The Supreme Court should take the chance to strike down Washington’s unconstitutional taxation scheme, which threatens private charity.
The Supreme Court should take the chance to strike down Washington's unconstitutional taxation scheme, which threatens private charity.
O n December 5, the U.S. Supreme Court will hear argument in a case that could drastically impact charitable giving in our country, yet most discussion around the case is missing this unintended consequence.
The case of Charles and Kathleen Moore centers on an investment the couple made in a company empowering small-scale farmers, but now leaves them facing a $15,000 tax bill even though they’ve seen no profit from their investment. Moore v. United States sheds light on the tangible consequences of implementing taxes on unrealized gains. The ultimate ruling by the U.S. Supreme Court on this matter could lead to dire outcomes for the philanthropic community, with the potential to undermine the transformative work nonprofits do across the nation.
Referred to as the Mandatory Repatriation Tax (MRT), the tax obligated the Moores to declare additional taxable income based on gains that had not yet materialized. The Moores petitioned the U.S. Supreme Court challenging the constitutionality of the tax.
If the Court rules the tax is constitutional, it would set a legal precedent for a wealth tax, which often takes the shape of a tax on assets rather than on income. When both the Constitution and 16th Amendment were drafted, the concept of taxation was based on principles of restraint and predictability. This was grounded in a profound belief in the intrinsic value of safeguarding the private sphere, an area that encompasses philanthropy and is a necessary counterbalance to government. The unchecked and expansive authority to levy taxes on income that has not even been realized carries the potential to cast a shadow on the realm of philanthropy.
This doesn’t just matter for wealthy individuals. Repercussions of allowing this tax to stand could extend into our communities and could impact the most vulnerable in our society. Philanthropy plays a pivotal role in enhancing the lives of countless individuals, from providing pathways to opportunity to uplift those in need to fueling vital medical research aimed at improving and extending lives worldwide. Philanthropy is a cornerstone of our society. The tax code should not only accommodate, but actively foster the spirit of giving, ensuring that it remains an unwavering force for supporting communities in need.
A wealth tax itself would be damaging to the wealth creation that supports charitable giving, but some wealth-tax proposals actually call for taxing charitable assets, like those in private foundations. This would dramatically and directly drain the funds available for charitable giving.
As Philanthropy Roundtable wrote in our amicus brief filed with the Supreme Court, “A wealth tax on private charitable foundations would be a disaster for charitable giving. If the foundation’s assets are attributed to the ‘heads’ of the organization, as in Sen. Bernie Sanders’s (I-VT) plan, then charitable foundations like the Bill and Melinda Gates Foundation — which has spent approximately $40 billion on global development and global health programs — could owe an annual tax of 24.4%.” This reduction in resources would hamper the ability of charitable organizations to fulfill their crucial missions of providing much-needed support to vulnerable populations.
Charitable giving is most effective when donors are free to give to the causes and communities they care about most. It spurs generosity and allows nonprofits to focus on their core missions. When resources are diminished due to obstacles such as the MRT, communities in need can suffer as a result.
The Supreme Court needs to recognize the opportunity Moore v. United States provides to confirm that taxes on unrealized gains are unconstitutional and not open the door to further encroachments on property rights, wealth accumulation, and even the assets of charitable foundations.