A tax fight with big stakes
Oral arguments are to begin on Tuesday at the Supreme Court in a tax case with a lot at stake.
Moore v. United States may appear to center on a request for a $14,729 tax refund, tied to a law that affected relatively few Americans. But it could redefine what is considered income in America, change how Congress taxes it, and preemptively block future efforts by Democrats to impose levies on billionaires’ wealth.
The back story: In 2018, the Trump administration and Congress changed how foreign profits of American companies were taxed, via a one-time levy on earnings from overseas subsidiaries. (Before then, duties were owed only on profit that was brought back to the U.S.)
But Charles and Kathleen Moore, a couple from Washington State, sued over the $14,729 they were assessed under the new law, derived from their stake in an Indian company. The couple argued that they shouldn’t owe tax because they were sitting on unrealized gains and not actual dividends. The case was dismissed at the district and appellate court levels, but — backed by conservative groups — it has reached the Supreme Court.
The case will pivot on when income can be taxed. Lower courts have ruled that earnings need not be realized to be taxable, pointing to language in the 16th Amendment that gives Congress the power to impose duties on “income, from whatever source derived.”
What’s tricky is that many federal taxes are assessed on unrealized income, including those that apply to futures contracts and many partnerships. A bill to introduce President Biden’s version of a wealth tax is also based on the idea of taxing unrealized gains. “The justices might rule that taxes should only be paid by working people who get paychecks, and not by the rich,” Morris Pearl, chair of the advocacy group Patriotic Millionaires, told DealBook.
Political battle lines have been scrambled by the case. Progressive groups have filed briefs in support of the Biden administration. But some conservative groups also fear that the high court’s conservative majority may broadly reject the idea of taxing unrealized income. Paul Ryan, the former House speaker who helped write the 2018 law in question, estimated that up to a third of the U.S. tax code could be at risk of being gutted.
Is there a way to thread the needle? Some experts, like the Tax Law Center at New York University’s School of Law, urged the justices to decide only on the specific issue at hand of whether a company’s shareholders should be liable for income generated at the corporate level. (In this case, the Tax Law Center argues, the answer is yes.)
Others think more legal challenges to the tax code are inevitable: “This is the beginning of the story, not the end,” David Rosenbloom, a partner at the law firm Caplin & Drysdale, told The Wall Street Journal.
HERE’S WHAT’S HAPPENING
Moody’s downgrades China’s credit rating outlook to negative. The ratings agency said it was concerned about the potential cost of bailing out highly indebted regional and local governments and state-owned businesses, adding that it expected lower economic growth as the enormous property sector shrinks. China’s national government retained its A1 credit rating, but the move signals eroding faith in the country’s finances.
Israel starts an invasion of southern Gaza. Israeli soldiers have entered the last section of the territory under Hamas control, setting up a potential showdown in Khan Younis, where the organization’s leadership is believed to have regrouped.
Vladimir Putin will visit Saudi Arabia and the United Arab Emirates. The trip marks a rare overseas trip by Russia’s president since last year’s invasion of Ukraine, and is likely to include discussions about further cuts to oil production. Separately, the White House warned Congress that U.S. aid to Ukraine could run out by year end unless lawmakers approved billions more in foreign aid.
Qatar’s sovereign wealth fund moves to sell nearly half of its stake in Barclays. The gulf nation is seeking to offload 361.7 million shares in the British bank, a move expected to raise $644 million, according to Bloomberg. That would mark the biggest pullback by Qatar from Barclays since investing in the lender in 2008 to help the bank avoid a government bailout during the global financial crisis.
Big Oil’s big COP28 presence
Big Oil was almost sure to come under fire for its big role at this year’s COP28 climate summit in Dubai, especially with 2023 expected to be the hottest year on record. But the role of the Emirati oil executive hosting the event and the number of industry lobbyists in attendance — as well as reports showing that global emissions from fossil fuels are rising — have brought tensions to a head.
More than 2,400 industry lobbyists have registered for the U.N. event, held in the United Arab Emirates. That represents a roughly fourfold increase from last year’s COP in Egypt, according to the watchdog group Kick Big Polluters Out.
Climate activists and scientists worry about Big Oil’s outsize presence. World leaders converged on Dubai to assess progress toward limiting the planet’s warming to no more than a rise of 2 degrees Celsius. Climate scientists have been warning for years that the world needs to dramatically cut back on fossil fuels to prevent a climate crisis.
Getting oil exporting giants to agree to such cuts was always going to be tough. Saudi Arabia said it would not sign off on any text that called for phasing out fossil fuels.
The sensitivity around fossil fuels has added pressure on Sultan al Jaber, the event’s president who runs Adnoc, Abu Dhabi’s national oil company. Comments he made ahead of the summit questioning the need to phase out fossil fuels came to light over the weekend, causing an uproar. “It was only a matter of time before his preposterous disguise no longer concealed the reality of the most brazen conflict of interest in the history of climate negotiations,” said Al Gore, the former vice president.
