Challenge to diller72

[LPC]

It could hardly be denied that a tax laid specifically on the exercise of those freedoms would be unconstitutional. US Supreme Court. Murdock v. Pennsylvania 319 U.S. 105 480-487, (1943)

This is an example of a quotations out of context. The "those freedoms" in that sentence is a reference to the rights granted by the 1st Amendment, as the larger context makes clear:

The First Amendment, which the Fourteenth makes applicable to the states, declares that 'Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press ....' It could hardly be denied that a tax laid specifically on the exercise of those freedoms would be unconstitutional. Yet the license tax imposed by this ordinance is in substance just that.

But later in the same opinion, the Supreme Court also wrote:

Thus, it [the state] may not exact a license tax for the privilege of carrying on interstate commerce (citation omitted), although it may tax the property used in, or the income derived from, that commerce, so long as those taxes are not discriminatory.

Which means that, regardless of whether a state can tax the “right to work,” the state can still tax the income from the exercise of that right. Accord, Allison McCoy v. United States, 88 AFTR2d ¶2001-5607, 2001 TNT 236-16, No. 3:00-CV-2786-M (U.S.D.C. N.D.Tex. 11/16/2001).

He further posits that the the federal gov't does not have the authority to lay an indirect tax on basic common rights or activities, Citing the US Supreme Court and other courts.

"Since the right to receive income or earnings is a right belonging to every person, this right cannot be taxed by privilege" Jack Cole Company v Alfred T Macfarland, Commissioner, 206 tenn. 694, 337 S.W.2d 453 Supreme Court of Tennesse (1960)

"An Income tax is neither a property tax nor a tax on occupations of common right, but is an excise tax... The legislature may declare as 'privileged' and tax as such for state revenue, those pursuits not matters of common right, but it has no power to declare as a 'privilege' and tax for revenue purposes, occupations that are of common right." Simms v Ahrens, 271 SW 720 (1925)

Sorry, sport, but neither of those opinions are from the U.S. Supreme Court.

Even worse, the quotation from Simms v. Ahrens, from the Arkansas Supreme Court, the quotation is from what turned out to be the minority opinion, so it’s not even a correct statement of the law in Arkansas. The majority opinion was as follows:

My conclusion of the whole matter is that there are two, and only two, limitations in our [state] Constitution upon the power of the state to raise revenue for state purposes, namely (1) that taxes on property must be ad valorem, equal and uniform; and (2) that the Legislature cannot lay a tax for state revenue on occupations that are of common right. A tax on incomes is neither a property tax nor an occupation tax, and is not prohibited or excluded by our Constitution.

Sims v. Ahrens, 167 Ark. 557, 271 S.W. 720 (1925).

Meanwhile, as previously explained, the United States Supreme Court has specifically stated that Congress CAN impose duties, excises, and imposts on the exercise of "common rights." See http://evans-legal.com/dan/tpfaq.html#rights for citations and quotations.

Hendrickson is wrong, and you are naive for believing what he writes without checking the accuracy of what he writes.

[Famspear]

Ducky wrote:

PH starts by elucidating the difference between a direct tax or capitation and an indirect tax, specifically an excise. PH argues that the "income" tax falls under that of an excise, and therefore must be related to a taxable activity or event, which makes it wholly optional. Optional, in the sense that one has the privilege or right to decide to engage in the activity. Moreover, in relation to an excise tax, it is not the income which is taxed but the activity or event which produced the income, the income is only used as a basis for determining the tax due.

That's fairly close to being correct. The problem is that it gets Peter Hendrickson nowhere.

Let's split some hairs.

A direct tax is defined in case law (and it's case law that's authoritative, not Adam Smith -- whose definition of direct tax was rejected by the Supreme Court as noted above) as consisting essentially of two kinds of taxes: taxes on property by reason of ownership, and capitations. Everything else is an indirect tax, also known as "duties, imposts and excises" (sometimes simply called "excises"). Now it is probably correct to say that indirect taxes (excises) generally DO involve the taxation of an "event" (of which "activity" is just one subset, as you could have an "event" take place even in the absence of an "activity").

