You're listening to the Bloomberg Law Podcast. Catch us weekdays at ten pm Easter on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
Welcome to the Bloomberg Law Show.
I'm Greg Storr and I'm Lydia Wheeler. We're filling in for June Grasso, who's out this week ahead.
In this hour, we'll talk about a case that asks the US Supreme Court to decide if Congress has the authority to tax foreign earnings. Cases being closely watched for its potential to stop Congress from creating a future wealth tax.
But first, a federal appeals court issued a ruling recently that seemed to gut the Voting Rates Act, or at least a key section of it. Joining us now to explain it all is Carolyn Shapiro, co director of the Chicago Kent College of Law Institute on the Supreme Court. So, Carolyn, tell us what the a Circuit Court of Appeals did here.
Bisuka said that the Voting Rights Act of nineteen sixty five cannot be enforced by private litigants. That the only way it can be enforced, and in particular the most operative part today, which is Section two can only be enforced by the federal government. That's a really remarkable, dramatic,
and just really unwarranted holding. People have been litigating Section two cases for decades, and it's sort of true that there's no express Supreme Court opinion that says, in so many words, there's a private right of action under Section two. But that's because it's been clear for so long that there's a right of action under Section two. In fact, it's been so clear for so long that kind of
keeps reenacting the law on that assumption. This would be it would be just an incredible upheaval of voting right litigation and law if this is allowed to stand.
Can you just remind us and our listeners what the Voting Rights Act does, and in particular what Section two does.
So, the Voting Rights Act of nineteen sixty five is the law that basically made the Fifteenth Amendment, which allowed African Americans to vote, made it effective. The Fifteenth Amendment, of course, was a Reconstruction era amendment shortly after World the Civil War, and then for many many decades it was largely ineffective. States in the South found ways to make it impossible or difficult for African Americans to vote, and the courts basically allowed that to happen, including the
Supreme Court. In nineteen sixty five, Congress enacted the Voting Rights Act, and that really changed everything. It made our country the multi racial democracy that we support to be. So it's an incredibly important piece of let's aslation. People often refer to it as the crown jewel of the
civil rights business. Section two of the of the Voting Rights That provides that where there is a practice or a set of policies that make it difficult for a group of minority voters to elect the representatives of their choice it comparably to the way white voters can that that can violate the statute. So, for example, the redistricting is done in such a way so that African Americans can't elect their own, their favored representatives, that can violate
Section two of the Voting Rights Act. It doesn't require intentional discrimination. It looks to the effects of certain types of decisions that states and local governments make about voting.
It's been very important for many years, but it's even more important than it used to be because In twenty thirteen, the Supreme Court made the other most significant part of the voting Right tech inoperative, which is Section five, the part that required certain jurisdictions to get approval before they made changes in their voting systems.
Can you back up a little bit for us and explain how this case came about. I know it was a lawsuit brought by voters in Arkansas. Is that right?
Yeah?
This is an Arkansas case, and the district court in Arkansas, I believe, said that it found that there was no private right of action under section two of the fourteenth Amendment, and it reached that decision, if I'm remembering correctly, even without the state having raised the question of its own accord claiming that there were. It was a jurisdictional question and that therefore it was required to consider that. This is a really remarkable overreach. I can't emphasize that enough.
Tell us about the circuit decision and the reasoning there. Why did they say there was no avoute for.
Private They looked at the language of the statute, and they looked at the language of the statute in extremely isolated detail. And it is true. The language of the statute doesn't contain the words private right of action, and the language of the statute doesn't say in so many
words that private individuals can do under the statute. There are many many statutes like that in the federal legislation, and historically the Court used to be somewhat more open to inferring of private right of action into particular statutes
than it has become in more recent years. However, it has also said that where it's been clear that there's a private right of action in the past, that that had been inferred in the past, and in particular, where Congress has reenacted the statute, the Court shouldn't go back and reparse the language of the statute under the wonders
that did not exist when it was originally enactive. So it looks what the atificate is to look at the words of the statute in complete isolation of how the statute has been applied for decades, and in complete isolation of the legislative history. With a reenactment of the statute, where it is extremely clear that Congress intended for people to be able to bring lawsuits to enforced Section.