In a hastily arranged news conference on Monday, Al Jaber said his remarks had been taken out of context.
More COP28 news:
Ray Dalio, the billionaire hedge fund manager, echoed Bill Gates’s comments that achieving the 2-degrees-Celsius limit on warming is a long shot. He also warned that high interest rates would impede climate investment.
The Biden administration’s $3 billion pledge to help vulnerable countries contend with the ravages of climate change are expected to be shot down by Congress.
How ChatGPT upended the tech industry
When OpenAI released ChatGPT a year ago in November, few could have anticipated how it would radically change the technology industry.
Instead, the artificial intelligence industry exploded, drawing Silicon Valley into a race to profit from the technology. The Times has chronicled how the year of A.I. has transformed Big Tech.
Google reoriented itself. The C.E.O. Sundar Pichai was initially unimpressed with ChatGPT, given how much it got wrong. But OpenAI released the chatbot anyway and the public loved it — and he wondered whether Google also could release products that weren’t perfect. That set off a reshuffle, which merged the tech giant’s two A.I. units, Google Brain and DeepMind, and fast-tracked development.
Meta pivoted, again. Mark Zuckerberg, the chief of Facebook’s parent company, had been obsessed with the metaverse. But Yann LeCun, his top A.I. scientist and a pioneer of the technology, warned that A.I.-powered assistants could make Meta’s platforms extinct. (LeCun also urged the company to embrace an open-source approach that allowed anyone to tinker with products’ code, as opposed to the traditional strategy that OpenAI and Google were pursuing.) “I think you’re right,” Zuckerberg said, and ordered hundreds of employees to be redeployed to A.I.
Microsoft redoubled its bet. The C.E.O. Satya Nadella had invested early in OpenAI before most of Silicon Valley had recognized its potential. After being wowed by the capabilities of GPT-4, a more powerful version of ChatGPT’s original tech, Nadella abandoned his usual consensus-driven approach and told lieutenants to embrace A.I. “This is a central advancement in the history of computing, and we are going to be on that wave at the front of it,” one executive remembered him saying.
But a top voice at Google bowed out. Geoffrey Hinton, a leading A.I. researcher who had trained dozens of other experts — including Ilya Sutskever, the chief scientist at OpenAI — had long been skeptical of pessimists’ doomsday scenarios. Yet the rise of increasingly capable chatbots changed his mind. And the budding arms race among tech giants to commercialize the technology, despite its risks, prompted Hinton to quit the company.
What’s driving the Bitcoin rally
Bitcoin bulls have brushed off a sweeping legal crackdown against some of the industry’s biggest players, high interest rates and global recession concerns to push the digital currency’s value close to a 20-month high this week.
The digital coin traded at around $41,700 on Tuesday, after pushing past $42,000 on Monday. It has gained roughly 150 percent this year, far outperforming the Nasdaq composite index, as investors bet that regulators will soon approve the first spot Bitcoin exchange-traded fund, or E.T.F.
Investment management specialists are swarming. Thirteen firms, including BlackRock, Fidelity and the Swiss-based Pando Asset, have now filed paperwork with the S.E.C. to create such an E.T.F., Reuters reports.
Unlike existing Bitcoin E.T.F.s, which are linked to futures contracts, a spot fund would let investors own the token itself, without the hassle of requirements like a crypto wallet. Regulatory approval for such a product would usher in the industry’s long-held dream of a mainstream investment product.
The S.E.C. has stayed quiet about when such approval might come, despite the flurry of fund filings. Still, investors have been increasing their bets on Bitcoin in recent weeks, amid speculation that the agency will make its decision by January.
It’s worth remembering that trading in crypto is exceptionally volatile, given the relatively small market for digital currencies. The breathless anticipation for a spot E.T.F. has created conditions for a rally based on FOMO — that is, fear of missing out — according to the crypto investment services firm Matrixport.
THE SPEED READ
Mistral, a nearly year-old French A.I. start-up that raised $113 million this summer, is reportedly finalizing another investment round that values it at roughly $2 billion. (Bloomberg)
Shares in Virgin Galactic plunged on Monday after Richard Branson, the space tourism company’s billionaire founder, said he wouldn’t make further investments in the business. (CNBC)
Closing arguments are set for later on Tuesday in the Justice Department’s lawsuit to block JetBlue’s takeover of Spirit Airlines. (WaPo)
Best of the rest
A prominent disinformation scholar, Joan Donovan, accused Harvard of pushing her out to please Meta after the university received a $500 million pledge by Mark Zuckerberg and Priscilla Chan’s charitable organization. (WaPo)
“Who Got a Lot Richer and Who Didn’t During the Pandemic” (WSJ)
The legacy, by the numbers, of Sandra Day O’Connor, the Supreme Court justice who died last week. (Empirical SCOTUS)
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