The Supreme Court heard oral arguments on Tuesday in the case of Moore vs the United States, a case that could have far-reaching consequences for the country's tax code and the ability of the federal government to impose wealth taxes. The case revolves around a provision in the Tax Cuts and Jobs Act, passed in 2017, which created a one-time transition tax on certain foreign corporations owned by Americans. This tax is expected to generate $340 billion in revenue over a decade.

During the two-hour argument session, the majority of justices seemed persuaded by the federal government's argument in favor of upholding the tax on overseas investments. US Solicitor General Elizabeth Prelogar highlighted Congress' authority to enact such taxes and the Supreme Court's history of upholding similar measures. She dismissed concerns raised by the justices regarding potential future tax implications.

The plaintiffs in the case, Charles and Kathleen Moore, investors in an India-based company, were hit with a $15,000 tax bill due to the transition tax. They argue that this tax violates the 16th Amendment, which grants Congress the power to levy taxes on income, as they never received any of the company's profits. However, both a federal district court and the 9th US Circuit Court of Appeals rejected their arguments.

While some conservative organizations have filed briefs claiming that the amendment generally requires income to be realized for taxation, Justice Brett Kavanaugh expressed a potential inclination towards a narrower ruling that would not have wide-ranging effects on US taxing policy. Kavanaugh pointed out that, even if realization were deemed necessary for taxation, in this particular case there was realized income attributed to the shareholders.

While the justices could limit their decision to the transition tax, a ruling in favor of the Moores could create uncertainty in the tax code and potentially lead to legal challenges against other provisions that impose levies on unrealized or undistributed income. These measures are often seen as ways to prevent tax avoidance and are being considered in proposals put forth by Democrats like President Joe Biden, Sens. Elizabeth Warren, Ron Wyden, and Bernie Sanders.

Biden's proposed "Billionaire Minimum Income Tax" would require those worth over $100 million to pay a tax rate of at least 25%, including unrealized gains. Similarly, Wyden's proposal aimed to tax the gain in value of certain assets every year for individuals with more than $1 billion in assets or reported income exceeding $100 million for three consecutive years. Sanders and Warren have also presented plans to tax the wealth of the wealthiest individuals in the country.

While these proposals are unlikely to pass the divided Congress, Democratic lawmakers have reintroduced bills related to these plans, and amicus briefs filed in the Supreme Court case seek to challenge future wealth tax or unrealized gain-as-income tax proposals.

If the Supreme Court were to rule in favor of the plaintiffs, not only could the transition tax be impacted, but several international tax rules designed to prevent tax evasion could be invalidated. This could lead to revenue losses and potentially enable the rich to avoid paying taxes. Additionally, the court could alter profit reporting rules for pass-through entities, potentially allowing owners to escape income taxes.

The Tax Policy Center estimates that the elimination of six provisions related to unrealized or undistributed income could reduce federal revenue by $87 billion annually. However, the potential for revenue losses and tax avoidance strategies could make the impact even larger.

The Supreme Court's decision in the Moore vs United States case will have profound implications for the tax code, wealth taxes, and federal revenue. Experts warn that a ruling in favor of the plaintiffs could open up loopholes and limit Congress' ability to prevent future tax abuses, ultimately affecting the country's fiscal health.