CBS News
Supreme Court upholds Trump-era tax on foreign earnings
Washington — The Supreme Court on Thursday left intact an obscure tax enacted as part of Republicans’ sweeping 2017 reform package that targets U.S. taxpayers with shares of certain foreign corporations.
The court ruled 7-2 that the so-called mandatory repatriation tax is constitutional under Article I and the 16th Amendment. Justice Brett Kavanaugh wrote the majority opinion.
“[T]he precise and narrow question that the Court addresses today is whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income,” Kavanaugh wrote. “This Court’s longstanding precedents, reflected in and reinforced by Congress’s longstanding practice, establish that the answer is yes.”
Moore v. U.S.
The tax at the center of the case, known as Moore v. U.S., is imposed one time on U.S. taxpayers who hold shares of certain foreign corporations. A Washington state couple, Charles and Kathleen Moore, challenged the measure after they were hit with a nearly $15,000 tax bill for 2017 as a result of the law, which required them to pay levies on their share of reinvested lifetime earnings from an India-based company called KisanKraft Tools.
The Moores had invested $40,000 in the company in 2006 in exchange for a 13% stake, and did not receive any distributions, dividends or other payments from it. But the mandatory repatriation tax, enacted through the Tax Cut and Jobs Act that was signed into law by former President Donald Trump, taxed U.S. taxpayers who owned at least 10% of a foreign company on their proportionate share of that company’s earnings after 1986. The tax was projected to generate roughly $340 billion in revenue over 10 years.
Though KisanKraft reinvested its earnings in the years after its founding, rather than distributing dividends to shareholders, the tax still applied to the Moores.
The Moores paid, but filed a lawsuit against the federal government to obtain a refund and challenge the constitutionality of the mandatory repatriation tax.
A federal district court ruled for the government and dismissed the case, finding that the mandatory repatriation tax is permitted under the 16th Amendment, which grants Congress the authority to tax “incomes, from whatever source derived.”
The U.S. Court of Appeals for the 9th Circuit upheld the lower court’s decision, ruling that nothing in the Constitution prohibits Congress from “attributing a corporation’s income pro-rata to its shareholders.” The court noted that courts have consistently upheld other similar taxes, and warned that finding the measure unconstitutional would call into question many other long-standing tax provisions.
During oral arguments in December, the justices seemed sympathetic to concerns about how a sweeping ruling would reverberate across the U.S. tax system and threaten existing tax laws.
But some of the justices sought clarity on the limits of Congress’ taxing power. Lawyers for the Moores had warned the court that allowing a tax on income that has not yet been realized, or received, would pave the way for lawmakers to levy taxes on all manner of things, such as retirement accounts or gains in the value of real estate.
Justice Samuel Alito had faced pressure from some congressional Democrats to recuse himself from the case because of interviews he participated in with an editor at the Wall Street Journal and David Rivkin, a lawyer who represented the Moores.
The justice declined to step aside from the case, arguing there was “no valid reason” for him to do so.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
California Gov. Gavin Newsom vetoed a bill Saturday that would have required new cars to beep at drivers if they exceed the speed limit in an effort to reduce traffic deaths.
California would have become the first to require such systems for all new cars, trucks and buses sold in the state starting in 2030. The bill would have mandated that vehicles beep at drivers when they exceed the speed limit by at least 10 mph.
The European Union has passed similar legislation to encourage drivers to slow down. California’s proposal would have provided exceptions for emergency vehicles, motorcycles and motorized scooters.
In explaining his veto, Newsom said federal law already dictates vehicle safety standards and adding California-specific requirements would create a patchwork of regulations.
The National Highway Traffic Safety “is also actively evaluating intelligent speed assistance systems, and imposing state-level mandates at this time risks disrupting these ongoing federal assessments,” the Democratic governor said.
Opponents, including automotive groups and the state Chamber of Commerce, said such regulations should be decided by the federal government, which earlier this year established new requirements for automatic emergency braking to curb traffic deaths. Republican lawmakers also said the proposal could make cars more expensive and distract drivers.
The legislation would have likely impacted all new car sales in the U.S., since the California market is so large that car manufacturers would likely just make all of their vehicles comply.
California often throws that weight around to influence national and even international policy. The state has set its own emission standards for cars for decades, rules that more than a dozen other states have also adopted. And when California announced it would eventually ban the sale of new gas-powered cars, major automakers soon followed with their own announcement to phase out fossil-fuel vehicles.
Democratic state Sen. Scott Wiener, who sponsored the bill, called the veto disappointing and a setback for street safety.
“California should have led on this crisis as Wisconsin did in passing the first seatbelt mandate in 1961,” Wiener said in a statement. “Instead, this veto resigns Californians to a completely unnecessary risk of fatality.”
The speeding alert technology, known as intelligent speed assistance, uses GPS to compare a vehicle’s pace with a dataset of posted limits. If the car is at least 10 mph over, the system emits a single, brief, visual and audio alert.
The proposal would have required the state to maintain a list of posted speed limits, and it’s likely that those would not include local roads or recent changes in speed limits, resulting in conflicts.
The technology has been used in the U.S. and Europe for years. Starting in July, the European Union will require all new cars to have the technology, although drivers would be able to turn it off. At least 18 manufacturers including Ford, BMW, Mercedes-Benz and Nissan, have already offered some form of speed limiters on some models sold in America, according to the National Transportation Safety Board.
The National Highway and Traffic Safety Administration estimates that 10% of all car crashes reported to police in 2021 were related to speeding. This was especially a problem in California, where 35% of traffic fatalities were speeding-related — the second highest in the country, according to a legislative analysis of the proposal.
Last year the NTSB recommended federal regulators require all new cars to alert drivers when they speed. Their recommendation came after a crash in January 2022, when a man with a history of speeding violations ran a red light at more than 100 mph and struck a minivan, killing himself and eight other people.
