'Income Tax' Collection Violates Constitutional Rights. · 232 days ago
Personal income taxes, as they are currently levied, are unConstitutional. The following argument to this end is based on the definition of income as rendered by the Supreme Court in numerous cases that have never been overturned. The primary opinion of the court was given five years after the ratification of the 16th Amendment.
The 16th Amendment to the US Constitution –
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
In the court case of Merchants’ Loan and Trust Co. v. Smietanka (1921) it was decided that the legal definition for income (which is at odds with the common usage of the term) was explicated in the Corporation Excise Taxation Act of 1909. This decision upheld the opinion given in the case of Doyle v. Mitchell Bros. Co. (1918). The decision in Doyle v. Mitchell Bros. Co. is one of the clearest interpretations of what constitutes income according to the Corporation Excise Taxation Act of 1909.
Doyle v. Mitchell Bros. Co. (1918)
Page 247 U.S. 179, 183
Yet it is plain, we think, that by the true intent and meaning of the act [Corporation Excise Taxation Act] the entire proceeds of a mere conversion of capital assets were not to be treated as income.
Whatever difficulty there may be about a precise and scientific definition of ‘income,’ it imports, as used here, something entirely distinct from principal or capital either as a subject of taxation or as a measure of the tax; conveying rather the idea of gain or increase arising from corporate activities. As was said in Stratton’s Independence v. Howbert, 231 U.S. 399, 415, 34 S. Sup. Ct. 136: ‘Income may be defined as the gain derived from capital, from labor, or from both combined.’
Understanding the term in this natural and obvious sense, it cannot be said that a conversion of capital assets invariably produces income. If sold at less than cost, it produces rather loss or outgo. Nevertheless, in many if not in most cases there results a gain that properly may be accounted as a part of the ‘gross income’ received ‘from all sources’; and by applying to this the authorized deductions we arrive at ‘net income.’ In order to determine whether there has been gain or loss, and the amount of the gain if any, we must withdraw from the gross proceeds an amount sufficient to restore the capital value that existed at the commencement of the period under consideration.”
Despite this ruling, when taxing wages, the government fails to “… withdraw from the gross proceeds an amount sufficient to restore the capital value that existed at the commencement of the period under consideration” in violation of the U.S. Constitution -5th Amendment. As a consequence, the federal government, in effect, levies a direct tax on capital that is not income “…without apportionment among the several States, and without regard to any census or enumeration,” in violation of the U.S. Constitution – Article 1, Section 9, Clause 4. The government tyrannically decrees that the sale of labor for a wage is without an unadjusted base. This entails that labor, when provided by natural persons, is without factors of production and constitutes pure profit – i.e. ‘income’. But, even if the government were to define the unadjusted base, in the case of human labor, it seems impossible to label any such amount anything other than an authorized adjustment. Thus rendering the government incapable of rationally decreeing the capital value of the production factors of labor when provided by a natural person as opposed to a corporation. Corporations, in opposition to natural persons, pay for labor then sell a service allowing a determination of profitability and, therefore, income.
For example, let’s assume that the income tax rate is set at %10 and there is a deduction of $1 dollar, which is the government’s authorized adjustment, for engaging in the sale of teaching services. In that case, if a corporation has $90 and trades that for labor in the form of teaching services and tomorrow sells that service for $100, the Court has ruled that the income generated is not $100 and the tax is not equal to %10 of $99, which would constitute a tax of $9.90 on a $10 profit (remember the authorized deduction of $1). Instead, the tax is %10 of $9, because the income is $10 ($100 – $90) and there is a deduction, which is an authorized adjustment, of $1 creating a tax of $0.90 on a $10 income. Yet, when the government levies ‘income tax’ on wages, it illegally and unconstitutionally assumes that the complete conversion of labor into wage is profit. So, in the above example, while the corporation pays an income tax of $0.90 on a $10 dollar gross income, the teacher pays an ‘income’ tax of $8.90 on $90 dollars of gross revenue.