Two, what's exactly is the state arguing in this case, the.
State is arguing that they just can't be sued unless they're being sued by the federal government, which basically means that if the federal government doesn't have the resources or the ability, or depending on the administration, that desire to enforce the Voting Rights Act, the Voting Rights Act doesn't
get enforced. They're saying that a private person or a private individual such as the NAAFP, or individual voters or a community organization just simply can't do anything about it, regardless of how blatant the violation of their voting rights are, you.
Know, cal And one thing that struck me about this decision is that reading parts of it, at least there was a congressional report from i think the House and Senate Judiciary committees that said, we understand this law to allow for private lawsuits. Is this one of these cases where the legislative history what Congress intended and was talking about says one thing, but the language of the statute at least arguably says something else.
Well, I think that's how the Eighth took it, interpreted the statute, or chose to interpret with the statute. But I think that that is a real triumph of form over substance. The statute itself doesn't expressly say one way or the other whether there's a private right of action. It certainly doesn't prohibit there from being one, and historically it's been appropriate for courts to infer a private right of action. The Court has again in recent years changed
that approach. But Congress, the Congress that enacted the law before Congress changed that approach, of course, didn't know that that was going to happen. They were operating on the assumption that people have been doing to enforce the voting right back for a long time and would continue to do so. And we'll say that in our explanation of our we enactment of the law. So it's I would not say that the law says one thing, in the
legislative history says another. But that is at least in part, how the Eighth Circuit tries to defend its position.
Well.
Coming up in the program, we'll dive deeper into the recent voting rates ruling out of the Eighth Circuit Court of Appeals with Carolyn Shapiro. Remember, you can always get the latest legal news by listening to Bloomberg Law podcast on Apple, Spotify, or wherever it is you get your podcasts.
I'm Lydia Wheeler and I'm Greg store. This is Bloomberg.
You're listening to the Bloomberg Law Podcast. Catch the program weekdays at ten pm Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
I'm Lydia Wheeler and I'm Greg Store in for June Grosso. We've been speaking with Carolyn Shapiro of Chicago Kent College of Law about the recent ruling out of the Eighth US Circuit Court of Appeals on the Voting Rights Act. So, Carolyn, we talked a lot about this ruling coming out of the Circuit of a very conservative appeals court.
There was a.
Supreme Court decision a couple of years ago that perhaps laid the groundwork for this, a concurring opinion by Justice Neil Gorsich. Can you tell us a little bit about that.
Yeah, So this is a case called Burnovitch that came out of Arizona, and in this case, it was a Section two lawsuit that challenged a number of practices in Arizona having to do with the ability for people to use mail in ballots and things like that. It was what's called a vote denial claim as opposed to vote dilution, So it didn't have to do with redistricting. It had
to do with other practices. And the Supreme Court read Section two in that context fairly narrowly, but did not address the question of whether there's a private right of action, and in fact that wasn't presented. Scursich wrote a concurrence
in which joined by Justice Thomas. In that concurrence, he said, you know, nobody's raised this question, but it's been a sort of a question that other courts have asked in the past, and he cited a district Court opinion from the nineteen eighties as his example of why this is remains an open question, which I have to say not it might be very persuasive, but he put it out there for litigants to pick up, and of course they did.
That's that's why he did it. And people who read the court opinions are looking for those kinds of invitations. So both courts, as in the District Court in this Arkansas case, and the litigants in the Arkansas case and in other cases now as well, are starting to make that argument and to say, hey, this is an open question, maybe there's no private right of action, and pushing the appeals courts to make rulings on that question.
So, Carolyn, we talked about how the Eighth Circuit Court of Appeals here ruled there's no private right of action for litigans to come and sue to enforce Section two of the Voting Rights Act. But the New Orleans based Fifth Circuit Court of Appeals issued a ruling recently on this too. What did that court say?
That court said that there is a private right of action. It didn't do a super deep dive into the statute of this quite the same sort that the Eighth Circuit did in sort of parsing the language the way the Eighth Circuit did, but it basically said, you know, there's always been a private right of action here, and we don't think that this is there's a basis for changing that in this moment. That's the law of our circuit, and that's the law we're going to apply.
