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February
02, 2009 Neil Boortz, a nationally renown radio talk show host, and John Linder, a Congressman from Georgia, have written several books that explain the FairTax and address some of the criticisms of the plan. Congressman Linder re-introduced the FairTax, House Resolution 25 (HR 25), in the House of Representatives on January 6, 2009. Since I am a big proponent of truth in advertising, this is my admission that I have not read either of the books by Boortz and Linder (I just ordered the first one). I did, however, download and read the extensive overview of the FairTax that appeared on their web-site after the plan was launched. I am also a regular listener to Mr. Boortz's radio show so I have heard his comments and description of the plan on numerous occasions. Proponents of the FairTax claim the Sixteenth Amendment is the source of the federal government's power to impose income taxes. In fact, a component of the FairTax plan is the repeal of the Sixteenth Amendment. The FairTaxers believe the federal government's power to impose income taxes will vanish if they succeed in getting the Amendment removed from the Constitution. This belief has inspired Boortz to call for a Constitutional Convention to repeal the Sixteenth Amendment. In their comprehensive overview of the plan, the FairTaxers asked and answered numerous questions to help the reader understand their proposal. Here is what they said about the Sixteenth Amendment: "FairTax question No. 47-Why a Constitutional Amendment? It is not the intention of this plan, or the desire of the American people, to end up with a federal income tax and a federal sales tax. The object is to ensure that one is replaced by the other-not to add one on top of the other. A constitutional amendment to ban Congress from taxing income will achieve this goal. [L]egislation [has been introduced] in Congress to propose such a repeal of the 16th Amendment. (From-The Facts About the FairTax, question 47, page 17. This statement is misleading because the Sixteenth Amendment is not the source of the federal government's power to impose so-called income taxes. That power is found in Article I, Section 8, Clause 1 of the Constitution. This clause grants Congress the power "[t]o lay and collect Taxes, Duties, Imposts and Excises, to pay the debts and provide for the common Defense and general Welfare of the United States." Proponents of the FairTax also claim it took the Sixteenth Amendment to make income taxes legal and the federal income tax was established in 1913. (See-"Origins of the Income Tax" on the FairTax web-page) This assertion is false. The first so-called individual income tax was imposed during the Civil War. If it took "the Sixteenth Amendment to make income taxes legal," then ratification of the Amendment in 1913 would have granted Congress a new taxing power. In 1980, the Congressional Research Service (CRS) prepared a report for Congress concerning the federal income tax. This Report discussed two 1916 Supreme Court decisions and the effect of the Sixteenth Amendment on the federal government's power to tax: "The Sixteenth Amendment DID NOT AUTHORIZE ANY NEW TYPE OF TAX." (Caps added) Source for above quote: "Some Constitutional Questions Concerning the Federal Income Tax," Howard M. Zaritsky, (Congressional Research Service, Washington, DC., 1980) p. 5, Report No. 84-168 A 734/275. No new type of tax equals no new power to tax. Thus, the Sixteenth Amendment could not have made income taxes legal because the Amendment did not authorize a new type of tax. The CRS Report made the following statement concerning the Court's decisions on the nature of the income tax: "Therefore, it can be clearly determined from the decisions of the United States Supreme Court that the income tax is an indirect tax, generally in the nature of an excise tax." Source for this quote: page 6 of the 1980 CRS Report. As stated previously, the power to impose excise taxes is Article I, Section 8, Clause 1. Thus, the Sixteenth Amendment cannot be the source of the federal government's power to impose the excise taxes known as "income taxes." Therefore, the Amendment is meaningless when it comes to the federal government's power to impose these taxes. If the Amendment were repealed tomorrow, the federal government would retain the power to impose the class of excise taxes called "income taxes" because the power to impose these taxes would remain unchanged. In 1989, the Congressional Research Service revised and updated its Report to Congress concerning the federal income tax. This Report addressed the nature of an excise tax: "An excise tax is a tax levied on the manufacture, sale, or consumption of a commodity or any various taxes on privileges often assessed in the form of a license or fee. In other words, it is a tax on doing something to property or on the privilege of holding some property or doing some act, not a tax on the property itself. The tax is not on the property directly, but rather it is a tax on the transaction. When a court refers to an income tax as being in the nature of an excise, it is merely stating that the tax is not on the property itself." Source for this quote: "Frequently Asked Questions Concerning the Federal Income Tax," John R. Luckey, (Congressional Research