The statement that "it is not the income which is taxed but the activity or event which produced the income, the income is only used as a basis for determining the tax due" is faulty. Why?

Because THE INCOME IS THE EVENT. In a very technical sense, although we colloquially use the term "income" from time to time to refer to "the money" (as in: "I received the income"), the income in reality is not the MONEY ITSELF; income is (in this particular example) the REALIZATION EVENT (the increase in net worth) - in this case the RECEIPT of the money. Income is revenue. Income is not "the money"; income is the EVENT that got you the money - it's the INFLOW of the money, not the money itself.

Think of it this way. Let's say that you get paid in cash to do a job for someone.

After you get paid, you walk around for three days with the MONEY in your pocket. In this situation, the Federal income tax law does not tax you over and over on "the money" while it's sitting in your pocket; once you have already received the money (once the EVENT has occurred) and the money is just sitting in your pocket, the TAXABLE EVENT has already passed. Merely having the money as it continues to exist snuggled inside your pocket is not an "event", and certainly not a "taxable event." Thus, it's not the existence of the MONEY that is being taxed -- but only the RECEIVING EVENT (the income) that is taxed. (Yes, you will end up PAYING the tax with money, but that's a separate concept.)

Further, income (or revenue) is not limited to receipts of money. For an accrual method taxpayer, for example, income also includes the increase in your accounts receivable -- the event that occurs every time you sell a product to a customer on credit (with the agreement that the customer will pay you later).

Even Black's Law Dictionary recognizes this (although this particular definition is inadequate because it's too limited): "The return in money from one's business, labor or capital invested." Black's Law Dictionary, p. 687 (5th Ed. 1979). Notice the terminology: Again, it does not say that income is "the money." It says that income is the "RETURN" in money. An event.

EDIT: None of the above definitions are good, formal definitions under either the federal income tax laws or under formal U.S. financial accounting standards -- just illustrations.

[Famspear]

Following up on Ducky's statement:

[ . . . ]in relation to an excise tax, it is not the income which is taxed but the activity or event which produced the income, the income is only used as a basis for determining the tax due.

(bolding and italics added)

Here, the word "income" is being used by Ducky (and by Hendrickson, presumably) to mean not the "event" but instead "the money itself." And in one sense it's a correct statement -- as long as we understand that Ducky is using the term "income" there to mean the money itself as opposed to the event. There's nothing particularly wrong with using the term "income" in both ways -- as long as we don't get confused (or confuse our readers) about which meaning we're intending.

One place where Hendrickson apparently goes wrong is to argue that a federal excise (an indirect tax) must somehow relate to the exercise of some sort of "privilege" (and Hendrickson further contends that the "privilege" must be a "federal" privilege). While many taxable events do happen to be connected to the exercise of a "privilege," there is no legal requirement for that connection. Again, refer to the Rutkin and James cases -- even a receipt of funds in a crime is income and can be validly taxed as income under the federal income tax statutes -- even though the wrongdoer is required to return the money to its rightful owner. And the U.S. federal income tax is fundamentally categorized as an "excise" (in the Constitutional sense), not a direct tax. Therefore, a federal excise does not have to involve a "privilege" or the exercise of a privilege (whether "federal" or otherwise).

[Imalawman]

[ . . . ]in relation to an excise tax, it is not the income which is taxed but the activity or event which produced the income, the income is only used as a basis for determining the tax due.

So...then the bottom line is private sector wage earners are not subject to the IRC as it relates to income taxes.

But Ducky, how do explain the actual text of the IRC? If this be true, how do you reconcile the text of IRC 61? Doesn't this state that absent an exemption or exclusion all compensation for services is taxed? What in 3401 then would exempt or exclude compensation for services from being taxable income to a private sector employee?

