Legal News for Thurs 8/29 - Windfall Fees in $TSLA Pay Case, SCOTUS Holds Student Loan SAVE Plan and a Proposed Unrealized Gains Tax Visualized

Minimum Competence

This Day in Legal History: Civil Rights Act of 1957

On August 29, 1957, the U.S. Congress passed the Civil Rights Act of 1957, marking the first federal civil rights legislation enacted since the Reconstruction era. This landmark act aimed to address racial discrimination and was a significant step in the ongoing struggle for civil rights in America.

The law established the U.S. Commission on Civil Rights, a bipartisan body tasked with investigating voter discrimination and other civil rights violations. Additionally, it created the Civil Rights Division within the U.S. Department of Justice, empowering federal prosecutors to seek injunctions against those who violated voting rights. Although the act faced significant opposition and was weakened by compromises, it paved the way for future, more comprehensive civil rights legislation. It also symbolized the federal government's renewed commitment to addressing racial inequality, setting the stage for the civil rights movements of the 1960s.

The Civil Rights Act of 1957 is often viewed as a foundational moment in the modern civil rights era, reflecting the nation's evolving attitudes toward race and justice.

Lawyers who successfully challenged Elon Musk’s $56 billion Tesla pay package are seeking a record $6 billion in fees, but Delaware's top court has cautioned against awarding "windfall" fees. Chancellor Kathaleen McCormick of Delaware's Court of Chancery, who is overseeing the case, must decide on the fee amount and whether a shareholder vote restored Musk’s pay, which could reduce the fee. The lawyers argue that their fee request is justified by their significant victory and years of unpaid work. However, the court has signaled that extremely high fees should be carefully scrutinized to avoid excessive compensation. If the pay package is considered restored, Tesla's liability for a large fee might be reduced.

'Windfall' fees now less likely for lawyers who sued to cut Musk's Tesla pay | Reuters

The U.S. Supreme Court has decided to keep President Joe Biden's student-loan relief plan on hold, maintaining the pause imposed by a federal appeals court. This decision prolongs uncertainty for around 8 million borrowers enrolled in the SAVE plan, which aimed to lower monthly payments and provide other benefits. The Department of Education expressed disappointment, highlighting the plan's potential to ease financial burdens.

The Supreme Court's action follows its earlier rejection of a separate Biden debt relief plan, which it deemed unauthorized by Congress. Missouri and other Republican-led states argue that the SAVE plan is similarly flawed, as it would eliminate up to $475 billion in debt, making it even more expansive than the prior initiative. The Biden administration insists that the states lack legal standing and that Congress granted the Education Department the necessary authority to implement such plans.

The 8th U.S. Circuit Court of Appeals is expected to deliver a ruling soon, but for now, new enrollments in the program are halted, and borrowers face the possibility of penalties once the current payment grace period ends next month.

Supreme Court Keeps Biden Student-Loan Relief Plan on Hold (2)

US Supreme Court declines to revive Biden's student debt relief plan | Reuters

In a piece for Forbes I wrote a bit about the unrealized gains tax, or wealth tax, that has engendered much consternation among people not worth $100m.

By way of background, the Biden administration’s FY 2025 budget proposes a 25% wealth tax on unrealized gains for individuals owning over $100 million in assets. Unrealized gains are the increase in an asset's value that hasn't been sold or converted into cash, meaning the gains exist only on paper. This proposal largely affects the ultra-wealthy, with the average taxpayer not impacted.

To illustrate, consider someone who invests $250,000 in a stock, and its value increases 40 times within a year. Even with this substantial gain, the investor wouldn’t face the unrealized gains tax unless their shares appreciated another ten times, reaching a value of $100 million. At that point, they would owe $24.9 million in taxes, requiring them to sell a portion of their shares. Despite the hefty tax bill, they would still retain significant wealth.

Critics worry that such a tax might lead to a stock market downturn if large shareholders sell off assets to cover their tax obligations. However, selling shares to fund other projects is common, and similar concerns about market instability aren’t typically raised in those cases. In sum, you almost certainly needn’t worry about an unrealized gains tax if you are listening to this–and should be more concerned about what kinds of services you can expect to receive from the revenue raised from such a tax.

If I may briefly editorialize: think about the earlier story, where student debt relief has been shelved–or possibly killed entirely. The only time the national discourse revolves around what a policy will cost–the cost would be borne by the ultra-wealthy and benefits would flow to low and middle-income households. Keep an eye on that, it may be important.

Unrealized Gains Tax—Visualizing $100m And When To Be Concerned

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