Facebook Twitter



June 13, 1994, will go down in the history of the demise of our country as the day when property lost all protection against retroactive taxation.

On that Black Monday the Supreme Court struck down the due process protection against retroactive taxation.Previously, ex post facto tax laws had been permitted back to the date that the bill was introduced. The limited retroactivity was based on the court's reasoning that the introduction of a bill provided due notice to taxpayers. However, this stretching of retroactivity had not been allowed in estate taxation.

The reason is simple. A person who relies on law to make a will is deprived of due process if the law on which he relies is overturned after his death.

This commonsensical, fair, long-standing precedent was thrown away by a court that is extremely protective of the "due process" safeguards that it uses to uphold abortions and racial quotas.

The "stark discrepancies" in the court's due-process reasoning noted by Justice Antonin Scalia make it clear that the court views abortions and preferential treatment for "preferred minorities" far more worthy of constitutional protection than property rights.

To encourage greater employee ownership of companies, the 1986 Tax Reform Act permitted a partial estate tax deduction for stocks sold to a company's employee stock ownership plan (ESOP).

Jerry W. Carlton, the executor of an estate fulfilling his fiduciary responsibility, faithfully relied on the law. However, Congress retroactively changed the law, leaving the estate a surprise loss of $631,000.

Relying on well-established Supreme Court precedents, the 9th Circuit Court of Appeals struck down the retroactivity, ruling that it was "harsh and oppressive."

President Clinton, perhaps alarmed at the implication for his own retroactive income and estate taxes that passed by one vote in 1993, had his government appeal to the Supreme Court.

The Republican-appointed conservative jurists obliged him. Blackmun said that precedents from an earlier time carry no weight. Scalia said that due process "rights" are an "oxymoron." Sandra O'Connor said retroactive taxation was OK as long as retroactivity didn't reach back too far.

If this sounds flaky and callous, you are right. But it gets worse.

Blackmun, Rehnquist, Stevens, Kennedy, Souter, and Ginsburg ruled that it is permissible for tax law to be arbitrary and capricious as long as it related to "legitimate legislative purposes," such as raising revenues. In their own words, "Tax legislation is not a promise, and a taxpayer has no vested right in the Internal Revenue Code."

The court has ruled that taxpayers rely on the tax law at their own risk. You might think that you have paid your taxes for 1993 and prior years, but after Black Monday's ruling, whether you have or not is entirely up to the goodwill of the Congress. As Scalia notes, the court's reasoning in U.S. vs. Carlton "guarantees that all retroactive tax laws will henceforth be valid."