You know, Carolyn, some listeners may be thinking that there was this case out of Alabama in the Supreme Court in its last term, and that was a lawsuit brought by private litigants, and the Supreme Court did something pretty
significant in rejecting a republican drawn congressional map there. So, can you explain how it can be if there is an explanation that the Supreme Court keeps acting like there is a private right of action and yet this issue apparently is open enough that a federal appeals court decided that there is no private right of action.
Well, I would dispute that really is an open question, in part for exactly the reason that you say everybody has assumed and has assumed is maybe the wrong word. It is. It's an established feature of the law, and Congress itself has assumed that there's a private right of action in its re enactment of the law repeatedly. But it's because it is the case that there is not an opinion that says, in so many words, there is a private right of action. And you have Justice cour
Such issuing this invitation, joined by Justice Thomas. Suddenly there's an opportunity for forlitigants and courts to say, well, wait a minute, let's see how clever we can be and come up with an argument that what everybody's always thought was true isn't true. Which this is sort of a strange way, in my view, to the law to operate, and I do think it's quite inconsistent with the case
you mentioned out of Alabama, Alan versus Milligan. In Alan versus Milligan, the court went out of its way to say, there's forty years of precedent here. It was not. The question was not what whether there's a private right of action. The question was how that private right of action operates or what it takes to prove a violation of Section two of the Voting Rights Act. The court went out of its way to say, we are not up ending
forty decades of present forty years of precedent. It's this is the way the law has been, and we don't think it appropriate to change it. So well, it didn't speak directly to the question that the Eighth Circuit has now ruled on. It certainly indicated a significant fidelity to an understanding of the statute that has been widespread, again not just in the Court, also in Congress.
It sounds like there's a real circuit split here between the Eighth Circuit and the Fifth Circuit. So isn't this now present a question that the Supreme Court is going to have to resolve?
Yes, I think it does. The only possibility that would prevent that from happening would be if the Eighth Circuit Court of Appeals takes the case en banc, which would mean that the full Court would reconsider the question issued the decision made by the three judge panel and there was a dissent, so there were two judges who ruled that there's no private right of action and one judge
who dissented. I don't know how likely it is that Theates if it will do that, and on the assumption that it doesn't, or if it does take it on blank, that it comes out the same way, then yes, I think the Supreme Court will certainly have to take this case and we'll have to settle a question once and for all. Based on the Alabama case, I think it's quite unlikely that the Supreme Court would affirm the eighth of it.
That sounds right to me in terms of where the Supreme Court seems to be on this question. But in the event we're both wrong. In the Supreme Court agrees with the Eighth Circuit and says no private right of action. Can you just describe the implications of that? What would be left of the Voting Rights Act after that sort of decision?
The Voting Rights Act would be really astonishingly ineffective. We have already lost Section five, as I mentioned before, the part of Voting Rights Act that required covered jurisdictions to get permissions for making changes and they're voting and election system.
That was within hours after the Supreme Court issued that opinion, and Shelby County versus Holder States that had been required to get that kind of preclearance started enacting laws literally immediately that would never have been able to be pre cleared and that have had the effect of making it harder for minority voters to exercise their rights. Section two was actually one of the reasons that the Supreme Court said, well,
it's okay in that opinion. It's not the end of the world for us to get rid of the operation of Section five because there's still Section two lawsuits and its specifically noted that those losses can be brought by individuals,
by private litigants. So on that point, the Court itself has operated on that assumption in the absence of private plaintiffs, the only way these lawsuits could be brought would be by the Partment of Justice, and the Department of Justice just simply doesn't have the resources to bring all of the lawsuits that are brought by private plaintiffs, and under some administrations really has indicated no interests at all and enforcing the voting like that.
So, Carolyn, if you and Greg are both right here and the Eighth Circuit Court of Appeals decision is overturned by the Supreme Court, does that settle all future disputes over Section two of the Voting Rights Act.
Well, certainly doesn't settle all future disputes over Section two. Litigates are going to come up with other arguments. There are always going to be questions about its scope and its application in different circumstances. But it would settle that question whether or not there's a private light of action.
Our thanks to Carolyn Shapiro, co director of the Chicago Kent College of Law Institute on the Supreme Court. Coming up next on Bloomberg Law Show, we'll talk about a tax case that could have big implications for a future wealth tax. I'm Lydia Wheeler and I'm Greg Store.
