The Supreme Court saved a Trump tax. A Biden wealth tax might not be so lucky.

The relatively narrow 7-2 ruling left unanswered several major questions raised both directly and indirectly by the suit, including whether the sort of taxes proposed by the Biden administration on the very wealthy would pass constitutional muster. At least four of the court’s conservative justices seemed to signal they would be inclined to strike those proposals down in a future ruling.

The court’s decision, in short, could be the opening salvo in a longer battle over the limits of the government’s taxing power.

The result “preserved our income tax, because this case really could have upended everything,” Steven Rosenthal, a senior fellow at the Tax Policy Center, told Semafor. “But it really dug a big hole for the billionaire and wealth proposals that are pending.”

The case, Moore v. United States, dealt with the one-time “repatriation tax” on foreign earnings held overseas by American companies that Republicans used to raise hundreds of billions of dollars as part of their 2017 tax reforms. The plaintiffs were a Washington couple, Charles and Kathleen Moore, who got a $15,000 tax bill thanks to their part-ownership of a friend’s firm that sold farm equipment in India, even though the business hadn’t distributed any of its cash profits back to investors.

The Moores claimed the tax was unconstitutional, arguing that under the 16th Amendment, the IRS only has the power to touch income that has been “realized” by taxpayers, such as when investors receive a dividend or sell off stock.

If the court had agreed, it would have legally foreclosed several ideas Democrats have put forward in recent years to tax the riches of billionaires, including a Biden administration proposal to tax unrealized capital gains of anyone with a net worth over $100 million or the more straightforward wealth tax championed by Sen. Elizabeth Warren.

Experts had worried that the Moores’ argument could unravel other longstanding pieces of US tax law, too, with former House Speaker Paul Ryan at one point suggesting that if the court ruled in their favor, it would have to toss about “a third of the tax code.”

Ultimately, the court batted down the suit, ruling that the income in question had been realized when the company earned it, and, for legal purposes, the government was allowed to attribute those profits to shareholders or partners in the business. Two conservative Justices, Clarence Thomas and Neil Gorsuch, dissented.

In his opinion for the majority, Justice Brett Kavanaugh emphasized that plaintiffs had failed to show how the repatriation tax was different from other pieces of tax law dealing with issues like partnerships and foreign profits, where income is attributed back to individuals on paper. The “Moores’ argument, taken to its logical conclusion, could render vast swaths of the Internal Revenue Code unconstitutional,” he wrote, adding that the “constitution does not require that fiscal calamity.”

But the majority skirted the bigger question of whether Congress has the power to tax unrealized income, with Kavanaugh stressing in a footnote that his analysis did not address “the distinct issues that would be raised” if the government tried to impose a levy on wealth or assets that have gone up in value.

On those questions, the court’s majority appeared much more fractured. Justice Ketanji Brown Jackson, one of the court’s liberals, wrote in a concurrence that the constitution did not require income to be realized before it could be taxed; but Amy Coney Barrett and Samuel Alito, two of the court’s conservatives, wrote in their own concurrence that it did. 

Taken together, at least four of the court’s right-leaning members appeared ready to nix the wealth tax measures Democrats have put forward, likely leaving the fate of those proposals in the hands of Kavanaugh and Chief Justice John Roberts, who joined the court’s majority opinion without elaborating on his views. Alan Cole, a senior economist at the conservative-leaning Tax Foundation, said that Democrats might need to settle for “clunkier” workarounds to avoid getting overturned. “Some of the parts of the Biden tax-the-rich-only agenda would have to be written very carefully.”

David Kamin, a tax law professor at New York University and the former deputy director of President Biden’s National Economic Council, said the warning signals coming from the court’s right flank posed “a risk.” But it wasn’t certain a majority of the court would shoot down something like the White House’s proposal to tax unrealized capital gains, he said, because the justices still hadn’t found a way to distinguish it from other parts of the tax code that are already in place.

“I would hope that what the case ends up standing for, is that even with the court being conservative — and this will be for future cases to decide — there was a majority that said the constitution does not require a circumscribed income tax,” Kamin said.