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What Qualifies As Taxable Privilege

It's pretty simple, really...

AS MIGHT BE IMAGINED, I am often asked by folks about whether their particular activities qualify for the "income" tax. I can't and won't answer such questions, since I can't possibly know every nuance of anyone else's activities.

However, there is nothing complicated about making such determinations. All that is needed is to ask yourself whether what you get paid for can only be done because of the existence of Uncle Sam.

MIND YOU, this question doesn't refer to any vague, "I can only get paid for what I do because Uncle Sam defends these shores..." or "...because Uncle Sam prints currency" or "builds roads" or "enforces copyrights", or anything whatever of that sort.

Nor does it refer to getting paid for doing things in which Uncle Sam is peripherally involved through some kind of licensure scheme. License fees are themselves taxes, and paying those taxes doesn't enable other taxes per se, as in, "I have a license from the government to do this thing, therefore I only do it with government permission and everything I make from doing it is "income"..." (That said, some things done in connection with having a federal license ARE income taxable on their own merits, but this is not true of all things for which one can get a license. You can have a government fishing license, but this doesn't mean that every time you put a hook in the water it is being done in a government lake...)

INSTEAD, WHAT "ONLY BECAUSE OF THE EXISTENCE OF UNCLE SAM" MEANS is what literally can only be done because of the existence of Uncle Sam, in the same sense in which some things can only be done because of the existence of your Uncle Ernie. For instance, you can only work for Uncle Ernie because Uncle Ernie exists. You could do the same work for someone else, but working for Uncle Ernie relies on the existence of Uncle Ernie.

Likewise, you can only invest in Uncle Ernie's business ventures because Uncle Ernie is out there creating them. You can only mine ore or harvest timber from Uncle Ernie's land because Uncle Ernie exists to own it.

It is only a very specialized category of things that qualify for this taxable class. Whether the interstate highway system exists or not, any trucker can still deliver goods from point A to point B in his long-haul truck. It might be a longer or bumpier ride had the super-slab never been built, but making those deliveries (unless delivered from or to the federal government itself) doesn't require the existence of the federal government in order to be possible.

The trucker might need to pay a license fee (and/or register with the DOT, etc.) in order to travel on government roads, but traveling on government roads isn't any more the gainful activity by which a valid tax can arise on the productive act of delivering the goods than is anyone's use of government-built roads to commute to her factory or office.

Likewise, someone being paid by the feds for services provided to someone else, such as a doctor being paid by Medicaid for services provided to another citizen, isn't doing anything that can only be done due to the existence of the government (although the recipient of the services is).

Being paid isn't itself a taxable event. It is doing something federally-privileged that is taxable. Being paid for it simply provides a metric by which can be determined the amount of the taxable thing done.

HERE'S THE LONG AND THE SHORT OF IT: Anything you could do even if the federal government had never been created by the Articles of Confederation-- fix your neighbors pipes, sell your paintings, build and operate a hospital or a bank or a factory-- isn't a taxable exercise of privilege.

Anything that relies on the existence of the federal government-- like fixing federal pipes, selling paintings to HUD, or building and operating a hospital, bank or factory on a US Army base might be a taxable exercise of privilege. (I say "might be" because not everything that COULD be taxable is taxed-- Congress has complete latitude within the universe of federally-privileged things.)

And let's not forget things like getting welfare from the federal government, whether Social security benefits or unemployment compensation, or whatever. Administering a federal instrumentality, like being a paid officer of a Federal Reserve bank or of a national railroading operation qualifies, too.

I HOPE THIS HELPS ANSWER SOME QUESTIONS out there. Those interested can find a much more comprehensive treatment of this subject interwoven throughout the CtC primer here or in the less comprehensive but very concise presentation here.