All the grand theories about what the income tax is becomes irrelevant if the actual text of the IRC contradicts your main thesis. The bottom line is that IRC 1 and 61 clearly lay a tax on all persons who work private sector jobs in the US - absent some exclusion or exemption (such as qualifying religious persons). This is the general rule, now show me what supports the proposition that only gov't employees and federal officers are subject to IRC 1 and 61. (hint: even if 3401 were limited to fed. officers or gov't employees, it wouldn't help you here)

[Famspear]

Dear Ducky: Regaring imalawman's questions, here's a hint:

Just assume that Chapter 24 of the Internal Revenue Code (i.e., sections 3401 through 3406) did not even exist. In other words, assume that the statutes and definitions Peter Hendrickson likes to cite simply did not exist. Now, ask yourself this question: How would that change the determination of whether the gross compensation amount of an ordinary worker at, say, a McDonald's Restaurant is includible in gross income (and therefore taxed) under section 61.

Answer: It would result in no such change at all.

Reason: The determination of whether the gross compensation amount of an ordinary worker is includible in gross income of (and therefore taxed to) that worker under section 61 is not now determined, and has never been determined, by anything wording in sections 3401 through 3406. Sections 3401 through 3406 relate to the obligation of the employer -- the payor-- to withhold federal income tax from the pay check of the person receiving the compensation -- NOT to the imposition of the federal income tax liability on the person receiving the compensation.

Compensation for personal services is "includible in gross income" (to use legal parlance) of the person earning the compensation under section 61 -- regardless of whether there is any withholding requirement for the payor at all, and regardless of whether or not such person is an employee under Hendrickson's phony interpretation -- or even whether or not such person is an employee under the correct legal interpretation of sections 3401 through 3406! The "employee-ness" or "non-employee-ness" of the person who earns and receives compensation for rendering personal services is generally immaterial to whether the gross compensation is covered in section 61.

[Ducky]

Hello,

Wow, a number of responses.

LPC, Regarding the citations; I was skeptical about them too, they were obviously snipped. In fact, I included them so that somebody would clear up my skepticism, Thanks!

BTW where is the best place on the in internet to look up these citations, so that I can get the complete context?

I was aware the final two citations weren't from the supreme court. The minority opinion still includes

that the Legislature cannot lay a tax for state revenue on occupations that are of common right. A tax on incomes is neither a property tax nor an occupation tax, and is not prohibited or excluded by our Constitution.

I think I will be able to adress the italicized part when I present the next chapter(for your debunking pleasure) hopefully tonight.



Farmspear, JG-- Regarding the income tax being an excise, and the excise tax taxing the event. Well, I think we agree on that,

income is (in this particular example) the REALIZATION EVENT (the increase in net worth)

to realize--to obtain as a profit or income for oneself by trade, labor, or investment.

http://dictionary.reference.com/browse/realize

From Wiki

By contrast, excises are taxes on events. A realization of income (such as a receipt of wages) is an event. A sale is an event. A transfer of title by gift is an event. A transfer of title because of death is an event. Income taxes, sales taxes, and transfer taxes are all examples of event taxes. When a person receives money as income, it is not the ownership or state of title of the money itself that is taxed, but rather the fact that an income event has occurred. If the recipient takes the money and puts it under his or her bed for ten years, the income tax is not re-imposed on that money every year the money is under the bed. Only one thing is taxed by the income tax: the income event.

For purposes of the U.S. Constitution, an excise is essentially any indirect tax, or event tax. An excise means any tax other than (1) a tax on property by reason of its ownership; or (2) a capitation, or head tax.[1

in my opionion the receipt of wages and the activity which produced those wages are inextricably linked. Likewise, with your accrual method of acct example,

income also includes the increase in your accounts receivable -- the event that occurs every time you sell a product to a customer on credit

, the EVENT--increase in accts receivable--is inextricably linked to selling a product to a customer on credit.

Anyway, it seems that we are on the same page so far, and the first chap really doesn't get into much just clarifying direct v indirect. So onto Chap 2. "The Origin of the Income Tax."


