Murphy - or are lawyers natural contortionists?

[Famspear]

SteveSy wrote:

My response was about an income calculation that does not inclue [sic] "cost". Paul acted as if all transacations [sic] use cost in the calculation of income. I did not say the IRS would calculate "saved rent" as income. I merely mentioned it as a potential to a consideration of income.

OK, but do you see why your concern about the definition of "income" is misplaced? Do you see why your concern about Congress exceeding the powers granted by the Constitution is misplaced? Congress has not exceed the powers granted by the Constitution, and has not transgressed any limit imposed by the Constitution.

Where the tax (1) is applied with geographical uniformity, and (2) is not a tax on articles exported from a state, and (3) is not a tax imposed on voting for President, etc., and (4) is not a tax on property by reason of its ownership, and (5) is not a capitation (head tax), and (6) IS a tax on an event (e.g., on a transaction, an occurrence, a happening, etc.), there is no provision in the Constitution that says that Congress cannot enact a valid statute that (A) CALLS that event "income" and (B) MAKES that event taxable as INCOME, regardless of whether there is any real, economic "income."

--Famspear

[Dr. Caligari]

More discussion of the Murphy case, including comments from Murphy's lawyer, here:

http://taxprof.typepad.com/taxprof_blog ... phys-.html

[Demosthenes]

Thread too long.

[Dr. Caligari]

Where the tax (1) is applied with geographical uniformity, and (2) is not a tax on articles exported from a state, and (3) is not a tax imposed on voting for President, etc., and (4) is not a tax on property by reason of its ownership, and (5) is not a capitation (head tax), and (6) IS a tax on an event (e.g., on a transaction, an occurrence, a happening, etc.), there is no provision in the Constitution that says that Congress cannot enact a valid statute that (A) CALLS that event "income" and (B) MAKES that event taxable as INCOME, regardless of whether there is any real, economic "income."

That is certainly the holding of both Penn. Mutual and Murphy. But, to give Steve his due, there is some contrary authority.

There is a line of Tax Court cases (one, I think, was called Pittsburgh Milk) in which Congress purported to disallow a deduction for cost of goods sold and tax the gross proceeds of a sale. (One of the cases, IIRC, involved a law that disallowed a deduction for COGS if the payment exceeded what was permitted under wartime price controls). The Tax Court reasoned that (1) if Congress was going to call the tax an "income tax," the court would take it at its word and not judge the constitutionality of the tax as if it were some other kind of excise, and (2) an "income tax" cannot constitutionally tax gross receipts without allowing for the recovery of direct costs.

Not to give Steve too much credit, none of these cases would support any claim about "human capital." They all involved Cost of Goods Sold-- I bought an item for $X and sold it for $X+Y. And the cases recognized that Congress could constitutionally disallow a deduction for other expenses of sale.