The Supreme Court is poised to hear arguments Tuesday in a closely watched case that some warn could have sweeping implications for the U.S. tax system and derail proposals from some Democrats to create a wealth tax.
The dispute before the justices, known as Moore v. United States, dates back to 2006. That year, Charles and Kathleen Moore made an investment to help start the India-based company, KisanKraft Machine Tools, which provides farmers in India with tools and equipment. The couple invested $40,000 in exchange for 13% of the company’s shares.
KisanKraft’s revenues have grown each year since it was founded, and the company has reinvested its earnings to expand the business instead of distributing dividends to shareholders.
The Moores did not receive any distributions, dividends or other payments from KisanKraft, according to filings with the Supreme Court. But in 2018, the couple learned they had to pay taxes on their share of KisanKraft’s reinvested lifetime earnings under the “mandatory repatriation tax,” which was enacted through the Tax Cuts and Jobs Act, signed into law by President Donald Trump the year before. The tax was projected to generate roughly $340 billion in revenue over 10 years.
Ownership has two components: benefits and control. If you both benefit from and control your shares already, it doesn’t matter whose name is on the certificate. Using CeDe just makes it easier to buy and sell shares. Prior to that people had to literally track down physical owners, call them up, and ask to buy their shares. Read Warren Buffett’s biography (“The Snowball”). He did it all the time.
Your home address has your state and country on it. Do they “own” your house in any sense of the word? Their name is on it and you pay them for services for your property. They make rules you have to follow. No, they don’t own your house but they do have a responsibility to provide services for it. Should you leave society and set up your own water, septic tank, power, etc.? You can but it’s not easier and it doesn’t affect the ownership of your property. Same with direct registration.
I agree with you completely regarding the massive improvements to liquidity and settlement with a centralized depository model. The Depository Trust was founded to that end and accomplished it well. However, I do not believe the ‘control’ of the shares is adequately dispersed to beneficial owners under the current system. See the concerns (long standing over decades) regarding shareholder democracy from my previous comment.