Nonprofits Help Kill the Wealth Tax

Last week I ranted about behested payments, one of my pet peeves and something that has bothered me since I first heard of such a dang fool thing not very long ago.  Payments made to a public servant's favorite charity at the "behest" of the public servant, usually someone with decision authority over a matter important to the "donor."  That's what chafes my butt.  And that the charity is complicit in the soft corruption.  Willing donors get favorable action, unwilling donors don't.  A blind man can see this.  I finally learned the legal name for my concern, too.  "Honest service fraud" happens when a malefactor through "scheme or artifice" "deprive[s] another of the intangible right of honest services."  

San Francisco, by the way, passed an ordinance about 18 months ago prohibiting its public employees from soliciting behested payments. And last week, it announced a sweeping new ballot initiative to reign in other forms of public corruption facilitated by nonprofit organizations getting donations from big developers with business before the city. There has been a DOJ investigation of public corruption in San Francisco for going on four years now, so that seems ground zero for behested payments.  As I stormed off in disgust last week, you might remember that I suggested that Justice Thomas and the rest of the Supremes might be guilty of honest service fraud.

Before I show you newly discovered evidence, recall that the Supreme Court is set to decide whether the realization requirement in 61(a)(3) and 1001 is statutory or constitutional.  Because if its only statutory, it can be changed and the Congress might enact a wealth tax -- the "billionaires" tax, which could introduce a path to equity in the tax code and no doubt added motivation for charitable giving.    Well, forget about it.  Not gonna happen because the Court will say that the founders never understood "income" thusly, a wealth tax is confined to real property, a wealth tax would grant unlimited power to government something the founders did not intend, or all of the above.  Sophistry, pure and simple. 

We can't know that the Court will not render honest services but that's only the good news.  The bad news is that we certainly cannot guarantee that it will render honest service, and that because of tax exempt organizations with added weight on the scales of justice.  Consider Exhibit 1 from the Guardian, August 25, 2023:

An influential think tank closely linked to two billionaires who provided lavish travel gifts to conservative supreme court justices is behind a successful lobbying campaign to get the US high court to take on a case that could protect them and other billionaires from a possible future wealth tax.

The Manhattan Institute was one of eight conservative advocacy groups that filed amicus briefs urging the supreme court to take on Moore v US, a $15,000 tax case that Democrats have warned could permanently “lock in” the right of billionaires to opt out of paying fair taxes.

Billionaire hedge fund manager Paul Singer is chairman of the Manhattan Institute and Kathy Crow, who is married to real estate mogul Harlan Crow, serves as a trustee of the group. Both have provided two of the justices – Samuel Alito and Clarence Thomas, respectively – with private travel gifts and have socialised with the judges on lavish vacations, according to reports in ProPublica and other media outlets.

Even if the Moores lose the case, a narrow ruling that questions Congress’s ability to impose taxes like the MRT could kill plans for a billionaire tax by making clear that the conservative-led supreme court would reject an attempt by Congress to tax unrealized gains.  “The Moores are not the real parties of interest [in this case]. The billionaires financing the litigation are the real parties of interest,” said Steven Rosenthal, senior fellow at Urban-Brookings Tax Policy Center.

“There are so many different variations of what could be income,” said Rosenthal. For the past 100 years, he said, the definition of what gains were taxable has been treated as an administrative issue for Congress and not as a constitutional issue for the supreme court to decide.  He said the case raised questions about whether the Moores’ seemingly narrow tax dispute could be a “stalking horse” case that will ultimately be a boon for billionaires.

“The billionaires don’t care whether the Moores are taxed or not. Musk, Zuckerberg and all the other billionaires out there start these companies and have all these unrealized gains on their stock investments. And they are threatened by the Warren and Wyden wealth taxes that might tax unrealized gains,” said Rosenthal.  “For the supreme court to reach out and take a case that is not really a controversy is tremendously dangerous,” he said. “Why are the billionaires being able to pull the strings of the US supreme justices like puppets?”

Among the top lawyers representing the Moores is David Rivkin at BakerHostetler, who also represents the rightwing judicial activist Leonard Leo in connection to a criminal investigation into Leo-affiliated non-profits that Politico reported has recently been launched by Washington DC attorney general Brian Schwalb.

The article gives other examples of billionaires contributing to or establishing exempt organizations with ties to the Court and then the organizations successfully petitioning the Court for one thing or another.  Indictments are not in order, its the Supreme Court for Christ's sake.  But we oughta revoke tax exemption for organizations that suborn public corruption.  Meanwhile, we should probably forget about a wealth tax.  You heard it here first.

darryll k. jones