Supreme Court arguments in the Moore v. United States tax case December 5, which some see as having ramifications for any future wealth tax, included comments from Justices seeming inclined to uphold the transition tax in the 2017 TCJA. The taxpayer argued the transition tax under IRC Section 965 violates the Constitution's Apportionment Clause and the Due Process Clause of the Fifth Amendment because the transition tax was a direct tax on unrealized income. Justice Brett Kavanaugh said Tuesday, "The entity realized income. The question then is attribution, and we've long held that Congress may attribute the income of the company to the shareholders or the partnership to the partners."

The Bloomberg Daily Tax Report (DTR): "Supreme Court justices suggested they are inclined to uphold a 2017 tax on American-owned companies' foreign profits, while trying to avoid a sweeping ruling that could give a green light to proposals for a future wealth tax. Hearing arguments in Washington, key justices suggested the tax, which aimed to collect hundreds of billions of dollars on a one-time basis, wasn't fundamentally different from other levies imposed by Congress over the years."

The Wall Street Journal reported, "The Supreme Court looked unlikely to impose strict new limits on Congress's power to tax income … [and] several justices seemed less concerned with hypothetical future taxes than with possible effects on statutes long familiar to investors, tax advisers and businesses. Those include the [IRC] provision known as Subpart F … " The article highlighted an exchange in which "Justice Amy Coney Barrett asked how Subpart F differed from the tax imposed on the plaintiffs … " A decision in the case is expected before July, the paper reported.

Tax Notes observed consternation "over potential fallout from ruling too broadly for either the Moores or the government" in the case. "Chief Justice John Roberts was the first to ask about whether the transition tax could be considered applying to realization by the corporation, even if not the taxpayer directly, questioning whether this distinguished it from a tax on the appreciation of property," the report noted. "Justice Sonia Sotomayor also asked why individual partners in a partnership are taxed regardless of whether they have realized anything."

Politico: Justices questioned distinctions that a lawyer for the plaintiffs "attempted to draw between the repatriation tax and other taxes that have long been on the books. 'Why is this any different?' Justice Elena Kagan asked. 'There's a long, century-old history of these kinds of taxes.' However, some GOP-appointed justices — particularly Neil Gorsuch and Samuel Alito — seemed wary of an unalloyed victory for the government and appeared to be pushing for an outcome that would preserve latitude for the court to limit federal taxing powers in a future case."

Congress — Lawmakers are scheduled to be in session only this week and next before planned adjournment for the holidays on December 14 for the House and December 15 for the Senate. Those targets could slip.

On a main item of business, a national security supplemental bill required as the White House warns it is running out of money to help Ukraine, the House has passed an Israel-only measure with $14.5 billion in aid and an equal amount in IRS funding rescissions. Senators of both parties support including Ukraine funding in the bill, and Republicans have demanded border security measures that have been the subject of bipartisan negotiations. Senate Majority Leader Chuck Schumer (D-NY) said following the regular Tuesday policy lunches that Speaker Mike Johnson (R-LA) suggested he would accept nothing less than the House-passed H.R. 2 and, "Immediately, I told him that's a non-starter." Leader Schumer said he would put a supplemental like the President's proposal on the floor and, "If [Republicans] believe border should be part of Ukraine, which is so vital to our country, let them propose an amendment that can get 60 votes."

Senate Republicans have said they are not insisting on H.R. 2, and Senator James Lankford (R-OK), a lead negotiator, has cited the need to recognize the vote counting in the Senate. According to Punchbowl News, he said Monday, "H.R. 2 didn't get a single Democrat vote in the House … I have to get 20 Democrat votes here [in the Senate]. If the House is going to say it has to be our bill that we got zero Democrats on but I need you to go get 20 over in your body, that's not rational. That's not how things work."

Still, NBC News reported that the demands Senate Republican have moved away from compromise since Speaker Johnson met with them last week, and that some leaders view their preferred policies as the necessary price for supporting the bill. "I think there's a misunderstanding on the part of Senator Schumer and some of our Democratic friends," Senator John Cornyn (R-TX) said. "This is not a traditional negotiation, where we expect to come up with a bipartisan compromise on the border. This is a price that has to be paid in order to get the supplemental."

