Earlier today, the Competitive Enterprise Institute filed a reply brief in the Moores’ case. A few weeks ago, the government argued that the Supreme Court should not even hear a constitutional challenge to the 2017 tax the couple faced. Our reply brief (written primarily by superlawyer Andrew Grossman of BakerHostetler) argues that the government’s opposition is wrong.
This case is critically important for many reasons. The primary reason is that the Ninth Circuit (the court below) read the Direct Tax Clause’s apportionment requirement out of the Constitution. In dissent, four appellate judges recognized that the Ninth Circuit’s opinion “open[s] the door to expansion of the federal taxing power beyond the limits placed by the Constitution,” including “taxes on all sorts of wealth and property without the constitutional requirement of apportionment.”
The Sixteenth Amendment allows “taxes on income, from whatever source derived,” without apportionment. The government did not dispute that the Moores had received no money. Nonetheless, it still claimed that this was an income tax not subject to apportionment.
The government came to this conclusion by arguing that the Supreme Court precedent in Eisner v. Macomber (1920) did not help the Moores’ case. Macomber required that for something to be “income,” it must be “received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal.”
The government claimed that Macomber was “limited in its relevance.” As our reply brief notes, “The vagueness of that assertion is no accident: the Government cannot say in candor that Macomber’s realization holding has been overruled.” In its response brief, the government made several attempts to limit Macomber’s clear holding. I think our reply brief illustrates that the government’s attempts fail.
Just rejecting the precedent in Macomber wasn’t enough for the government. Its approach also forced it to reject the precedent in Commission v. Glenshaw Glass (1955) that income is “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”
The government’s brief continued to try to narrow the applicability of precedent by claiming that Glenshaw Glass was limited to “the facts of that case.” It seems to me that this is not very different from just ignoring the application of this precedent to the very similar situation of the Moores.
The government also tried to claim that the First and Fourth Circuits are “consistent” with the government’s position—but they are not. The First Circuit in Quijano v. United States (1st Cir. 1996), expressly held that income must be “clearly realized,” and the Fourth Circuit in Simmons v. United States (4th Cir. 1962) held that the Sixteenth Amendment requires “receipt of…an economic gain over which he has complete control.” The government claimed that these cases do not suggest “the Sixteenth Amendment requires realized income in every case”—nonetheless, those cases cannot be reconciled with the government’s argument that Glenshaw Glass stands for nothing beyond the case’s “specific facts.”
The government also ignores the specific text of the Sixteenth Amendment to claim: “Nothing in the [Sixteenth] Amendment’s text refers to the concept of realized gains.” Specifically, the government ignores the text of a crucial clause from that amendment—“from whatever source derived”—that makes clear that income must be “derived” from a “source.” There is another label for income that is derived from a source: that is, it’s “realized.” As Henry Black said in 1913, it would have been “shocking to the common sense of business men to call that ‘income’ of the year which has not been received or ‘come in.’”
The Moores were blessed with eight outstanding amicus briefs demonstrating how critically important this decision is to the country. This includes briefs from the Cato Institute, Landmark Legal Foundation, the Chamber of Commerce (the nation’s largest representatives of business), the Manhattan Institute for Policy Research (with Professors Erik Jensen and James Ely), Southeastern Legal Foundation, the Buckeye Institute, the Pacific Research Institute (with Professor Hank Adler), and Americans for Tax Reform. Each of these organizations and individuals should be celebrated for their efforts in helping the Moores and all other people that might be taxed based on their wealth in the future.
Will the Supreme Court hear the Moores’ case? We’ll know soon. The same day we filed our reply brief, the Court announced that, on June 15, it will begin to consider whether it will allow the Moores’ case to be heard. Nobody can say for sure what the Court’s decision will be, but the wide amicus support that the Moores have, especially when coupled with the weak arguments from the government, suggests that, for the Moores, things are looking good.