The Supreme Court on Tuesday heard a conservative challenge to Congress’ broad power to tax corporate assets, a case that could protect wealthy Americans who invest their money abroad.

During the two-hour discussion, most of the justices said they wanted to resolve the tax dispute painstakingly without making major changes to the law. But they also revealed a depth

and long-standing

disagreement over the federal government’s taxing power.

The 1913 16th Amendment said Congress had the power to “collect taxes on incomes from whatever source.” That Progressive-era amendment was passed to overturn a conservative 1890 Supreme Court ruling that had abolished income taxes.

Undeterred, the Court’s conservative majority in 1920 sharply limited the government’s taxing power, ruling that stock wealth could not be taxed as income if the taxpayer had not realized or received “any income” from his stock ownership.

That age-old dispute was at the center of Tuesday’s discussion. Should federal income taxes be limited to “realized” profits, such as stock dividends and capital gains? Or can Congress continue to raise taxes on large investors in partnerships and corporations even if they do not receive an annual share of the profits?

Washington attorney Andrew Grossman urged it

today the

conservative majority to rule broadly that “unrealized profits are not income” and should not be taxed. “This is a critical check on Congress’s power to tax real estate,” he said.

He represented Charles and Kathleen Moore, a Washington state couple who in 2005 invested $40,000 in an Indian farm equipment company. The company made healthy profits but received no dividends.

When the Republican controlled Congress passed

a tax cut bill tax cuts

In 2017, it included a one-time “mandatory repatriation tax” on U.S. investors in foreign companies because they would benefit from other law changes. This provision would generate $330 billion.

The Moores paid their $14,729 tax bill and then filed a lawsuit.

Their case, Moore vs. United States, put a spotlight on whether the Supreme Court would ban new “wealth taxes” proposed by Senator Elizabeth Warren (D-Mass).

.

) and other progressives.

U.S. Attorney General Elizabeth B. Prelogar on Tuesday strongly defended Congress’s taxing power, saying investors have long had to pay taxes on their shares of company assets, even if they don’t receive dividends. She said the 1920 decision to cap taxes on “unrealized” income has not been

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followed in later decisions, and the court should not go back on that now.

She said it would “create a major change” in the tax code and cost “several trillions of dollars in lost tax revenue” if the court were to strike down taxes on undistributed corporate income.

Judge Ketanji Brown Jackson pointed out that the 16th Amendment does not contain such a strict limit based on the idea of ​​“realization.” It says that taxes may be levied on income ‘from whatever source’.

At a key point in the argument, Judge Brett M. Kavanaugh suggested that the taxes paid by the Moores could be upheld on the grounds that they were major shareholders in a company that posted annual profits.

“There were realized revenues here, and they can be attributed to shareholders,” he said. “We have long believed that Congress should be allowed to attribute the company’s earnings to shareholders.”

Afterward, several justices said the court could make a narrow ruling by following Kavanaugh’s proposal.