Moore vs. United States: Tax Unrealized Income Case
taxfoundation.org
taxfoundation.org
On a far more practical level if citizenship is a cell phone plan it destroys the concept of any safety net. The people who are the largest net contributions should choose low cost plans that don't offer services they have no intent on using and the population that uses those services can't prop up their plan on their own. I know I would choose a plan without social security because mathematically it isn't benefitting me.
Tax implications only really affect you at high income levels (think millions of USD/annually). The cases where you are considered 'double taxed' are, IMHO, rare, and in fact mostly do not happen. This comes from a person who detests taxes of all kinds.
There are guides out there including by the US government detailing how expatriates can manage their taxes, suggest reading on them.
The cost of getting a US / UK accountant to do the most simple of returns will run you around $1000 in total (at least in the UK), and the costs increase dramatically as your taxes get complicated.
That doesn't even get into things which aren't covered by the DTA, like ISA accounts in the UK. And worse it's extremely easy to run afoul of PFIC rules which lead to punitive US tax and a higher reporting burden if you do any investing.
Being a US expat is expensive if you don't want to give up your citizenship.
>Tax implications only really affect you at high income levels (think millions of USD/annually).
Depends on what you mean by "really affect" because they definitely affect you at any income level as you have to file taxes with the IRS.
Normal unrealized gains are hard to put a real value on. Unrealized gains used as collateral just had you and a bank agreeing that there's something real and dependable there.
I say "arguably" because the process gives another party a claim against the asset, which means you no longer own it in the same way. You're no longer free to use or dispose of it as you wish.
I anticipate this scenario: "Hey, tax-dude, you know that $50,000 of Amazon stock I bought back in 2009? Well, I just used it as collateral to borrow some cash from my buddy, which I'm told I need to inform you about. He stared real hard at the stockamajigs said it was worth $50,000, and lent me that same amount. So anyway--major bummer here--it turns out I made zero profit on that pointless investment, which by-the-way means don't owe any kind of capital-gains tax at all."
Why would someone worth that much money want a $50k loan, and put up 150 million dollars of assets as collateral to avoid paying taxes on the loan? If they miss a payment they lose everything.
Adjusting the numbers to normal human scale, it'd be like someone putting up their $1 million house as collateral, to secure a loan for 300 bucks, so that they can skirt 100 bucks in taxes.
> If they miss a payment
A non-issue since they will immediately repay the loan, and the lender is obviously complicit in the scheme.
> Why would someone
It's not about skipping taxes on the $50k loan, it's about skipping taxes on the $150,000k-ish investment by using and artificial valuation.
A $50k loan won't buy you your mansion, nor will it help you avoid any taxes when you do try to realize some of the value of your Amazon stock.
The point is that if you and a bank jointly agree the asset has appreciated in value, and you give the bank a claim on that asset in order to be approved for a big loan, this collateralization activity should be treated as a taxable event in the same way that a sale is, because both activities are different ways of realizing the gains.
It's like if you sold and immediately re-bought them from a capital gains perspective.
I'm suggesting that's the realization event. That $50,000 is taxed as capital gains at that point. The subsequent loan value is immaterial to income calculations just like all other loans.
From a tax perspective it'd be like if you sold and immediately rebought the stock or whatever.
Imagine, I have $1000 unrealized gain in year1. Next year market tanks and I now have -$2000 in year2. Year after that market goes backup and now I have $0 gain in year3. If I hadn't sold my investment for 3 years, I have net gain $0 and I should pay $0 tax. However, taxing unrealized gains means I will have to pay tax on additional $1000 that I never had.
The suggestion was tax on unrealized gains used to back loans. You'd only be taxed on $1000 if you used $1000 of your unrealized gains to back a loan. That should also raise your basis by $1000, so sometime later when you sell the property you wouldn't be taxed on that $1000 unrealized gain again.
Why not? Obviously not 100% of the unrealized gain, but in most jurisdictions property tax (a subset of wealth tax) is a percentage of the market value (or some proxy) of the house.
And while people might think that they are not receiving government services just for owning land, they would be wrong. Owning land means nothing if you cannot defend it, or you cannot pay someone else to defend it for you.
All those courts/lawyers/police/military cost money, as well as other government services necessary to maintain social order.
If anything, the current situation of income taxes making up most of government revenue means that people who work are disproportionately paying for expenses that disproportionately benefit people who own.
> However, taxing unrealized gains means I will have to pay tax on additional $1000 that I never had.
But would you say you derived a benefit from a society that allowed you to maintain title to something peacefully? Because that mechanism is not free.
Unrealized gain tax would create a huge industry trying to put valuations on random restaurants and car dealerships, and the market for small businesses like that are very illiquid, so they will get detached from reality fairly fast.
The idea is to tax people who make their money through asset appreciation at the same rate as the folks who make their money by selling their labor.
> Imagine if property tax was %10-50 of your property value vs. the %0.5-%2 it is today. Nobody would own their properties anymore in a span or a year or two.
