Two SCOTUS cases which may upend how the federal government operates

Thanks for tuning in this Saturday morning. Today we’re exploring two cases before the U.S. Supreme Court that could upheave much of the federal government as we know it today.
 
One case, Moore v. United States, has been called the “quadrillion dollar question” because it could alter the very definition of taxable income.
 
The second – actually, a duo, exploring the same question that will be heard simultaneously – could undo Chevron deference, a key legal precedent that delegates sweeping authority to federal agency bureaucrats.
 
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Moore v. United States
One disputed $15,000 tax bill may well deny the federal government hundreds of billions of dollars, or more, of tax revenue in the coming decade.
 
In 2017, Congress and the Trump administration overhauled the tax code. One change sought to resolve a decades-old controversy involving corporate income earned abroad. For years, such income was subject to a “repatriation tax” at the corporate income tax rate – 35% in 2017.
 
The hefty toll to bring foreign earnings back into the United States incentivized corporations to keep that money parked overseas. And that’s exactly what they did, to the tune of more than $2 trillion.
 
The 2017 tax overhaul changed all that, but it imposed a one-time (and much lower) mandatory repatriation tax on foreign corporate holdings – even unrealized earnings – to help pay for the changes.
 
Charles and Kathleen Moore, a couple from Redmond, Washington, said in court filings that they were investors in a farm supply company based in India. The company was profitable, but reinvested all its profits back into the company instead of distributing them to investors. The 2017 mandatory repatriation tax still applied to the Moores, and they had to pay $15,000 in taxes on income they never realized.
 
They sued, and the U.S. Supreme Court will hear arguments in the case next week. Even a narrow decision in favor of the Moores on this specific tax provision may cost the federal government $340 billion – the estimated value of the one-time repatriation tax.
 
But the court’s decision necessarily involves related aspects of the tax code, particularly whether it’s constitutional to tax any unrealized income. The tax code mostly targets realized income, but certain entities like pass-through corporations must pay taxes on their holdings even if they’re not yet “passed through.” That’s another few hundred billion dollars in federal revenue that’s in jeopardy.
 
What’s really attracting political attention, though, are the implications for a long-time liberal dream: a wealth tax. In 2020, Sen. Elizabeth Warren proposed a 2% tax on wealth, not just income, for those with more than $50 million in assets. If the Supreme Court determines in this case that the federal government cannot tax unrealized income, then a wealth tax is all but impossible.
 
Lastly, the justices, if they rule for the Moores, will have to consider the question of severability. If this provision – which helped pay for tax code changes elsewhere in the law – won’t stand, does that mean other portions of the 2017 law can’t, either? It gets awfully complicated awfully fast.
 
Relentless, Inc. v. Department of Commerce; and Loper Bright Enterprises v. Raimondo
For administrative state junkies out there, January 2024 can’t come soon enough. That’s when the Supreme Court will hear two cases that may unwind the decades-old legal maxim known as Chevron deference.
 
Under Chevron deference, an administrative agency has very broad legal authority to interpret Congressional statute that’s silent or vague. If an agency’s interpretation is challenged in court, the Chevron precedent instructs the judiciary to uphold the interpretation so long as it’s based on a “permissible construction of the statute.”
 
Long-time detractors say the high court’s 1984 decision in Chevron v. Natural Resources Defense Council inappropriately expanded the federal bureaucracy’s rulemaking power, and that only the judiciary has the constitutional authority to determine “what the law is.”
 
The net result is an empowered rulemaking bureaucracy that sets high-impact regulations on the environment, transportation, agriculture, the financial industry, and more.
 
Both the Relentless and Loper Bright cases center on a federal rule requiring vessels to pay for the observers the National Marine Fisheries Service requires to monitor the health of fisheries. But the case is really an invitation for the high court to maintain, curtail, or eliminate Chevron deference.
 
Reuters offers a succinct analysis: “Many believe the Supreme Court will make a final decision in Relentless, Inc. and Loper Bright about whether the Chevron Doctrine should survive at all. That may not hold true, but it is certainly the eventuality that parties on both sides of the fight believe to be the most likely. The stakes are high.”
 
More than 70 amicus briefs have been filed.
 
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Come June, the Supreme Court will issue decisions in the cases that could have sweeping impacts on how the federal government levies taxes, how much revenue the federal government takes in, and how much power federal agencies really have.
 
The stakes are high, indeed.