Imalawwman--You are jumping ahead a little bit. I was thinking it would be easier for everybody if we just follow the book chap by chap, for debunking purposes, for lurkers reading(probably some from LH), and for me. Sorry to not address your particular ?/concerns, but I will get to them when the time comes.


Thanks,

Ducky

[Quixote]

The Adam Smith economic definition of direct tax ...

It is amazing to me that so much has been written about an imaginary idea. Adam Smith never defined anything he called a "direct tax". The phrase "direct tax" does not appear in Adam Smith's writing. Moreover, I doubt Adam Smith would have accepted the economic concept of direct tax, i.e., a tax that cannot be passed on. I can only surmise that later economists developed the idea and attributed it to Smith to give it the trappings of authority. Although Adam Smith wrote of taxes that fall directly on the wages of labor, he also believed that the laborer would pass that tax along to his employer because the employer would have to raise the laborer's pay to cover the tax. (At some points in his writing, Smith treats market forces as if they acted instantaneously and without human intervention.)

[SteveSy]

It is amazing to me that so much has been written about an imaginary idea. Adam Smith never defined anything he called a "direct tax". The phrase "direct tax" does not appear in Adam Smith's writing. Moreover, I doubt Adam Smith would have accepted the economic concept of direct tax, i.e., a tax that cannot be passed on.

Book Five
Of the Revenue of the Sovereign or Commonwealth.

CHAPTER II

Of the Sources of the General or Public Revenue of the Society

ARTICLE III
Taxes upon the Wages of Labour
...
A direct tax upon the wages of labour, therefore, though the labourer might perhaps pay it out of his hand, could not properly be said to be even advanced by him; at least if tile demand for labour and the average price of provisions remained the same after the tax as before it.
...
If direct taxes upon the wages of labour have not always occasioned a proportionable rise in those wages, it is because they have generally occasioned a considerable fall in the demand for labour.
...
Absurd and destructive as such taxes are, however, they take place in many countries.

Yes, Adam Smith discusses direct taxes..

Please note, the only quotes that can be found discussing a general income tax before, during and shortly after the ratification of the constitution describe it as a direct tax. No quotes whatsoever can be found saying it would fall under the indirect tax category. Simple common sense tells you that the founders, and the citizens soon to be under the constitution would not have accepted that a flat tax of say $50 is a direct tax but a tax that takes 30% of your earnings for life would have been acceptable as a indirect tax. The direct tax clause would have served no purpose, certainly slave owners would have paid the greatest burden of such taxes because they made the most revenue. Mind you capitation taxes have never reached every individual when laid in this country the few times they were laid. There were exemptions which excluded a good portion of the citizens. So before someone says, "well, capitation taxes reach everyone no matter who they are" know they're speaking from ignorance.

No matter why you think the direct tax clause exists none of the reasons would be protected if a general income tax that includes the earnings of the average individual were accepted as an indirect tax. People are just duped into accepting the absurd because "authority" wants your money.

[Quixote]

I was thinking it would be easier for everybody if we just follow the book chap by chap, ...

Why? In the consideration of Chapter 1, we have discovered that the basis of CTC, that Congress is limited in the sort of income it can tax, is nonsense. Moreover, we have learned that Hendrickson is either extremely careless about or, more likely, completely indifferent to, the truth, preferring irrelevant or falsified citations over accurate citations that refute his thesis. Do you expect PH to suddenly start making sense?

[Quixote]

I stand corrected. The phrase "direct tax" does appear in Smith, just not the economic concept of a direct tax as currently understood. As Steve noted, Smith states that "[a] direct tax upon the wages of labour, therefore, though the labourer might perhaps pay it out of his hand, could not properly be said to be even advanced by him; at least if tile demand for labour and the average price of provisions remained the same after the tax as before it." He forgot to include the next sentence: "In all such cases, not only the tax but something more than the tax would in reality be advanced by the person who immediately employed him." I.e., Smith thinks a direct tax on wages is, economically speaking, an indirect tax on his employer.