This is Bloomberg.
You're listening to the Bloomberg Lawn Podcast. Catch us weekdays at ten pm Easter on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcast.
I'm Lydia Wheeler and I'm Greg Storr in for June Grosso. Let's get now to that big tax case the Supreme Court is hearing over foreign earnings. It's been closely watched for its potential to upend other parts of the tax code and potentially affect a future wealth tax. Joining us to discuss it is Michael Rappaport. He is a Bloomberg Industries reporter covering tax Michael, thanks so much for joining us.
Thanks for having me so tell us.
A little background about this case. Who are the people involved in How did they get to the Supreme Court?
Sure the planeff Sir Charleston Kathleen Moore, a retired couple from Washington State, and they are challenging a tax bill of fourteen thousand, seven or twenty nine dollars that they had to pay on the earnings of Kisen Kraft, which is a machine tool company. Based in India, in which they'd invested because Charles Moore was a friend and former
colleague of the company's CEO. They contend that the tax that was imposed on them is unconstitutional because it was based on corporate earnings from kisen Kraft that were not actually distributed to them. The lower courts ruled against them, but they took their Supreme Court and the High Court agreed.
To hear it.
What exactly is this tax? Is a new and where did it come from?
The tax is known as the Mandatory Repatriation Tax or the Transition Tax, which was part of the Tax Cuts and Jobs Act, the Big Tax the Overhault back in twenty seventeen. This is a one time tax on companies accumulated foreign earnings. Big US companies had been stashing their foreign earnings overseas for many years rather than bring them back to the US and have them taxed at US corporate tax rates, which at the time were relatively high.
What the twenty seventeen law did, besides lowering the corporate tax rate, was to change the whole time system so that all earnings of US companies would be tax going forward, no matter where in the world they were located. The mandatary repatriation tax was a one time catchup tax imposed on those accumulated earnings to make sure that they wouldn't
be entirely free from US taxation. But it also applies to people like the Moors who had a significant stake in a foreign company about thirteen percent of their case, at thirty percent stake in Kis and craft And they were taxing kins and Crafts earnings even though they didn't actually receive any distribution of those earnings that falls out of the same military repatriation tax. And the Mores claim that that's unconstitutional.
And so why do they claim it's unconstitutional? What's the argument that the Moors are making in this case?
This hinges on what's called realization. The Moors claim that it's improper on the sixteenth Amendment of the Constitution, which established the USN Tax, to tax them in this fashion because they didn't realize didn't actually receive any distribution of those earnings. The government's response to that is that the tax is legal in the sixtieth Amendment, that it does, in fact Congress to tax a shareholder's share of undistributed
or unrealized corporate earnings. As income to the shareholders. In fact, the government says Congress has done so numerous times in the one hundred and ten years since the sixteenth Membal was ratified. It's imposed taxes like taxes on companies, foreign income, and partnership taxes to follow the same principle that you don't always have to realize income in order to tax on it, and the court has upheld those provisions in the past.
So what's the government arguing here?
Then?
On the other side, as I.
Said, the government's argument is that the repatriot text is legal, that in fact, there have been cases in which unrealized income is taxable, such as tax on foreign income, tax tax on partnerships, and courts have upheld those provisions.
What are the key precedents here? It seems pretty remarkable that the sixteenth Amendment has been around this long and the Court has never clearly answered what seems to be a pretty basic question about what it covers.
Well, I wanted to keep precedents certainly from the standpoint of what the Moors are claiming, is a case called Eisner versus Macomber, which is from nineteen twenty. The Moors claim that that case rules out taxes unrealized income. What the government says and responses is that, well, that case
was in a very limited context. It was limited to cases in which a company pays a stock dividend to a shareholder, and that the court has repeatedly refused to extend that principle beyond that limited sort of circumstances.
So if the court strikes down this tax, what are the implications for the rest of the tax code.
