I seem to recall that you joined the Quatloos board just before the server crash over here. In the unfortunate event that your registration was zapped by the crash, I wanted to pass along an answer to a question you raised some time back on the LH forum and to challenge you to discuss it with your fellow CtC’ers.
Back in March someone posted a question on the LH forum about using CTC to avoid the estate tax, to which you replied:
http://www.losthorizons.com/phpBB/viewtopic.php?t=318Very interesting question. If income taxes cannot be direct federal taxes without apportionment, the same must hold true for estate and gift taxes. (With these taxes, the state seems to be trying to force people to hang onto their assets until death, when the act of transferring them creates a window of opportunity for snatching goodies from the bereaved during their period of greatest distraction.) But if these taxes are federally-imposed indirect taxes then, where is the associated privilege? How can these taxes be sustained as legal and Constitutional? Even if a pro-tax advocate takes the esoteric position that an estate tax can't violate the property rights of the deceased because dead people no longer have any natural rights, this rationale could obviously not be applied to objections regarding the gift tax, which seems just another variant of "income" tax. What is the equivalent anchor here to "trade or business"?
Another poster then claimed that there is a federal and state “privilege” involved in the transmission of property at death (incidentally, he was wrong – the probate process, including laws dealing with the requirements for a valid will and laws providing where one’s property goes if one dies without a will, is purely a matter of state law). You then responded:
Regrettably, no further response to your inquiry was posted.That makes a certain amount of sense to me. [Disclaimer: this of course doesn't necessarily guarantee an explanation to be either true or the whole story.] However, that still doesn't explain the nature of gift taxes. These also must actually cover only excise taxable transactions, but does anyone know where the definitional lynchpin [sic] here?
Your puzzlement is understandable, considering your unfortunate acceptance of Hendrickson’s false premise that an excise must involve the exercise of a federal privilege and your insistence on there being an “excise taxable transaction”. But this is not and never has been the law, and I hope the following will help you understand why.
The constitutional basis for the gift tax was explained in Bromley v. McCaughn, 280 U.S. 124 (1929), where the Supreme Court stated:
You can read the entire case here:Whatever may be the precise line which sets off direct taxes from others, we need not now determine. While taxes levied upon or collected from persons because of their general ownership of property may be taken to be direct, Pollock v. Farmers Loan & Trust Company, 157 U.S. 429, 158 U.S. 601, this Court has consistently held, almost from the foundation of the government, that a tax imposed upon a particular use of property or the exercise of a single power over property incidental to ownership, is an excise which need not be apportioned, and it is enough for present purposes that this tax is of the latter class.
It is a tax laid only upon the exercise of a single one of those powers incident to ownership, the power to give the property owned to another. Under this statute all the other rights and powers which collectively constitute property or ownership may be fully enjoyed free of the tax. So far as the constitutional power to tax is concerned, it would be difficult to state any intelligible distinction, founded either in reason or upon practical considerations of weight, between a tax upon the exercise of the power to give property inter vivos and the disposition of it by legacy, upheld in Knowlton v. Moore, supra, the succession tax in Scholey v. Rew, supra, the tax upon the manufacture and sale of colored oleomargarine in McCray v. United States, supra, the tax upon sales of grain upon an exchange in Nicol v. Ames, supra, the tax upon sales of shares of stock in Thomas v. United States, supra, the tax upon the use of foreign built yachts in Billings v. United States, supra, the tax upon the use of carriages in Hylton v. United States, supra; compare Veazie Bank v. Fenno, supra, 545, Thomas v. United States, supra, 370. (emphasis added)
http://caselaw.lp.findlaw.com/scripts/g ... 0&page=124
Please note that the Court never talks about “privilege” in characterizing the gift tax as an excise (in fact, the word doesn’t even appear in the majority opinion), and there's no search for an "equivalent anchor to 'trade or business'". Why? Because that’s not the “definitional linchpin” (to use your phrase) of an excise. While an excise may involve the exercise of a federal privilege, it doesn’t have to; it can reach the exercise of a single power over property incident to ownership (such as Mr. Bromley’s gifts) that doesn’t involve a privilege at all. In the context of the income tax, it can even reach the taxation of income resulting from the conduct of an activity that's illegal, which is the exact opposite of a privilege. See James v. U.S., 366 U.S. 213 (1961) and the cases cited therein.
I formally challenge you and the rest of the LH members to explain the discrepancy between what Hendrickson says an excise is and what the Supreme Court says it is -- that is, if Hendrickson will let you. I doubt that he will, so if his muzzle feels too tight for you on LH you’re more than welcome to discuss it here. Unlike Hendrickson, the folks here aren’t so insecure as to censor people who post a theory they disagree with.