Absurd and destructive as such taxes are, however, they take place in many countries.

I see Steve can't pass up the chance for an out of context quote, or rather a false context quote. It takes only moments to note that "such taxes" does not refer to direct taxes on labor in general, but rather to direct taxes on farm labor. For reasons stated elsewhere, Smith believes that farm wages are not subject to the forces that make direct taxes on city labor indirect, economically speaking.

[Famspear]

SteveSy wrote:

Please note, the only quotes that can be found discussing a general income tax before, during and shortly after the ratification of the constitution describe it as a direct tax. No quotes whatsoever can be found saying it would fall under the indirect tax category.

Yawwwnnn... Very nice. Now, let's cut to the chase. Show us an actual federal court case -- any federal court case since the Constitution was ratified, where a person argued that an income tax on compensation for personal services by an ordinary worker was a "direct tax" AND the court ruled in that person's favor ON THAT POINT. No court has ever so ruled -- not even the Supreme Court in the since-overruled Pollock case, where the Court held only that taxes on incomes in the form of interest, dividends, and rents were TREATED as direct taxes.

SteveSy wrote:

Simple common sense tells you that the founders, and the citizens soon to be under the constitution would not have accepted that a flat tax of say $50 is a direct tax but a tax that takes 30% of your earnings for life would have been acceptable as a indirect tax.

No, that's not simple common sense at all, Steve. That's you arguing your argument, and using the rhetorical device of trying to characterize your own position as "common sense." Sell it to Irwin Schiff.

Simple common sense does tell us, however, that if you were right, you would be able to find tons of case law where a person argued that a "general income tax" was a "direct tax" AND the court ruled in that person's favor ON THAT POINT. Yet you cannot find one single court case since the ratification of the Constitution where a court ruled in favor of your "common sense." By contrast, I can find case after case after case, including the U.S. Supreme Court decision in Springer, where courts upheld the income tax on compensation for personal services earned and collected by an individual as being an excise, an indirect tax. Boo hoo.

Steve wrote:

No matter why you think the direct tax clause exists[,] none of the reasons would be protected if a general income tax that [sic] includes the earnings of the average individual.

Oooh, you're making a tax policy argument, Steve. Very nice. Unfortunately, it matters not whether any of the "reasons would be protected." The law is still the law. Now go find some court decision that supports your own argument. (Fool's errand.)

Steve wrote:

People are just duped into accepting the absurd because "authority" wants your money.

No, Steve, nobody's being "duped" by studying the law using proper methods of legal analysis and by concluding, correctly, that no provision of the Constitution -- and no court ruling since the founding of the Republic -- supports the statement that a general federal income tax cannot be imposed on the earnings of the average individual.

Sure, you and I can reasonably argue about whether taxing ordinary compensation of the average person is a wise rule or a fair rule, but there is no reasonable argument to be made that taxing the ordinary compensation of the average person is somehow constitutionally invalid. The tax is valid, and the argument to the contrary has been ruled legally frivolous, over and over and over.

And even assuming that the rule is in place MERELY BECAUSE "authority" "wants your money" -- that point does invalidate, cannot invalidate, and will not invalidate the rule. A law is not invalid merely because there's a bad motive for having the rule. Is that unfair? Maybe so. Boo hoo.

Whether you, Steve, want to accept it or not, and regardless of what you, Steve, feel about judges in courts of law, the law is what the judges rule the law to be, and not what you contend the law is.

Steve, long ago you said:

Oh, and I could really couldn't care less what a [sic] some federal judge says who is appointed by and paid by the very people trying to usurp the constitution. [ . . . ] Do I decide the law for myself, yes I do, it's my right.