Service, Washington, D.C., 1989) p. 5, Report No. 89-623 A. The income tax cannot be a tax on income because income is property and excise taxes, as stated in the CRS Report, are not imposed on property. In 1911, two years before the adoption of the Sixteenth Amendment, the Supreme Court sustained the federal government's power to impose an income tax on corporations as an excise tax pursuant to Article I, Section 8, Clause 1 of the Constitution. Known as the Corporation Excise Tax Act of 1909 [also referred to as the Corporation Tax Act of 1909], it imposed a special income tax [excise tax] on corporations for the privilege of doing business in a corporate capacity. Section 33 of the Act stated, in part: "That every corporation shall be subject to pay annually a special excise tax with respect to carrying on or doing business upon the net income." Section 38, Act of August 5, 1909 (36 Stat., 112) Excise taxes are not taxes on income; they are taxes measured by income. Income is not the source of an excise tax; it is the basis for determining the amount of an excise tax. This principle formed the basis for the current income tax. On April 26, 1913, Cordell (Judge) Hull, a Representative from Tennessee who had helped draft the legislation, explained the "new" income tax law adopted by Congress following the adoption of the Sixteenth Amendment: "In any event, the proposed tax is measured by net profits or gains, and is not imposed upon gross income nor capital nor other property. If a citizen has not been successful in his efforts to accumulate profits he is not required to pay the tax, but if he has prospered he is required to contribute to his Government, not the scriptural tithe, but a small percentage of his net profits." Mr. Hull went on to state: "The proposed law should be construed as similar laws have been construed by the courts with respect to the application of the tax [Corporation Excise Tax Act of 1909], and that is that the income in question shall be the measure of the tax and not the specific fund out of which the tax is necessarily payable; the bill takes as the measure of the tax the net income of the proceeding year. Paragraph B defines the net income of a taxable individual or person. Income as thus defined does not embrace capital or principle, but only such gains or profits as may be realized from rent, interest, salaries, trade, commerce, or sales of any kind of property, and so forth, or profits or gains derived from any other source." Source for Hull's quotes: Congressional Record, Volume 50: Part 1, pp. 505-506. As stated by Hull, the legislation would not impose a tax on income. Income would be the measure of the tax, not the subject of the tax. In other words, income would be the yardstick to determine the value of the activity being taxed by Congress. On March 27, 1943, an analysis of the federal income tax was published in the Congressional Record. This compilation of information was written by a former legislative draftsman in the Treasury Department (one of the people who wrote the tax laws) and entitled, "The Income Tax is an Excise Tax, and Income is Merely the Basis for Determining its Amount." This commentary stated, in part: "The income tax is, therefore, not a tax on income as such. It is an excise tax with respect to certain activities and privileges which is measured by the income they produce. The income is not the subject of the tax: it is the basis for determining the amount of the tax. Footnote: If the tax should be construed as a tax on income as a specific fund the disappearance of the fund before the date of assessment would prevent the collection of the tax." Source for this quote: Congressional Record, Volume 89: Part 2, p. 2980. In other words, if Congress were imposing a tax on income, as opposed to a tax measured by income, then the tax liability would be based on the amount of income still in the individual's possession on April 15th of the following year. If all of the individual's income from the previous year had been spent as of the assessment date of April 15th, then, as stated above, there would be no tax liability. The analysis went on to state: "Hitherto the previous year's income has been used as the basis. But the basis, as well as the rates, may be changed at any time. Footnote: If income is merely the measure of the tax, it is clearly quite immaterial whether the income that is adopted as a measure is that of the past, or the present, or of the future, provided only that it is practically ascertainable." Source for this quote: Congressional Record, Volume 89: Part 2, p. 2980. The retroactive feature of the income tax verifies that the tax being imposed on the American people is an excise tax measured by income, not a tax on income. Since the tax is a privilege tax and income is merely the measure of the tax, Congress can change the value of the privilege at any time and make it retroactive to the beginning of the tax year. If the tax were a tax directly on income, then it could not be imposed retroactively. As we have seen from the documentation cited in this article, the federal income tax is an excise tax and the power to impose excise taxes is found in Article I, Section 8, Clause 1 of the Constitution. The FairTaxers had this to say about excise taxes: "FairTax question No. 4-Exactly what taxes will be abolished? The FairTax