Simple Liberty  

 

     
   
     

The American Income Tax

Chapter 10

Direct and Indirect — Will The Real Camel Please Rise

Written by Darrell Anderson.

There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.

Professor Bernardo de la Paz, from The Moon is a Harsh Mistress, by Robert Heinlein

Is the income tax an indirect or direct tax? Not even the Supreme Court justices seem capable of deciding. As implemented, the income tax is madness and tyranny. Yet, who is going to step forward and admit as much?

Some judges believe the 16th Amendment created a new class of direct tax that is unapportioned. Some judges believe the 16th Amendment conferred no new powers of taxation and that the income tax is an indirect tax.

Although the Supreme Court justices seemed to have put the issue to rest more than 80 years ago, there has yet to be a straightforward judicial decision made as to whether a general tax on income is a direct or indirect tax. Yet, does anyone need to ask such a question in the high courts of the land? Hardly, just ask any individual on the street and you will be told that a tax on income is a direct tax. Of course, many people erroneously believe that the words wages and income are synonymous. Regardless, directly taxing wages or income is a direct tax, as opposed to being measured by wages or income. People do not need to attend law school or read volumes of court cases and historical treatises to know that income is personal property, or that the fruits of labor are property. The terms direct and indirect are vague and always will be, and therein lies part of the problem. Furthermore, despite a partial understanding of the term income, today those understandings have been swept under the carpet. That is why these arguments continue.

Several questions still remain to haunt this tax. If the income tax is a direct tax, then why is the tax not being collected through the states. The Constitution makes the several states the subject of and liable for paying any national direct tax. The only possible answer is that the 16th Amendment removed that specific property from the rule of apportionment, but why is collection not performed through the states?

If taxes on income can be collected without the rule of apportionment, that is, to allow on that specific property a direct tax by legislators without any rules, then the entire constitutional purpose for apportionment is annulled and the United States cannot be considered a federation of states, but merely a collection of political subjects of legislators.

The Supreme Court justices would have everyone believe that the 16th Amendment created no new class of tax, and they said as much in Brushaber and Stanton. Using faulty logic the Court justices incorrectly stated that taxes on income are indirect taxes in the nature of an excise. The Court justices decided this in 1916, only three years after the alleged ratification of the 16th Amendment. The Court justices stated that the 16th Amendment conferred to legislators no new power of taxation and that the 16th Amendment merely placed taxes on income into the class of indirect taxes subject to the rule of uniformity. The Court justices stated an “income” tax was an excise tax entitled to be enforced as such.

So the die is cast and the “income” tax is not an unapportioned direct tax but an indirect tax in the nature of an excise. The tax is not on income per se, income is used only to measure the possible tax liability for having participated in some kind of taxable activity.

Has the Court justices ever provided any definitions of an excise tax? Yes. In Pollock, Justice Stephen Field wrote:[1]

Excises are a species of tax consisting generally of duties laid upon the manufacture, sale, or consumption of commodities within the country, or upon certain callings or occupations, often taking the form of exactions for licenses to pursue them.

Sixteen years later, the Supreme Court justices iterated that definition. In Flint v. Stone Tracy Co. the Court justices stated:[2]

Duties and imposts are terms commonly applied to levies made by governments on the importation or exportation of commodities. Excises are ‘taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.’ [citing Cooley, Const. Lim. 7th ed. 680.]

Very well, despite the obvious conflicts between Pollock, William E. Peck and Co., Eisner with Springer, Brushaber, and Stanton, let us play the Court justices’ game. If the income tax is an indirect tax, then that answer begs the question of trying to explain why the income tax is not uniform, as required by the Constitution. Different tax rates and an almost uncountable number of deductions and “loopholes” hardly make the tax uniform.[3] The word loophole is misleading, of course. The word implies an “oversight” by legislators, but in reality often is little more than “cute provisions.”[4]

More importantly, if the income tax is an indirect tax in the nature of an excise, then the question arises of what taxable activity are Americans participating in order to be subject to this tax? If the income tax is an excise tax then what is the activity being taxed? At least with proprietorships, partnerships, and corporations, where people are in the business of selling goods and services, an argument can be offered what activity is the subject of the tax. Additionally, any time one submits to a licensing process the activity once again is identifiable. Not so with common workers.

The Internal Revenue Code (Title 26 of the U.S. Code) lists numerous excise tax activities. See Subtitle D. Those sections specifically declare the party liable for paying the tax.[5] What statute declares the taxable activity of the common worker?

According to the logic of Brushaber and Stanton, the 16th Amendment segregated income from the sources that income is derived. For example, the net income or profits derived from property rentals could be taxed as income without regard to the rental property (the source). Bank interest and stock dividends could be taxed as income without regard to the underlying principal or stock (the source). All without regard for the rule of apportionment.

Yet, with respect to common workers, the system seems to be directly taxing the source — labor. Yet, labor is merely something humans do. Why is the source of the income (wages) being taxed if Brushaber and Stanton are holding?

For the common worker, the source of income, with respect to a general income tax, is labor. If the income tax is an indirect tax in the nature of an excise, then labor itself must be the source of that income. The excise then must be on the activity of labor, and income (wages) is used merely to calculate and determine the tax owed.

The Internal Revenue Code lists many activities that are subject to excise taxation, but is strangely quiet on the specific activity being taxed with respect to the everyday American. Thus, if the activity being taxed is general labor, then the tax seems to conflict with the 13th Amendment (and fundamental rights and all state constitutions) prohibiting involuntary servitude.

If the Court justices want to backtrack and admit the logic used in Brushaber and Stanton is faulty, and that the 16th Amendment merely removed the requirement of apportionment from the specific property of incomes, then the 16th Amendment directly conflicts with the 13th. Additionally, for the Court justices to backtrack would leave open the door for somebody to declare the 16th Amendment null and void for all the reasons stated previously.

Can legislators tax general labor? Labor is a unique asset. Life itself is the most fundamental property, and that property is inalienable. To labor is a fundamental right that is also is inalienable. Each human possesses legal title to his or her labor. Humans claim that title through the doctrine of first possession of his or her body — the concept of self-ownership. Therefore, humans can only exchange the fruits of their labor for other property. But if labor is considered property, then legislators can tax that species of property only by using the rule of apportionment. The 16th Amendment did not include that species of property as being exempt from the rule of apportionment; the 16th Amendment only exempted the specific property of incomes.

Can legislators tax the income derived from labor? The first question that must be answered is what is income? With respect to businesses, income is profits, something that is separate from the source that created the income. The next question is whether or not wages received in exchange for laboring are income within the meaning of the 16th Amendment. The answer, according to court judges, is yes. The key is that infamous clause “from whatever source derived.”

Finis.

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Next: Chapter 11: Nonresident Aliens and Citizens — The Camel Sneezes

Table of Contents

Bibliography

Endnotes

[1] 157 U.S. 429 (1895), at page 592.

[2] 220 U.S. 107 (1911), at page 151.

[3] Adams, For Good and Evil, p. 312.

[4] Carson, “The Income Tax and How It Grew,” http://www.americanheritage.com.

[5] Title 26 of the U.S. Code is prima facie evidence of the law and never has been positively enacted into law. The true law is still the original Statutes at Large. Although the Code is well known for not containing the original text as written in the statutes at large, Title 26 is considered prima facie evidence of those statutes.