Beginning of the End for Tax Terrorism

It’s probably because I’m living in a foreign land, but I’ve noticed fewer scary stories than usual this year about the dangers surrounding income taxes. The Service is still plenty scary. It still issues lots of carefully worded, thinly veiled threats.

And there’s still nothing like that little thrill of fear you get when you hear: “Hello, Mr. Taxpayer, I’m calling from the IRS.”  We may have a system of “voluntary compliance” but fear of prison and financial ruin plays a major part in finding volunteers.

Living in a foreign country offers shelter from the more heavy-handed thuggery, but it makes no difference to an American’s tax status. The IRS claims global reach and total authority over citizens of the Land of the Free. The U.S. is one of the few countries that bases tax liability on citizenship rather that just residency. Ironically, the U.S. is also one of very few countries whose fundamental, founding law regulates the government’s ability to tax the private earnings of its citizens.

Most people don't think about the limits of Congress' power to tax, or even that there might be any limits. Once you accept the idea that the Feds are entitled to any portion of your labor you've accepted that they could claim it all.

The Founders accepted no such notion. There are strict limits on what the government may demand and there always have been. As Dave Barry says, I’m not making this up. I’m just reading the words the founders have left us, the definitions of those words and the interpretations that the courts have put on them. Here is an important limit on how Congress can tax us.

“No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” — U.S. Constitution, Article 1, Section 9.

To understand this clause we need to define “capitation” or “direct” tax. Here you go.

"Capitation: ...an imposition which is yearly laid on each person according to his estate and ability."  Bouvier’s Law Dictionary, 6th Edition

Here’s another in the Olde English Style of Adam Smith.

"The taxes which, it is intended, should fall indifferently upon every different species of revenue, are capitation taxes,..."  "…Capitation taxes... ...are direct taxes upon the [earnings] of labour,..."  Adam Smith, 'The Wealth of Nations' (1776)

Those definitions sure sound like today’s income tax. Why then isn’t the income tax apportioned to the states by population as it should be?

Common knowledge jumps right up and says the 16th Amendment, the so called “Income Tax Amendment,” changed all that.

But the Supreme Court disagrees with common knowledge. It decided the question shortly after the income tax became law. Here’s part of the decision. Read carefully. It’s OK to move your lips. Hemingway, these guys were not.

“We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the 16th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes. And the far-reaching effect of this erroneous assumption will be made clear by generalizing the many contentions advanced in argument to support it...”
…“But it clearly results that the proposition and the contentions under it, if acceded to, would cause one provision of the Constitution to destroy another; that is, they would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned."  United States Supreme Court, Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916) (my emphasis)

Brutal. The author of that opinion was clearly not slapped often or hard enough by his high school English comp teachers. Fortunately, a little later the Supremes said it again a lot more clearly,

"The provisions of the sixteenth amendment conferred no new power of taxation," but instead simply prevented the power to tax incomes, which Congress had all along, "…from being taken out of the category of indirect taxation, to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment." Stanton v. Baltic Mining Co. (240 U.S. 103)

OK, fine. What does that mean? It means that the income tax is an “indirect tax.” Indirect taxes are laid on transactions, items or privileges. Taxes on liquor, plane fares and gasoline are examples of indirect taxes.

Direct or capitation taxes fall on everyone. Indirect taxes, like the income tax, only apply to those who participate in the taxed activity. Direct taxes are unavoidable. But indirect taxes are entirely avoidable. To avoid them you simply do something else or buy something else. Don't want to pay gas taxes? Ride your bike. Don't like liquor taxes? Drink water. Hate paying air fare taxes? Take the bus.

To be indirect and Constitutional income taxes cannot impose an all encompassing tax on revenue. They must apply to some special activity....but what?

The income tax laws go back to the Civil War. They are entirely constitutional. If they were not, the Supremes would have said so long ago.

What the income tax laws are not, however, is easy to understand. We commonly refer to them as “The Code.” A code can be a system of laws. A code can also be

“A system of symbols, letters, or words given certain arbitrary meanings, used for transmitting messages requiring secrecy or brevity.”

The Internal Revenue Code has become both.

As we descend into the labyrinth of the code we find common English words redefined for “purposes of this title.” We find that the special definitions have little to do with the common meanings of the words. Words like “wages,” “employer,” “employee,” “trade or business,” and many others are redefined. The definitions are often hundreds or even thousands of pages apart from where the words are used. The code is arranged so that even a careful reader, unaware of the internal definitions, would make fundamentally incorrect conclusions about what the law requires and of whom.

While all the information necessary to comply with the law is in the code, very few Americans have the edcation, training or even the time to discover it. The Code runs to over three million words. What is the point of such astonishing complexity if not deception?

If it is true that the language of the law has been manipulated to deceive rather than illuminate, the code itself and its beneficiaries are perpetrating a massive fraud on millions of Americans. If it is true, the law itself has become the instrument of a crime of unthinkable corruption. The shear, monstrous size of such a fraud would argue aginst it. But if you have nearly 100 years, the power to start wars, issue money, and destroy your enemies, you can get a lot done. If power corrupts in proportion with its size, a truly colossal corruption is not inconceivable.

I’ve studied the income tax for years and puzzled over the deep, apparently pointless complexity of the code. When I came across the scholarly, articulate work of Pete Hendrickson I felt like I'd found the Rosetta Stone. His book is called Cracking the Code- The Fascinating Truth About Taxation In America. Mr. Hendrickson's research is thorough and as fascinating as he claims. It explains much that is otherwise unexplainable. He offers no advice. He sells no "method." He urges strict adherence to the law.

I recommend his book to everyone who cares about the rule of law. I cannot say whether his conclusions are correct or not. But I will note that the IRS has three times tried and failed to ban his book. That alone should be recommendation enough.

I will leave you with this last thought from Thomas Paine’s Common Sense, the revolutionary pamphlet published six months after armed terrorists at Lexington and Concord attacked the then lawful government of the British colonies in America. Paine wrote, “We have it in our power to begin the world over again.” We still do.

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