What’s tricky is that many federal taxes are assessed on unrealized income, including those that apply to futures contracts and many partnerships. A bill to introduce President Biden’s version of a wealth tax is also based on the idea of taxing unrealized gains. “The justices might rule that taxes should only be paid by working people who get paychecks, and not by the rich,” Morris Pearl, chair of the advocacy group Patriotic Millionaires, told DealBook.
Political battle lines have been scrambled by the case. Progressive groups have filed briefs in support of the Biden administration. But some conservative groups also fear that the high court’s conservative majority may broadly reject the idea of taxing unrealized income. Paul Ryan, the former House speaker who helped write the 2018 law in question, estimated that up to a third of the U.S. tax code could be at risk of being gutted.
Is there a way to thread the needle? Some experts, like the Tax Law Center at New York University’s School of Law, urged the justices to decide only on the specific issue at hand of whether a company’s shareholders should be liable for income generated at the corporate level. (In this case, the Tax Law Center argues, the answer is yes.)
Others think more legal challenges to the tax code are inevitable: “This is the beginning of the story, not the end,” David Rosenbloom, a partner at the law firm Caplin & Drysdale, told The Wall Street Journal.
HERE’S WHAT’S HAPPENING
Moody’s downgrades China’s credit rating outlook to negative. The ratings agency said it was concerned about the potential cost of bailing out highly indebted regional and local governments and state-owned businesses, adding that it expected lower economic growth as the enormous property sector shrinks. China’s national government retained its A1 credit rating, but the move signals eroding faith in the country’s finances.