The Supreme Court Could Change Everything [The Daily Reckoning] December 08, 2023 [WEBSITE]( | [UNSUBSCRIBE]( [SEVEN PREDICTIONS SUMMIT]( The Critical Case of Moore v. U.S. Portsmouth, New Hampshire [Jim Rickards] JIM
RICKARDS Dear Reader, The November unemployment report came out this morning, reporting that the U.S. economy added 199,000 jobs last month. The consensus estimate was about 185,000, so it was a “beat.” The unemployment rate was reduced to 3.7%, down from October’s 3.9%. Of course, it’s entirely possible that the numbers will be adjusted downward in the months ahead. But for now, we can call it good news. What does today’s report mean for Fed policy? I’ll have more to say on that in the days and weeks to come. But it certainly isn’t encouraging for the Wall Street crowd that’s looking for rate cuts. It’ll just send a message to the Fed that its previous rate cuts haven’t “broken” anything yet. But today, I want to talk about something that has far greater implications for the economy and markets. It has to do with taxes. The 16th Amendment The 16th Amendment to the U.S. Constitution created the federal income tax. It was ratified in 1913 and says, “The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” This permitted the U.S. to collect income taxes from individuals based on their individual incomes. Prior to the 16th Amendment, Congress relied mostly on tariffs and excise taxes. Some income taxes were passed by Congress, but the Supreme Court struck them down on the view that direct taxes on wages, dividends, interest, rents, etc. had to be apportioned among the states based on population. The 16th Amendment, in effect, overruled the Supreme Court and allowed the direct income taxes we have today. Still, that begs the question: What is income? What Is Income It has long been the case that income must be realized before it can be taxed. A paycheck or dividend distribution is certainly realized. But what about stock gains? If you buy a share of Nvidia at $10 and it goes to $500, do you have to pay tax on that gain? The answer is no, unless you sell it. If you buy and hold, no gain has been realized and no tax is due. Once you sell it for $500, you have to pay tax on the $490 gain. So far, so good. It’s really pretty simple. [We Could Be on The Cusp of a MASSIVE Global Event Starting December 13]( If you thought 2023 was bad⦠2024 could be 10 times worse. Some experts say we could see âthe dollar stop circulating as the worldâs reserve currencyâ. But this crisis isnât waiting for the new year to get started⦠In fact, the carnage could begin THIS Wednesday, December 13th, at exactly 2:00 PM. Which means you have a big decision to make - risk being one of the millions of sheep that get led to the slaughter, or you can take control of your future and potentially make a small fortune in the process. You donât have long to decide… [Click Here To Take Action Now]( But over the past 100 years, Congress, the Treasury and the IRS have created hundreds of exceptions to the realization requirement. For example, if you own stock in a private company and you transfer the shares to an offshore company that you also own, there is no realization. You did not get any cash or other property on the transfer. Still, the IRS says there is a “deemed” realization and some tax is due. This is designed to prevent citizens from later selling the stock offshore outside the U.S. taxing jurisdiction. Other examples include partnership taxation where a withdrawing partner may be deemed to have income on the unrealized value of partnership assets even though she received no cash. It gets more complicated from there, but you get the idea. Are Unrealized Gains Really Income? Of course, the Biden administration is keen to tax unrealized gains. And just recently, 15 senators introduced wealth tax legislation intended to tax unrealized gains. Now, a married couple has challenged the entire system of “deemed” realization and says that there is no income unless the asset is actually sold or exchanged for cash or other property. They claim they’re being taxed on earnings that hadn’t yet been distributed to them by a foreign corporation. They’re arguing that taxing these unreceived earnings is unconstitutional. Here’s some background. I’m not going to get too deeply into the weeds here, but it helps to know a bit about the case. In 2006, the couple invested $40,000 in a foreign corporation. Between 2006 and 2017, the company reinvested all its earnings in the business. So the couple didn’t receive any dividend payments or other income. [Nvidiaâs Supplier Reveals âA.I. Crown Jewelâ]( A.I. investorsâ¦get ready: Because a little-known supplier just received a GIGANTIC order from Nvidia. In short: This supplier is planning to pump out 2,000,000 units of a critical piece of tech which I call⦠âThe A.I. Crown Jewelâ [Click here for more...]( Itâs one of the biggest production runs in technology history. And itâs part of the reason why Barrons says this supplier could see $100 BILLION in sales by 2025. So if you want to see how to get in front of this fortune-building wave â before itâs too late… [Click Here Now]( But the Tax Cuts and Jobs Act of 2017 provided a new federal tax called the “mandatory repatriation tax” that applied to investors in overseas corporations. This new tax treated investors’ share of a corporation’s undistributed earnings like they were actually distributed to the shareholders. To the surprise of many, the U.S. Supreme Court has taken up the case and is hearing oral arguments. Battle of the Lawyers The attorney representing the taxpayers argued, “‘Income’ was understood at the time of the 16th Amendment’s adoption to refer to gains coming into the taxpayer, like wages, rents and dividends. Appreciation in the value of a home, a stock investment or other property is not and never has been taxed as income.” He went on to say, “That’s not how the income tax has ever worked going back to 1913. Again, the reason the law doesn’t work that way is the obvious one. Unrealized gains are not income. The only way to make sense of the income tax as it’s existed for a century is to stick with the original meaning of the 16th Amendment. The Court should reaffirm that there is no income without realization.” Meanwhile, the attorney representing the government argued that the 16th Amendment doesn’t actually require that income must be realized before it can be taxed. She said the 16th Amendment doesn’t explicitly mention realization, and that “income” has a broader meaning than only gains that have been realized. She also argued that Congress has the legitimate authority to tax unrealized gains under its broad authority to regulate commerce. If the Supreme Court rules for the government and finds that income tax doesn’t require realized income, it could pave the way for a federal wealth tax that Democrats are pushing for. But if the court rules in favor of the taxpayers, this could blow a $1 quadrillion hole in the U.S. budget (a quadrillion is 1,000 trillion). That’s how much revenue is currently collected by the IRS on deemed sales. Stay tuned. This case could have enormous consequences. Regards, Jim Rickards
for The Daily Reckoning
[feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) P.S. After years of geopolitical tensions, interest rate hikes and central bank digital currencies, 2024 is set to be the most devastating year on record. I’m calling it [“The Year of Reckoning.”]( Will you be prepared? Sadly, most people will not be. But there’s a good chance the carnage won’t wait for the new year to get started. Instead, it could begin on Dec. 13 at exactly 2:00 p.m. [Go here now]( to learn how you can prepare ahead of time. Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Jim Rickards] [James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. [Paradigm]( ☰ ⊗
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