will replace all federal taxes except excise taxes, which are typically small and meant for particular purposes. The FairTax will repeal and replace the individual income tax, the capital gains tax, the payroll tax (Social Security), the corporate income tax, the self-employment tax (Social Security), the gift tax, and the death tax." (From-The Facts About the FairTax, question 4, page 2.) Note: the 2 references to Social Security were added for clarification. Since all of the various federal income taxes listed above are excise taxes just like the FairTax, how can the FairTax "replace all federal taxes except excise taxes?" They are all one in the same! The taxes listed in FairTax question No. 4 have absolutely nothing to do with the Sixteenth Amendment. If the Amendment were repealed, the federal government would, contrary to the statements from the FairTax material, retain the constitutional authority to impose every tax it presently imposes in addition to the FairTax. While I empathize with the FairTaxers and their disgust for members of Congress, they are barking up the wrong tree and wasting valuable time and resources concerning the Sixteenth Amendment. I believe they are unintentionally misleading the American people concerning the nature of so-called income taxes and the Sixteenth Amendment. Disseminating incorrect information will only make the situation worse because trying to solve a problem with incorrect facts is a losing proposition. This in turn deflates the will of the people to resist and gives government the green light to expand its usurpations of power. In the next article, "FairTax or No Tax," I will identify the real culprits when it comes to federal taxation and put forth some possible solutions. I will show that even if the Sixteenth Amendment granted Congress a new taxing power, as the FairTaxers believe, the Amendment could not be the basis for any additional federal spending. Note to the reader: the controversy that resulted in the adoption of the Sixteenth Amendment had nothing to do with the federal government's constitutional power to impose so-called "income taxes." The issue was a class of tax controversy, not a power to tax controversy. Let me explain. The Constitution divides ALL taxes into two classes: direct and indirect. It should be noted that the word "indirect" does not appear in the Constitution but was referenced in the Federal (Constitutional) Convention of 1787 as the opposite of direct taxes. The word income, as applied to taxation under the Constitution, is simply a name for a type of tax. Income taxes are not a class of tax recognized by the Constitution. The Founders would have classified an income tax as a subset of either a direct or indirect tax. Pursuant to the Constitution, direct taxes are required to be levied according to the rule of apportionment while indirect taxes are required to be levied according to the rule of uniformity. Apportionment means that anytime Congress wants to impose a direct tax, it is required to apportion the tax among the individual States based on population. For example, let's say in 1790, two years after ratification of the Constitution, Congress prepared a budget and decided to impose a direct tax to raise the needed revenue. And, based on the census, New York had 30% of the population of the United States. Under the rule of apportionment, New York would have been responsible for 30% of the tax. Direct taxes are inherently unfair because one State, with ten percent of the population, might be one of the richest States while another State, with the same percentage of the population, might be one of the poorest. Yet, under the direct tax formula imposed by the Constitution, both States would be required to pay the same amount. The Founders feared the use of direct taxes so they created a system to discourage their use. The only rule for indirect taxes is they must be uniform. If, for example, Congress had imposed an indirect tax on rum manufacturers in 1790, the rate had to be same in all 13 United States irrespective of their population. Eighteen years before the adoption of the Sixteenth Amendment, a legal controversy arose concerning a federal income tax statute. In 1895, the United States Supreme Court struck down, as unconstitutional, the federal Income Tax Act of 1894. The Court concluded the tax imposed by the Act on "rents or income of real estate" was not significantly distinct from a tax on the property itself. Therefore, the Court classified the tax as a direct tax requiring apportionment among the several States. Following this ruling, even though the Court did not hold that all income taxes were direct taxes, there was uncertainty as to whether income taxes fell in the class of direct or indirect taxes. As a result, Congress sought to remove all doubt by passing an amendment to the Constitution. The Sixteenth Amendment, which was "allegedly" adopted in 1913, states: "The Congress shall have the 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." Immediately after the Amendment was ratified in 1913, Congress enacted another income tax. The new law was immediately challenged as unconstitutional. In 1916, the Supreme Court issued two decisions on the scope of the Amendment. The Congressional Research Service Report of 1980 explained the effect of the Sixteenth Amendment in two