Well, the first and most obvious implication is if you strike down the mandatary repatriation tax, it could trigger enormous tax refunds for some of the giant multinational companies that had been paying billions of dollars in these taxes over the last several years, such as Apple, Microsoft, Pfiser. The government has projected that the tax would bring in a total of three hundred and forty billion dollars over ten years. So we're talking about something that could hugely benefit big companies,
that could really blow a hole and government revenue. Beyond that, though that, there's a lot of concern among people in tax world, and it's kind of much roomed. Ever since the court agreed to hear the case, that if you strike down the repatriation tax. It also calls into question other parts of the tax code that similarly are levied on corporate income that hasn't been distributed to the shareholder. The same principle behind the repatriation tax also applies in
a lot of existing provisions in tax code. So, for instance, you have taxes on foreign income what's called Subpart F, which applies to certain taxes on certain kinds of income from the foreign affiliates of US companies guilty, the tax on Global Intangible Low tax Income, which is the US mindium tax on the company's foreign income. Taxes on partnerships because their profits are taxable to the individual partners even
when they are even when the earnings aren't distributed. Mark to market situations, taxes leving on the current market value of certain kinds of assets like regulative futures contracts, even something like taxes on the zero coupon bonds, which taxpayers have to pay taxes on each year but don't actually receive payment until the bond's mature. All those kinds of wa under the same kind of principle as the mandatory
repatriation tax, and there are other such situations. Paul Ryan the former Speaker of the House has suggested that ruling in favor of the Moors could affect a third of the entire tax code.
So do the Moors in their allies acknowledge what you just said, agree with what you just said.
Do they.
Accept that this will have such a big effect on the tax code or are they arguing, Hey, this is actually a narrow case and there's a way you can resolve it in our favor without having all these big implications.
But the Mores, in their supporters claim is that the mandatary repatriation tax is distinguishable from all these other provisions, and the details are very in the weeds and legalistic, but basically they claim that this is something separate from things like Subpart F and some of the other provisions, so that you can rule in the Moor's favor and strike down the repatriation tax and not have any of
this other stuff affected. Some of the more supporters the US Chamber of Commerce claimed in it's front of the court brief that the people who are concerned about this were engaging in hysteria and barely overstating the potential impact. What the people opposed to the More say, the people who want to see the court uphold the mandatary repatriation tax. Is that it's not that simple. You can't really strike
down one and preserve the rest. So if you strike down the mandatary repatriation tax, then really could have ripple effects and call into question a lot of these other provisions.
You mentioned that there's about three hundred and forty billion dollars at stake here and that you know, overturning this could really blow a hole in government revenue. Has the government talked about kind of what they use that revenue for and what you know the implications could be.
Well, the government attended the mandatary repatriation tax its kind of a pay for for some of the other things that it was some of the other changes that it made in the tax cuts and job sects, such as lowering the corporate tax rate from what had been thirty five percent down to twenty one percent. This was intended, as I said, to make up for some of that lost revenue, and also to make sure that some of these accumulator earnings that companies had piled up overseas over
many years wouldn't go completely untaxed. When the government decided to change its tax system and tax all of us companies income going forward.
Michael, let's talk briefly and we can continue after the break that you want to about implications for a wealth tax. These our hypothetical proposals right now, But what does this case mean for those proposals.
A ruling in the Moors favor might preclude attempts to impose a wealth tax because it's based on the same kind of principles. A wealth tax would be based on the accumulated value of a wealthy person's assets. In other words, value that hasn't actually been monetized by the taxpayer. If you own a stake in a public company that has accumulated tremendously in value that's pay per wealth. You have not actually realized that income. You haven't even sold the shares.
You haven't received that as income. As long as you don't sell that asset, that means accumulative value is an unrealized game. And if the court strikes down the mandatary repatriation tax because it says you can tax unrealized games, that could mean you can oppose a well tax because it would tax on realized gains.
Michael tell us a little bit about this kind of side dispute, or maybe it's a central dispute about Charles Moore's involvement with his company. Why is that a controversy and how might it affect the case?
Charles Moore has portrayed himself and his wife as simple passive outside shareholders and kisen Kraft, the Indian company, issue here that they had no control of what the Kis and Craft distributed its urnings to shareholders. Since this case hinges on whether undistributed corporate income can be taxed, that could be significant. But what Charles Moore didn't say in his followings to the Supreme Court is that and this is shown in kisen Kraft's corporate documents. In India, Charles
Moore was essentially a corporate insider there. He was a director of the company for five years. He received thousands of dollars in travel reingbursons for the company, even though he claimed in his followings that he never received any payments from the company. He advanced only twoitter fifty thousand downlished the Kais and Craft and the form what was called share application money that was later refunded to him.