Regardless of whether federal judges were appointed by "people trying to usurp the constitution" or not, you are wrong. Your method of analysis is incorrect, Steve. You, Steve, cannot "decide the law for yourself". Using the method you use, you can only decide what you believe the law to be. The essence of your argument is primarily emotional, rather than logical. You essentially argue that because the law is unfair or unwise, or because the law is there because of bad motives, the law must therefore be invalid. That is not correct.

You reach the correct conclusions, you need to use the logic of legal discourse, a particular formal logical process. The ability to do that is developed through years of study. You do not use the logic of legal discourse in your arguments.

By contrast, people who reason correctly (e.g., people like me) have the ability to correctly determine what the law is - by using proper methods of legal analysis. That's what we do. And that's part of the reason why, in the context of this forum, we are happy and you are not.

[Joey Smith]

Thread way too large, please start a new one.

[jg]

...Please note, the only quotes that can be found discussing a general income tax before, during and shortly after the ratification of the constitution describe it as a direct tax. No quotes whatsoever can be found saying it would fall under the indirect tax category. <snip rant> .

Steve, please read the decision at http://caselaw.lp.findlaw.com/cgi-bin/g ... &invol=586 wherein the Supreme Court first decided that the income tax is an indirect tax under the Constitution with particular attention to the comments attributed to Alexander Hamilton.

In the twenty-first number of the Federalist, Alexander Hamilton, speaking of taxes generally, said: 'Those of the direct kind, which principally relate to land and buildings, may admit of a rule of apportionment. Either the value of the land, or the number of the people, may serve as a standard.' The thirty-sixth number of that work, by the same author, is devoted to the subject of internal taxes. It is there said, 'They may be subdivided into those of the direct and those of the [102 U.S. 586, 597] indirect kind.' In this connection land-taxes and poll-taxes are discussed. The former are commended and the latter are condemned. Nothing is said of any other direct tax. In neither case is there a definition given or attempted of the phrase 'direct tax.'

Later, Hamilton did have ocassion to speak to the distinction between direct and indirect taxes as those terms were used in the Constitution.

Hamilton left behind him a series of legal briefs, and among them one entitled 'Carriage tax.' See vol. vii. p. 848, of his works. This paper was evidently prepared with a view to the Hylton case, in which he appeared as one of the counsel for the United States. In it he says: 'What is the distinction between direct and indirect taxes? It is a matter of regret that terms so uncertain and vague in so important a point are to be found in the Constitution. We shall seek in vain for any antecedent settled legal meaning to the respective terms. There is none. We shall be as much at a loss to find any disposition of either which can satisfactorily determine the point.' There being many carriages in some of the States, and very few in others, he points out the preposterous consequences if such a tax be laid and collected on the principle of apportionment instead of the rule of uniformity. He insists that if the tax there in question was a direct tax, so would be a tax on ships, according to their tonnage. He suggests that the boundary line between direct and indirect taxes be settled by 'a species of arbitration,' and that direct taxes be held to be only 'capitation or poll taxes, and taxes on lands and buildings, and general assessments, whether on the whole property of individuals or on their whole real or personal estate. All else must, of necessity, be considered as indirect taxes.'

So your claim that " the only quotes that can be found discussing a general income tax before, during and shortly after the ratification of the constitution describe it as a direct tax." is at best wishful thinking or perhaps selective memory; and at worst it is intellectual dishonesty.

Next time you want to channel the founders, please check what they did say first.

Good to see you post here again, btw.

[Imalawman]

Imalawwman--You are jumping ahead a little bit. I was thinking it would be easier for everybody if we just follow the book chap by chap, for debunking purposes, for lurkers reading(probably some from LH), and for me. Sorry to not address your particular ?/concerns, but I will get to them when the time comes.

But see, its the point that you're going to hear on this site time after time because its the sine qua non of all Tax arguments. What does the IRC say about your main thesis? That is the salient point in this debate. In my opinion, we shouldn't start with jots and tittles until you first demonstrate that your main, underlying thesis has merit. Once that is established, then we can proceed with the details. I have no interest in going down the crazy TP theory road to absurdity. State your main thesis and let's go from there.