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What if the United States Supreme Court tomorrow delivered this opinion regarding our present income tax system:
The injustice and harm which must always result from overthrowing a long and settled practice sanctioned by the decisions of this court could not be better illustrated than by the example which this case affords. Under the income-tax laws which prevailed in the past for many years, and which covered every conceivable source of income…vast sums were collected from the people of the United States. The decision here rendered announces that those sums were wrongfully taken, and thereby, it seems to me, creates a claim, in equity and good conscience, against the government for an enormous amount of money… I say, creating a claim, because, if the government be in good conscience bound to refund that which has been taken from the citizen in violation of the Constitution, although the technical right may have disappeared by lapse of time, or because the decisions of this court have misled the citizen to his grievous injury, the equity endures, and will present itself to the conscience of the government.
Pollack v. Farmer’s Loan & Trust Co., 157 U.S. 429, at 637-38 (1895).
As the citation indicates, the United States Supreme Court in fact issued this opinion over a century ago, in 1895. The issue before the Court in Pollack was the constitutionality of the August 28, 1894 “Wilson Tariff Act,” which, much like today’s income tax, levied a federal tax on the “incomes” and “gains” of “United States citizens.” The Court held the 1894 income tax was unconstitutional because the tax violated Article I, Section 9 of the Constitution, which requires that all direct taxes be “apportioned”; that is, divided proportionally among the states in accordance with their population:
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. Const., Art. I, § 9. Pollock also provides an interesting primer on the history of taxation in the United States and, in particular, the interaction between states and the federal government. The tax history outlined in Pollack shows how the Founders intended apportionment to work in practice—if the feds levied a tax, they would send the tax bill to the states for the states to collect. Until 1860, the unanswered question was, “What if a state refuses to collect a federal tax?” Abraham Lincoln answered that question when he invaded the Southern States, which refused to collect and pay federal tariffs. After the feds spent 30 years “reconstructing” the South, the 1894 Tariff Act represents the feds’ first attempt to reconstruct the remaining states by directly taxing their citizens and businesses.
IT’S AN EXCISE TAX, STUPID
After the Pollack setback, the centralizing Progressivists, working hand in glove with the biggest international banks, established a much broader and more ambitious scheme for taxing and controlling people and businesses operating within the States. In 1913, the Federal Reserve system was established and also both the 16th (income tax) and 17th (popularly elected senators) Amendments became law. The 16th Amendment overruled Pollack. The 16th Amendment specifically declared that a tax on “incomes” need not be apportioned:
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.
U.S. Const., Amend. XVI.
The important thing to note about the 16th Amendment is that, like the Wilson Tariff Act, it allows for a tax on “incomes.” It does not authorize a direct tax on people or business, but rather authorizes an indirect tax on their “incomes.” Thus, for any person or business to be subject to the federal income tax authorized by the 16th Amendment, they must first have “taxable income.”
A brief aside on the difference between “direct” and “indirect/excise” taxes. Direct taxes tax people and things without regard to what they “do.” Real estate property taxes and capitation/“head” taxes are direct taxes. These taxes apply to people and things without regard to any transaction. Excise taxes are a form of indirect taxes, these taxes are triggered when a defined tax subject engages in a taxable transaction or triggers a “taxable event.” For example, the federal 18 cents a gallon gas tax is an excise tax and is triggered when “gas” is “sold.” Indirect, excise taxes thus require a taxable subject and also require that the taxable subject “do” something to trigger the tax.
In Brushaber v. Union Pac. RR Co., 240 U.S. 1 (1916), the United States Supreme Court decided that the income tax as we know it today is an indirect, excise tax and that the 16th Amendment overruled Pollack insofar as Pollock held that a tax on incomes must be apportioned. This fact—that the income tax is an indirect, excise tax—is important to keep in mind in any analysis of the Code.
WHY JOE STACK WAS ANGRY AND IRWIN SCHIFF IS IN JAIL
Irwin Schiff, father of Connecticut Senate candidate and Austrian economist Peter Schiff, is famous for opposing the federal income tax system. Schiff senior went so far as to travel to Ivy League college campuses offering America’s best and brightest $50,000 if they could find a legal obligation for any individual to pay the federal income tax. After many battles against the IRS and federal prosecutors, Mr. Schiff finally was convicted of filing false documents with the IRS in 2005. At over 80 years old, he is currently incarcerated in a federal prison in Indiana.