It seems obvious that while the corporation has unadjusted base expenses upon which its revenue is generated, the teacher must also have unadjusted base expenses upon which his revenue is generated. And, like the corporation, these unadjusted base expenses must be subtracted from the revenue in order to determine gross income. It is the opinion of the court that, “…it cannot be said that the conversion of capital assets invariably produces income.” Yet it seems obvious that labor, for which wages are paid, is a capital asset with real value, and the government has failed to subtract, “… from the gross proceeds an amount sufficient to restore the capital value that existed at the commencement of the period under consideration.” As a consequence, the government is unconstitutionally taxing capital value that existed at the commencement of the period under consideration. The portion of tax levied on the original value of the converted capital asset is a direct tax rather than an income tax and, according to the U.S. Constitution, is required to be “…apportioned among the several States in proportion to the Census or Enumeration.”
Some may make the argument that nothing of value exists before a person’s labor creates a service that commands a wage, and that wages are, therefore, pure profit and wholly taxable as income. But this argument must be rejected on two accounts. First, labor is a factor of production. This labor is utilized to produce income. But, the production of labor itself has factors of production. If labor did not require factors of production, then corporations would be able to create labor for themselves and wouldn’t require employees. Second, the factors of production for labor are the costs by which labor is produced. These costs form the unadjusted base that must be subtracted from revenue in order to determine gross income. This logic forms the basis for many authorized adjustment including: standard deductions, mortgage interest deductions, Earned Income Tax Credits, and Federal Student Loan interest deductions. But these are all authorized adjustments, and therefore, fall outside of the realm of the unadjusted base value that must be removed from revenue before gross income can be calculated.
For instance, food, water, shelter, clothes, medical care, transportation, energy, electricity, leisure, time away from family…etc, are all necessary to provide labor services. But these items do not have objective prices. So the government is incapable of rationally determining the capital value of these items prior to their purchase. The value of these goods and services can only be rationally determined through the subjective mechanism of a free market where the price is the result of the instantaneous and variable interactions of supply and demand. The prices of the factors of production for labor are subject to constant change – as reflected in the movement of these prices from day to day. To decree these prices before allowing the market to resolve the interactions of supply and demand is price fixing and will either cause shortages of labor and rising labor prices or it will cause oversupply of labor and falling labor prices.
For example, many lawyers would not perform the services they currently provide if compensated the same as day laborers. The increased revenue lawyers receive for lawyering is necessary to secure the factors of production of their labor. Yet the government decrees that the capital value of the factors of production for lawyering are identical to the factors of production for day laboring, which is as ridiculous and communistic as decreeing that henceforth the revenue produced by a lawyer be identical to the revenue produced by a day laborer. The decree that every form of labor and every individual has identical labor production costs leads to the government’s conclusion that lawyering is more profitable than day laboring because lawyering produces more revenue. The government then unconstitutionally taxes individual revenue from wages as if it were income.
While lawyers earn more personal revenue than day laborers, the government has not the rational basis by which to substantiate that lawyering is more profitable than laboring because the government can’t rationally decree the subjective costs of the factors of production of labor. As such, the government cannot rationally determine whether lawyers produce more income than day laborers. Instead, the government can only determine whether corporations that sell lawyers’ services are more profitable than corporations that sell day laborers’ services. And this is due to the fact that, unlike natural persons, corporations are capital accumulation machines whose viability is determined solely by a balance sheet. The same arguments used to justify the idea that any money received by natural persons is a financial gain, and accession to wealth, pure profit, and therefore taxable as income was opined by the government in the U.S. Court of Appeals concerning an appeal to Murphy v. IRS.
Murphy v. U.S. Internal Revenue Service (2006)
No 05-5193
United States Court of Appeals
In addition, the Government challenges the coherence of Murphy’s analogy between a return of “human capital or wellbeing” and a return of “financial capital,” the latter of which it acknowledges does not constitute income under the Sixteenth Amendment. The Government first observes that financial capital, like all property, has a “basis,” defined by the IRC as “the cost of such property,” adjusted “for expenditures, receipts, losses, or other items, properly chargeable to [a] capital account,”; thus, when a taxpayer sells property, his income is “the excess of the amount realized therefrom over the adjusted basis.”. The Government then observes that “[b]ecause people do not pay cash or its equivalent to acquire their well-being, they have no basis in it for purposes of measuring a gain (or loss).” Nor is there any corresponding theory of “human depreciation,” which would permit “an offsetting deduction for the exhaustion of the taxpayer’s physical prowess and mental agility.”
