WASHINGTON (CN) — This term the Supreme Court could decide an important question for those looking to put a tax on billionaires, but the closely watched case is already facing headwinds before the justices hear arguments.
Four of the nine justices have been called on to recuse from the case, set to be heard in December, and the record in the case has been disputed by newly uncovered public information.
"The defective record is enough to dismiss the case as improvidently granted, but when you add the tax shelter issue on top of that, it's not a close call,” Gabe Roth, executive director of ethics watchdog Fix the Court, said. “This case has no business on the Supreme Court's docket. A DIG is the only reasonable and ethical option."
A DIG, shorthand for dismissing as improvidently granted, allows the justices to take a step back from a case they already agreed to hear. They’re not especially common but also not unheard of. This option would not prevent the high court from examining the issue before them in a different case that provided a better vehicle.
Ethics watchdogs have called on three justices to recuse themselves from Moore v. United States because of how a ruling could impact their pocketbooks.
"Saving money on your annual tax bill, possibly in the thousands of dollars, qualifies as substantial,” Roth said. “So that a third of the Court won't benefit from a tax shelter they've created, Roberts, Thomas and Jackson should step aside from the case."
Moore is brought by a Washington state couple contesting a $15,000 tax bill. The case asks if the 16th Amendment — which allows Congress to impose taxes — allows lawmakers to put a tax on investments.
Specifically, the tax law concerns overseas investments, which are not taxed until a person actually receives profits. The Trump-era tax law would allow the government to place a one-time tax on these investments before the profits have been placed in investors' bank accounts.
The ruling will be a litmus test for how the justices view the liberal policy goal of a wealth tax, but it could also have an immediate impact across the bench itself.
Chief Justice John Roberts earns rent from an Irish cottage he co-owns. His financial disclosures show he has earned around $1,000 in rent for the last 15 years, but in 2010 the property brought in $15,000.
Justices Clarence Thomas and Ketanji Brown Jackson could benefit from what the ruling might do for their spouses' finances. Ginni Thomas owns a stake in Ginger Holdings, which has brought in $100,000 annually over the past few years. Dr. Patrick Jackson is also the owner of the limited liability company KayPac. Should the justices rule that unrealized gains cannot be taxed, interest holders in LLCs could avoid paying taxes on profits in abeyance.
Under the federal recusal law, the justices are required to step down from a case when their interest could be affected by the outcome of the proceeding. Some say the justices’ potential tax benefits could be an interest in the case. However, not everyone agrees.
“My sense is that that's not good enough to justify recusal, because after all, almost any decision that the justices make, certainly in any business contacts or regulatory context, could have some downstream effect,” Paul Schiff Berman, a law professor at George Washington University Law School, said.
In Berman’s view, the conflict is not direct enough. There are a lot of scenarios where the justices’ interests could be tied to the outcome of a case, leaving the justices to navigate how close is too close.
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