen, and
Speaker 2: Democrats have called for Justice Alito to recuse from this
Speaker 2: case because of David Rifkins's involvement. And then Justice Alito
Speaker 2: back in September put out a statement in which he
Speaker 2: said I'm not going to recuse. There's nothing out of
Speaker 2: the ordinary about these interviews, nothing to see here, and
Speaker 2: so every indication is he is going to participate in
Speaker 2: this case.
Speaker 3: Wow, that's really interesting, you know, especially given all the
Speaker 3: ethics controversies. And that does it for this edition of
Speaker 3: the Bloomberg Law Show. I'm Lydia Wheeler and.
Speaker 2: I'm Greg Storr. This is being pl