He appears to have sold some of the shares to the company's CEO, as I said, was a friend and former colleague of his. All the suggests that he would have had at least some sort of voice in what the COIs and Craft did in fact distrie of its turnings to the shareholders. Now the question is does all this matter to the case, And people in the tax
world are kind of split about that. Some people think, yes, it does matter that the Wars haven't told the full story to the court, that it speaks to their credibility and to their portrayal of themselves as ordinary taxpayers and kind of a David versus Golide situation. Other people contend well, even if Charles Wore was more deeply involved with the company that he said, it doesn't affect the central issue in the case. It doesn't speak to whether the mandatary
repatriation tax is unconstitutional. It doesn't speak to whether it's legal the tax income that the taxpayer hasn't realized. So these people think that at the end of the day, it does not matter to the ultimate outcome of the case. For what it's worth, the government has not shown any sign that it intends to make an issue out of this, so it's very possible. It might not come up during
the oral arguments on Tuesday. We don't know whether any of the justices have taken note of this issue, so we'll have to wait and see about that.
You mentioned earlier about the implications that this case could have on a future wealth tax. Can you talk about who has been calling for a wealth tax and kind of the history there and kind of why we don't already have that.
Well, it's actually kind of started before the Court agreed to take the case, because some conservative groups urged the Court to accept to hear this case exactly for that reason, because they want the Court to use this case to rule future wealth tax off limits. Now, Democrats continue to press andw with proposals for a wealth tax. The latest attempt was introducing the Senate ships a few days ago by Senator Ron Wide and the chairman of the Center
Finance Committee. He insists that such a tax would be constitutional. President Biden has called for a wealth tax also or a billionaire's tax, as a court where assets above a certain level would be taxed, whether or not would be realized. As of right now, however, a wealth tax is still very much in the nascent stages. There's no indication that's
going to pass anytime soon. Congress is having difficulty agreeing on anything much these days, and even Wide admits that proposal of this nature probably wouldn't be acting on for some time yet.
Michael, we only have thirty seconds left or so. But do you have any strong feelings, based on what the quarters that are done in the past, about how this case is likely to come out?
It's really hard to say. I mean, part of the reason that some of the people in tax world have been trumpeting the potential implications of this so loudly is because they know that the justices, while they obviously are legal experts, are not tax law experts. Tax flow is extremely in the weeds and detailed and complex, and they want to make sure that the justices before they rule, or aware of the potential implications for the rest of
the tax code. And it's really hard to say but how the court is going to come down this, But this particular court has shown a tendency to not confine its rulings to narrow issues, so it's certainly in the realm of possibility that they could rule broadly in this case. And if they do, in factor, won't favor the Moores issues, something that could have significant implications for other provisions in the tax code.
That's Michael Rappaport, a senior reporter at Bloomberg Tax and Accounting. Thanks so much for joining us. Well, Greg, One thing we didn't chat about with Michael is the controversy here involving Justice Alito in this case. You know over one of the attorneys that's actually arguing, I think David Rivkin, you know he's going to be before the court. Can you talk about the relationship with Alito there and what's going on?
Yeah, really unusual situation. David ri Rivken, a well known conservative lawyer, co wrote to Wall Street Journal Articles opinion pieces with an opinion a writer at the Wall Street Journal in which basically gave Justice Alito a four to say some things, and he talked about he talked about the leak of the ruling in the abortion case. People have said that was an inappropriate thing to happen, and Democrats have called for Justice Alito to recuse from this
case because of David Rifkins's involvement. And then Justice Alito back in September put out a statement in which he said I'm not going to recuse. There's nothing out of the ordinary about these interviews, nothing to see here, and so every indication is he is going to participate in this case.
Wow, that's really interesting, you know, especially given all the ethics controversies. And that does it for this edition of the Bloomberg Law Show. I'm Lydia Wheeler and.
I'm Greg Storr. This is being pl