I'm not sure if this is a disingenuously hyperbolic argument, but on the off chance you literally believe the government is trying to charge recurring, annual, double digit percentage taxes on the entire value of the assets, that's not how it works. The tax is only on the appreciation. If the asset doesn't appreciate, no tax is owed.
If that sounds crazy, it is, but it also makes something as crazy as tax on unrealized unliquid gains you cannot sell too somewhat possible. Many, many new businesses that are growing would essentially have to be liquidated to the government in a few years.
There are a lot of problems with taxing unrealised gains. Say you paint a picture for fun, I say that's brilliant it's probably worth $1m, do you then have to try to borrow $200k to send to the tax man? And many similar more mudande situations along those lines.
Look at US spending and note that the money goes towards (1) the wealth bonfire of permanent war and (2) a large and complex welfare state split between health care, pensions and other services. Neither of those are capital formation (the wars are in fact capital destruction). Everyone will get better outcomes if the money that goes to capital formation is protected from tax because the benefits of capital are substantially higher than the benefits of consumption spending. Literally the only thing keeping our standards above a typical baboon's is that capital being built.
The real problem here is pretending things that are capital destructive are valuable - the 2007 crisis response bailing out bankrupt banks springs to mind and the ongoing cover to various unprofitable businesses with the low interest rate regime so people can get wealthy while not building anything useful. But randomly taking money from people making unrealised capital gains doesn't fix that, and it just puts more money into the pot that funds the war machine.
> Your proposal is basically to annex any country with a tax regime that the US doesn’t approve of.
Unfortunately, we are going there and fast. (CRS, Global Minimum Tax, FATCA, and other stuff). My guess is that this will speed up the bifurcation of the current international system into two systems. One of which will be supported by China who will be able to play on the two sides due to its size.
It’s framed as anti money laundering, anti tax avoidance, anti terrorism ect… but it’s really just the worlds most powerful governments trying to rewrite the laws of every other country in the world using non-legislative processes. Pillar 1 is a great example of that, most environmental treaties are too, and so is the fact that just about every foreign aid commitment comes attached with a treaty that requires countries to sign up to ICSID arbitration (here’s a great interview on how monumentally corrupt that system is: https://youtu.be/vDsp2apG5zQ?si=7IusNjr-E3SgmE6S).
Annexation would actually be a preferable outcome imo. At least then people would actually know what was happening in their own countries, rather than just being endlessly frustrated that their governments seem to be serving everybody other than its own citizens, all the while generally having no idea what any of these systems are, or that they even exist.
> I don’t see how the Supreme Court blocks billionaire taxes and unrealized-gain taxes without damaging existing rules that are much more modest. Again, this is a big deal. The Supreme Court hasn’t stuck down an income tax for a century, and in my view, a lot of sensible tax rules are at stake.
The case was heard last Tuesday and a ruling is expected in summer 2024, https://www.cbsnews.com/news/supreme-court-to-hear-major-cas...
> During more than two hours of arguments, the justices peppered lawyers for both sides with questions about the implications of their positions and appeared aware of how a sweeping ruling would reverberate across the U.S. tax system.
This might be an advantage if paying 27% lower-tier tax over the years, rather than being taxed once on cash out and hitting a higher-tier of 42%. However, given the compounding effect, it seems more preferable to accumulate gains and pay higher tax at the very end.
Fiat currency is a tool created by governments to accomplish goals. Massive income inequality generally conflicts with most liberal democracy's goals. Taking loans against unrealized gains lets people much richer than me pay a much lower effective tax rate.
Why not invent a new tax to address this?
1. There are material misrepresentations by the plantiff and by their counsel. The entire premise is that Moore shouldn't have to pay taxes without realized income, and he has no control over when his Indian holdings would realize profits -- except he owns 11 percent of the company and served on the board of directors for five years[2].
2. One of the attorneys on the case is also a WSJ editorialist who frequently interviews and coauthors articles with Justice Alito.
3. Alito has refused to recuse himself from the case (IMO on dubious grounds), and now has to really bend over backwards to ignore the perjury in #1.
4. There was no reason to grant this case cert, as it had no circuit split.
5. If overruled, it would immediately unleash a trillion dollar amount of chaos on the US tax code at a point in which Congress frankly is not equipped to govern.
6. The amount in dispute is around 15,000USD. I promise you the lawyers cost more than that. What the Tax Foundation isn't saying: plaintiffs want the supreme court to preemptively strike down the possiblity of a federal wealth tax.
[1]: https://slate.com/news-and-politics/2023/12/sam-alito-moore-...
[2]: https://www.taxnotes.com/featured-analysis/moore-part-4-moor...
Has there ever been a SCOTUS case where after reading the briefs and taking arguments they just did a switcheroo and declined to rule?
You are talking about this like it's a bad thing. It absolutely should be struck down, and I don't really care what case ends up striking it down
Constitutionally, the House holds the purse strings, not the Supreme Court, and overturning 200 years of precedent here is not in anybody's best interest.
Right?