First, the government argues that individuals do not pay cash or its equivalent for their wellbeing, so there is no calculable unadjusted expense to provide labor. Second, the government argues that since there is no calculable unadjusted expense associated with providing labor, the unadjusted expense is equal to $0. But, it is difficult to imagine a more irresponsible, unsound premise or more invalid, fallacious logic than the government’s.
Despite the government’s premise, every individual obviously DOES pay cash or its equivalent to secure certain aspects of his wellbeing. Every purchase, monetary holding, and investment an individual makes is an act by the individual to secure his wellbeing. And the cost of every purchase, monetary holding, and investment is reflected in the subjective prices of the goods and services procured by the individual and must comprise the capital value of the unadjusted base expense for the provision of labor. Since every dollar earned by those who provide labor is exchanged for goods and services that provide wellbeing (whether in the form of consumer goods, capital goods, monetary savings for future consumption, monetary savings for future risk mitigation, or investment services), then the capital value of these goods and services define the unadjusted base which must be subtracted from the gross individual revenue in order to determine gross income.
Obviously, the unadjusted base will either be equal to or greater than the gross individual revenue. So, contrary to the government’s hypothesis, it is not impossible to calculate the capital value of the factors of production for labor provided by natural persons, which must be equal to or greater than individual wage revenue. It is just impossible for the government to rationally decree a blanket capital value for the factors of production for all labor, which, by the way, is the ultimate goal of Communism. The U.S. government then goes on to achieve the Communist ideal of commandeering the control of the production factors of labor by decreeing that their capital value is $0! But logically, if the government can’t rationally determine the monetary value of the production factors for labor; it can’t rationally substantiate that the capital value is $0; and it must rely on the free market to set the price, which occurs as labor providers secure their wellbeing through their individual purchases of goods and services. In this way, it is easy to see that, while the actual unadjusted base expense to provide labor is different for every individual laborer, once these expenses are subtracted from the equally variable individual wage revenues, then the gross income from wages is always $0. Any adjustments then applied to the gross income of wage earners that results in a tax must be a direct tax and not an income tax.
The current unConstitutional interpretation of the 16th Amendment is used to justify governmental interference for which it was never intended. The 16th Amendment was not written in order to tax the capital conversions of private individuals as these were considered private affairs beyond government intervention. The enactment of the Corporation Excise Taxation Act of 1909 allowed the government to tax corporations because it was the growing opinion at the time that capital was becoming too concentrated, and there was little public opposition to taxing corporations (legal entities granted existence by the State through charter in opposition to natural persons or citizens who do not owe their existence to the State by inalienable right). The Corporation Excise Taxation Act was never intended to tax income in a way that brought it into conflict with the direct and indirect tax clauses of the U.S. Constitution. Instead it attempted to levy an excise tax (indirect tax) on corporations in an amount commensurate with their income. In the opinion of the court, “…the act [Corporation Excise Tax Act of 1909] makes it plain that the legislative purpose was not to tax property as such, or the mere conversion of property, but to tax the conduct of the business of corporations organized for profit by a measure based upon the gainful returns from their business operations and property.”
The Corporation Excise Taxation Act was constantly challenged in court. First for being a direct tax which was overruled, then on account of the sources of the corporate income. The source of corporate income proved problematic in the court system, so the Congress enacted the 16th Amendment to the Constitution allowing a tax on income regardless of the source of the income. If the 16th Amendment to the Constitution were meant to override the clause concerning direct taxation, then the Amendment would have specifically used the term ‘direct taxes’ instead of ‘taxes on incomes’. The 16th Amendment to the Constitution does not legally allow the government to levy direct taxes on wages, and the legal definition of income only applies to specific forms of capital gain – namely those arising from “corporate activities”. If it is in the opinion of the People that the government ought to be brought into compliance with the U.S. Constitution, Americans must take it upon themselves to publicly object and privately reject the government’s claim to unConstitutional taxing authority. Americans, as the ultimate, sovereign arbiter of their government’s compliance with the U.S. Constitution, have the God given Right to protect their property from unConstitutional government aggression.
— Rhys Lucero