Irwin Schiff was and is an important contributor to the long line of frustrated and abused people who have analyzed the Code and found it lacking. In particular, Irwin found that the main “taxing” part of the Code, Subchapter A, spawned more questions than answers.
For example, section 1 of the Code does not impose a tax on “every married individual,” but rather, consistent with its status as an excise tax, on the “taxable income” of every married individual.
§ 1. Tax imposed
(a) Married individuals filing joint returns and surviving spouses
There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
26 U.S.C. § 1.
Irwin Schiff correctly pointed out that all of the provisions of Subchapter A do not answer “who”; that is, they do not provide any guidance on which married individuals have taxable income. Stated in terms of a Venn Diagram, all of Subchapter A looks like this:
What Irwin Schiff recognized is that nowhere does Subtitle A (Income Tax) of the Code answer the question of “who” is in the middle of this diagram. Because the income tax is an indirect excise tax, it must have statutorily-defined subjects (which married people?) doing statutorily-defined stuff (income taxable activities). Irwin never got an answer to his question; instead for his efforts, he has been rewarded with federal “diesel therapy” being transported by bus from federal prison to federal prison.
WHAT MADE JOE STACK REALLY MAD
Subtitle C of the Code, entitled “Employment Taxes,” contains the only meaningful definitions of the people whose activities give rise to “taxable income.” These definitions are contained in Chapter 21 (Federal Insurance Contributions Act)(FICA/FUTA), and Chapter 24 (Collection of Income Tax at Source on Wages).
Chapter 24, section 3401(c) contains the Code’s primary definition of “employee” “for purposes of” the income tax:
For purposes of this chapter, the term “employee” includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation.
26 U.S.C. § 3401(c).
Chapter 21 of the Code contains a much broader definition of “employment” “for purposes of” federal insurance taxes like FICA and FUTA:
For purposes of this chapter, the term “employment” means any service, of whatever nature, performed
(A) by an employee for the person employing him, irrespective of the citizenship or residence of either,
(i) within the United States, or
(ii) on or in connection with an American vessel or American aircraft under a contract of service which is entered into within the United States or during the performance of which and while the employee is employed on the vessel or aircraft it touches at a port in the United States, if the employee is employed on and in connection with such vessel or aircraft when outside the United States
26 U.S.C. § 3121(b).
Because this broader definition expressly applies only to employment “within the United States,” and the Code is Rubik’s Cube complex, to determine the geographical scope of section 3121 it is important to determine if chapter 21 separately defines United States. Section 3121(e) does of course provide a definition of United States “for purposes of” chapter 21’s federal insurance taxes:
(e) State, United States, and citizen
For purposes of this chapter—
The term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
(2) United States
The term “United States” when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
26 U.S.C. § 3121(e).
Reading the foregoing statutes, if you are not a government employee and derive none of your income as a result of a public office or a federal privilege (e.g., receiving proceeds from a lawsuit under federal anti-trust or anti-discrimination laws), you understand that, applying the rule of law, section 3401 does not “include” you. You are the polar opposite of the people identified in section 3401—you are the host to the section 3401 parasites. You are not in the same domain, kingdom or phylum as those sad people. If you perform your free market activities in a state, for example, Michigan, you also recognize that the FICA/FUTA definitions apply only to “States” like Samoa identified in section 3121. Your state, unlike Samoa, sends duly elected representatives to the United States Congress in Washington, D.C. pursuant to Constitutional compact. Samoa does not. Samoa is not one of the United States, it is a militarily-conquered vassal state. Indeed, you believe that militarily-occupied places like and Iraq and Afghanistan are closer to the class of “States” listed in section 3121(e).
Joe Stack and many other smart, competent and serious people have analyzed the rules and concluded that the government is not following any rules.
Federal judges of course have abetted the conduct of rule of men government agents and have puttied over the gaping holes in the Code for years. These fallible men do more than shriek when serious and intelligent men like Irwin Schiff and Joe Stack civilly disagree with them. They throw them in jail.
No wonder Joe Stack, an intelligent engineer, musician and pilot, was so angry.