sentences: "The Supreme Court, in a decision written by Chief Justice White, first noted that the Sixteenth Amendment did not authorize any new type of tax, nor did it repeal or revoke the tax clauses of Article I of the Constitution. Direct taxes were, notwithstanding the advent of the Sixteenth Amendment, still subject to the rule of apportionment and indirect taxes were still subject to the rule of uniformity." Source for above quote: "Some Constitutional Questions Concerning the Federal Income Tax," Howard M. Zaritsky, (Congressional Research Service, Washington, DC., 1980) p. 5, Report No. 84-168 A 734/275. As stated by CRS, the Amendment did not authorize any new type of tax. It also did not repeal the existing clauses. Indirect taxes were still subject to the rule of uniformity and direct taxes were still required to be apportioned among the several States. If the Sixteenth Amendment did not grant Congress any new taxing power or modify its existing power, then what did the Amendment accomplish? Since the Amendment states income taxes are not subject to the rule apportionment applicable to all other direct taxes, the Sixteenth Amendment, by its wording, restricted income taxes to the class of indirect taxes. There is a simply way to prove this. Every 1040 booklet published by the federal government contains the exact same rate charts for individuals to calculate the amount of tax due. Uniformity is a component of indirect taxes, not direct taxes. The Sixteenth
Amendment simply settled the class of tax controversy for the taxes known
as "income taxes" and the constitutional rule for imposing them.
Your
comments and feedback are welcome!
Some other, related reading: The Flawed Second Amendment Debate The Second Amendment and the Preamble to the Bill of Rights Another Look at the Wording of the Second Amendment Tell me why the States needed the so-called "Collective Right" Second Amendment? The Second Amendment is an Individual Right A Question For The Supreme Court
Now Available! See Editor's review here. "The Bill
of Rights Does Not Grant You Any Constitutional Rights" $10.00-includes shipping and any applicable sales tax. P.S.C.S. Email any questions concerning the book/booklet to Bob at-govtnitwit [at] yahoo.com
Robert
Greenslade focuses his writing on issues surrounding the federal government
and the Constitution. He believes politicians at the federal level, through
ignorance or design, are systematically dismantling the Constitution in
an effort to expand their power and consolidate control over the American
people. He has dedicated himself to resurrecting the true intent of the
Constitution in the hope that the information will contribute, in some
small way, to restoring the system of limited government established by
the Constitution.
If you are interested in finding out more about the Constitution, take a look at this book. I use it in many of my articles and it is the best book I've found on this subject. Bob Reprint of the 1868 edition. ''Perhaps the ablest analysis of the nature and character of the federal government that has ever been published. It has remained unanswered.'' This review of Judge Story's Commentaries on the Constitution of the United States is perhaps the ablest analysis of the nature and character of the Federal Government that has ever been published. It has remained unanswered. Indeed, we are not aware that any attempt has been made to challenge the soundness of its reasoning. The great vise of Judge Story and the Federalists consisted in desiring the clothe the federal government with almost monarchical power, whereas the States had carefully and resolutely reserved the great mass of political power for themselves. The powers which they delegated to the federal government were few, and were general in their character. Those which they reserved embraced their original and inalienable sovereignty, which no state imagined it was surrendering when it adopted the constitution. Mr. Madison dwelt with great force upon the fact that ''a delegated is not a surrendered power.'' The states surrendered no powers to the federal government -- they only delegated them. 160 pages. |
Please see the bottom of the page for Bob's book offer. Archives The 2004 Declaration of Independence The Constitution and YOU Part 1 The Constitution and YOU Part 2 The Constitution and YOU Part 3l A Question For The Supreme Court The Second Amendment Question before the Supreme Court is Constitutionally Flawed and Dangerous It's Time To Break Out The Torches And Pitchforks! Constitution to Hillary, Obama and McCain Congress Makes the Laws not the President Do the American People really want Liberty and Constitutional Government? The Real ID Act proves the Federal Government is Not the All Powerful Oz There is no Legal Requirement for an American Citizen to have a Social Security Number The American People have become Servants to Government Employees A Republic, if you can Keep It Is Obama Ineligible to be President? The Game Changing Play John McCain and the Republicans Need to Win the Election Lawsuit Challenging Obama's Qualifications to be President Dismissed just as Predicted A Tenth Amendment Commission is not the Answer There Is a "New" Declaration of Independence, Mr. President Complete Archives for Robert Greenslade
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