R.I.P. Billionaire Tax (Hopefully)

Categories : Financial, News
December 13, 2023

Insatiable governments are constantly searching for new sources of revenue, and the 118th Congress is no different. Sticking to the mantra of “tax the rich,” a handful of elected officials are constantly seeking new and creative ways to separate successful people from more of their assets. Unable to satisfy their spending appetites with a large portion of everyone’s earnings, certain members of Congress occasionally revisit the notion that a tax could (and apparently should) be levied on unsold appreciated assets. This insidious concept represents a form of taxing wealth instead of (or in addition to) income.

Back in February 2023, right here in this Blog, I dubbed this conceptual enigma Taxation Without Monetization. In our income-based tax system, taxes are levied in three categories. Earned income is taxed through withholding and/or quarterly tax deposits. Profits from sales of appreciated assets are taxed at the time of sale using a Capital Gains Tax. Unearned income, such as interest and dividends, is taxed annually. All payments are due only after the income is received.

Over recent decades, several attempts have been made by envious and spiteful government officials to implement a Wealth Tax. Currently in front of the Supreme Court is a case involving Taxation Without Monetization. This one sprung from the Tax Cuts and Jobs Act of 2017 (TCJA), under which a provision was intended to assess a one-time small Repatriation Tax on foreign profits voluntarily brought home to the USA in cash. IRS has interpreted that provision to assess a tax on unsold, but appreciated, assets held by individuals in overseas companies, but not yet voluntarily repatriated.

This did not sit well with Charles and Kathleen Moore, who were assessed a tax of $14,729 on shares of KisanKraft Machine Tools Private Ltd., a company in India that supplies tools to farmers. Moores’ shares have not been sold, so there is no cash flow from which to draw a tax. They contend that such a tax on unrealized profit is unconstitutional. It remains unclear how this tax situation came to the attention of the IRS.

Sometime in the summer of 2024, the Supreme Court is expected to make a ruling in this case. Should the Court decide against this tax provision, the concept of a Wealth Tax may be put to a well-deserved and abrupt demise.

As with all court cases, the devil is in the details, and there is no way to accurately predict the eventual outcome. In our opinion, this unfair and unpopular concept should be retired from the American lexicon. For our part, when the answer is released, we will bring the news to this Blog and to the Van Wie Financial Hour radio program.

Van Wie Financial is fee-only. For a reason.