"A classified briefing with administration officials called to shore up support devolved into a partisan screaming match on Tuesday afternoon, with Republicans angrily accusing Democrats of trying to steamroller over their demands for a border crackdown," the New York Times reported. "The meltdown, which took place on the eve of a critical test vote in the Senate on a $110.5 billion emergency spending bill, not only made it clear that the measure would fail, but severely dimmed the prospects for any bipartisan agreement soon."

Appropriations — No spending bills are on the schedule this week ahead of the two-step expiration of government funding January 19 and February 2. Speaker Johnson and others are reportedly trying to establish a topline spending number now that Freedom Caucus members are no longer pushing for drastic spending cuts for FY2024 bills to return to FY2022 discretionary spending levels and are willing to support the Fiscal Responsibility Act (FRA) agreement for the FY2023 level of $1.59 trillion, with $886.35 billion for defense and $703.65 billion for nondefense.

A Roll Call article explained: the FRA "calls for a nondefense ceiling of $704 billion in fiscal 2024 — on paper a 5 percent or $40 billion reduction. But a 'side deal' President Joe Biden and ex-Speaker Kevin McCarthy, R-Calif., agreed to called for eliminating that reduction through various accounting maneuvers and keeping domestic and foreign aid accounts essentially flat-funded. Johnson wasn't a party to that side agreement, however, and now House Freedom Caucus-led conservatives are pushing him to ignore it. Meanwhile Senate Democrats and Republicans previously agreed to the debt ceiling deal's numbers, both in the text and the side agreement — while adding nearly $14 billion for good measure, including $8 billion more for defense."

Bloomberg Government this morning said Speaker Johnson "has sent a top-line government-funding offer to the Senate and is awaiting a response."

Hearings — House Ways & Means Committee hearings for today, December 6:

• at 10 a.m., Oversight Subcommittee hearing on "Hidden Cost: The True Price of Federal Debt to American Taxpayers"
• at 2 p.m., Tax Subcommittee hearing on "Tax Policies to Expand Economic Growth and Increase Prosperity for American Families

Witness list for the latter hearing:

• Alan Auerbach, Professor of Economics and Law, University of California Berkley
• Alan Viard, Senior Fellow Emeritus, American Enterprise Institute
• Grover Norquist, President, Americans for Tax Reform
• Steve Hayes, Chairman and President, Americans for Fair Taxation
• Leonard Burman, Institute Fellow, Urban-Brookings Tax Policy Center

Politico Morning Tax said the hearing, with Americans for Fair Taxation testifying, may also address a January pledge from Republican leadership to consider the Fair Tax, which would eliminate the national income tax and replace it with a national consumption tax.

The staff of the Joint Committee on Taxation provided a general background on cash-flow and consumption-based approaches to taxation.

The Senate Banking Committee will hold a hearing on "Annual Oversight of Wall Street Firms" today, December 6 at 9:30 a.m.

Retirements — House Financial Services Committee Chairman Patrick McHenry (R-NC), who served as acting speaker, is the latest in a string of retirement announcements. "This is not a decision I come to lightly, but I believe there is a season for everything and — for me — this season has come to an end," he said. Politico: "There's no single clear successor for McHenry's (R-N.C.) job leading Financial Services, one of the most powerful House panels. Rep. Blaine Luetkemeyer (Mo.) emerged as an early frontrunner with other top contenders including Reps. French Hill (Ark.) and Bill Huizenga (Mich.)."

Several press stories have noted the pace of retirement announcements of late. Thus far, nine House Republicans have announced their retirements and three more are running for other office; while eight Democrats are retiring and 13 are running for other office.

Politico Morning Tax November 29 noted the Ways & Means retirements of Reps. Earl Blumenauer (D-OR), Brian Higgins (D-NY), Dan Kildee (D-MI), and Brad Wenstrup (R-Ohio). "Lawmakers are almost certain to consider a major tax bill in the next Congress, because the individual provisions from the GOP's 2017 tax law expire at the end of 2025. And yet, at least four tax writers aren't interested in being around to consider that measure," the report said.

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