These Supreme Court Justices Have Personal Investments in Companies That Could Reap Billions in Upcoming Ruling

The Moore v. United States case that will soon be heard by the U.S. Supreme Court may take the concept of “collateral damage” to a new level. The case will decide whether a couple (the Moores) must pay a $15,000 tax bill associated with the 2017 Trump tax law’s “transition tax” on offshore profits. But the decision could jeopardize a far greater amount of tax revenue—at least $270 billion, according to a new ITEP-Roosevelt Institute report—if SCOTUS finds the entire transition tax to be unconstitutional. The decision could also invalidate other important parts of the current tax system while preempting progressive wealth tax proposals. Such an outcome would represent one of the costliest—and most ethically questionable – Supreme Court decisions in U.S. history.

The transition tax was a one-time levy on the offshore profits of multinational businesses, enacted as part of 2017’s Tax Cuts and Jobs Act. Under the pre-2017 tax rules, companies were supposed to pay a 35 percent tax rate on their worldwide income but could indefinitely avoid the U.S. tax by stashing income offshore and stating their intention to keep it there. Big multinationals did so en masse, accumulating over $2.6 trillion of profits offshore and beyond the reach of the US tax system.

When the Trump tax law moved to a system that generally exempts offshore profits after 2017, Congress had to decide what to do about the mountain of untaxed pre-2018 profits these companies were still holding offshore. The companies should have paid the 35 percent tax rate the existing law prescribed, but Congress chose instead to apply a special lower rate (8 percent and 15.5 percent for non-cash and cash foreign holdings, respectively). This generous giveaway was counterintuitively scored as a revenue raiser because 15.5 percent is bigger than the 0 percent rate these companies had been aiming for.

While the transition tax was initially forecast to yield $340 billion, that estimate was speculative. But in the years that followed, hundreds of corporations disclosed their estimated transition tax payments in their annual financial reports (because SEC rules generally require them to do so). ITEP’s new report with the Roosevelt Institute is the first effort to analyze these disclosures for the largest companies in the U.S.

The report identifies more than 370 companies disclosing an estimated tax bill of over $270 billion. Just five of the largest tech and pharma firms (Apple, Pfizer, Microsoft, Johnson & Johnson, and Google) were responsible for one-third of this tax bill due to their concerted efforts to send pre-2018 income offshore. Dozens of other companies with large offshore holdings, including IBM, fail to disclose their transition tax liability, and companies that aren’t publicly traded aren’t required to disclose these amounts, so the total transition tax yield is likely much larger. If the Moore case invalidates the transition tax, these tax bills could be completely forgiven, and Apple alone could see a tax break of $37 billion.

The Moores claim that their $15,000 transition tax bill is unconstitutional because the federal government can only tax income when it’s realized - for example, when stock is sold or dividends are paid out to shareholders. This argument was rejected emphatically by lower courts and has been debunked by constitutional law experts, but will nonetheless be considered by the Supreme Court next month.

Five years after the passage of the Trump corporate tax cuts, seeking to overturn the transition tax represents one of the great tax policy injustices of recent years.

The fiscal hole dug by the Moore case could extend well beyond the transition tax, ensnaring dozens of long-standing provisions in the tax law that allow taxation without realization. The costs to the public of enabling these evasions of current law are bad enough. Even worse would be to withhold from the public the potential revenues that the lawsuit’s well-heeled backers seek to prevent going forward: the plaintiffs’ lawyers argued in the pages of the Wall Street Journal that the case “could slam shut the door on a federal wealth tax like the one Sen. Elizabeth Warren wants to enact.”

The Moore case could also have repercussions that go far beyond its fiscal policy effects. The case raises troubling ethical questions for certain Supreme Court justices at a time when the Court already faces a tidal wave of disclosures of ethical lapses by its members. As the report finds, a decision to invalidate the transition tax would likely be made by at least two justices—John Roberts and Samuel Alito—who would stand to benefit personally from such a decision because they own stock in companies that could enjoy billions of dollars in tax cuts as a direct consequence of the decision. The specter of the highest justices in the land personally enriching themselves through their decisions could further delegitimize an already-unpopular institution.

Five years after the passage of the Trump corporate tax cuts, seeking to overturn the transition tax represents one of the great tax policy injustices of recent years. The companies that benefited most from the special low rates of the transition tax were precisely those that had taken the most aggressive steps to artificially shift income out of the U.S. and into low-rate tax havens. If the Supreme Court chooses to invalidate the tax, these tax-avoiding multinationals will be doubly rewarded by the forgiveness of even this reduced-rate tax. At a time when the federal government faces profound fiscal challenges, middle-income families and small businesses will be left to pick up the slack if these companies and their shareholders (including SCOTUS justices) are given a $270 billion windfall.