Of Words And Deeds
In 1776, the year of the American Revolution, Adam Smith published “The Wealth of Nations”, his seminal treatise on economics and taxation. The book instantly rocketed to the heights as the absolute authority on these subjects throughout the Western World. Among other elements of the broad subjects addressed in the work was a chapter on taxes in which “capitations” are discussed in detail.
Smith describes and analyzes capitations of various forms used throughout Europe, including those levied as a percentage of an individual’s revenue. He observes that,
taxes which, it is intended, should fall indifferently upon every
different species of revenue, are capitation taxes,”… “Capitation
taxes, if it is attempted to proportion them to the fortune or revenue of
each contributor, become altogether arbitrary. The state of a man's
fortune varies from day to day, and without an inquisition more
intolerable than any tax, and renewed at least once every year, can only
be guessed at.”…” Capitation taxes, so far as they are levied upon
the lower ranks of people, are direct taxes upon the wages of labour, and
are attended with all the inconveniences of such taxes.”…”
In the capitation which has been levied in France without any interruption
since the beginning of the present century, the highest orders of people
are rated according to their rank by an invariable tariff; the lower
orders of people, according to what is supposed to be their fortune, by an
assessment which varies from year to year.”
Smith deplores this type of taxation as inequitable, inflationary, counterproductive, and destructive of liberty. Importantly, he makes clear that a capitation can take many different forms, all of which have in common only that they are levied upon and are measured by the exercise of a basic right, such as the right to life, liberty, the ownership of property, working, or engaging in trade. Capitations are alternately known as (and get their name from) “head taxes”, because they fall directly upon the head of the citizen-- they must be paid by the citizen, and out of his or her own funds-- simply because that head is there, maintaining and exercising its natural powers.
All other forms of taxation are indirect, being laid upon a wholly optional activity and paid by someone other than the remitter. Indirect taxes generally take the form of a return to the sovereign of a portion of the benefit conveyed by a special privilege, such as the profits from trade across the national borders, or the salary or other revenue from a public office.
Indirect taxes can also be attendant upon the consumption of a taxed, optional article, by which transaction the vendor becomes liable for the tax, but it is paid with your money. Thus, while a tax on shopping would be a capitation, or direct tax; a tax laid upon some particular thing for which one might or might not shop at one’s discretion would be indirect, and thus not a capitation.
Similarly, a tax upon being a postal inspector, to which no one has a right, is an indirect tax; while a tax upon being a graphic artist, to which anyone has a right, would be a capitation. A tax accompanying each transaction involving a taxable article that takes place in your store is an indirect tax, while a tax on having your store open for such transactions-- even if you might be able to recover it from customers on any particular day-- would be a capitation. Black’s Law Dictionary, 5th edition, puts it succinctly, defining a “direct tax” as:
“One which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he should indemnify himself at the expense of another”.
The framers of the Constitution were avid and serious students of Smith’s work, which even during the turmoil of the revolutionary war sold in America the equivalent of more than 233,000 copies, if proportioned to today’s population; truly remarkable considering the size, depth, and serious demeanor of this 976 page work.
Agreeing wholeheartedly with Smith’s observations regarding the obnoxious character of direct taxes, and in keeping with the principles of individual liberty and limited government which inform the federal union, the framers of the Constitution explicitly prohibited non-optional individual federal taxes. They directed that should the government want to levy a capitation (which has the advantage, from the government’s point of view, of being very broadly-based and productive of revenue), it could only take the form of an imposition upon the several State governments of a predetermined total amount distributed among them per each State’s proportion of the national population.
For instance, the national government might impose a capitation of 10,000 dollars upon the practice of Carpentry. It would calculate the total amount such a tax should represent by multiplying the number of carpenters by 10,000, divide that amount into 50 parts proportionate to each of the several state’s percentage of the national population, and then present an appropriate bill to each State government. That method, along with various tariffs and excises, was relied upon through the first 86 years of the Union. During the heat of the Civil War, Congress passed and implemented a new excise, the Income Tax of 1862, a tax on:
“all salaries of officers, or payments to persons in the civil, military, naval, or other employment or Service of the United States, including senators and representatives and delegates in Congress, when exceeding the rate of six hundred dollars per annum, a duty of three per centum”,
(The war also stimulated a substantial widening of the subjects and rates of other, more traditional excises).
Enforcement of this tax and several others implemented during the war was relaxed in 1872 and the national government relied thereafter on tariffs for revenue until 1894. In that year, congress attempted to impose an income tax upon receipts which, though the benefits of federal privilege, were also connected with personal property. The tax was promptly declared by the Supreme Court to be unconstitutional in Pollock v. Farmers Loan & Trust (158 U.S. 601). The court reasoned that a tax on income connected with personal property amounted to a tax on the property itself, even while distinguishing between the two things, saying,
”Ordinarily, all taxes paid primarily by
persons who can shift the burden upon some one else, or who are under no
legal compulsion to pay them, are considered indirect taxes; but a tax upon
property holders in respect of their estates, whether real or personal, or
of the income yielded by such estates, and the payment of which cannot be
avoided, are direct taxes….” and, “The power to tax real and
personal property and the income from both, there being an apportionment, is
conceded: that such a tax is a direct tax in the meaning of the Constitution
has not been, and, in our judgment, cannot be successfully denied: ..."
In response to the Pollock ruling, the 16th amendment was declared ratified in 1913, requiring that a tax on income was not to be construed as an unconstitutional direct tax due to viewing the income as inseparable from its source, as the Pollock court had done. All direct taxes were still required to be apportioned-- any tax on income could only be constructed and enforced as an excise, an indirect tax. This distinction is spelled out by the high court in its 1916 Brushaber v. Union Pacific R. Co., (240 U.S. 1) ruling:
"We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the 16th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes. And the far-reaching effect of this erroneous assumption will be made clear...".
court notes that the 16th did not repeal or modify Article 1,
Section 9, and that an absolute prohibition of unapportioned capitations
remains the law of the land. Congress
is free to tax ‘incomes’, but what those are held to be, and the manner
in which they can legally be taxed, must conform to the prohibition. As the court says, taxation on income is,
in its nature an excise entitled to be enforced as such unless and until it
was concluded that to enforce it would amount to accomplishing the result
which the requirement as to apportionment of direct taxation was adopted to
prevent, in which case the duty would arise to disregard form and consider
substance alone, and hence subject the tax to the regulation as to
apportionment which otherwise as an excise would not apply to it”
Chief Justice White’s run-on sentence down to manageable form, we read: If
a tax on ‘incomes’ amounts to or evolves into a capitation or other
direct tax (by, for instance, mis-defining ‘income’ as including
personal property, or other things a tax on which would naturally be direct), it’s still
unconstitutional unless apportioned.
So congress was faced with a dilemma: it wanted a tax which would generate revenue like a capitation, but had to confine itself to objects and forms admitting of the character of an excise-- that is, indirect, uniform, and optional. The eventual result was a 3 million + word tax code. Under 1 million words of the code profits resulting from the exercise of licenses and other privileges (either retained or paid out as dividends), and the proceeds of government employment, are lawfully taxed through an aggregate of various pieces of legislation. The other 2.3 million words are devoted to cunningly suggesting that the code imposes a tax on all receipts of all Americans, while never actually saying that anywhere, (since, of course, it can’t).
on, congress recognized a widespread misunderstanding of both the effect and
meaning of the Sixteenth Amendment and the distinction between private and
public receipts. Capitalizing
on both this misunderstanding and the faith of the citizenry in the
integrity of its public servants, it has, over the years, crafted the code
to convincingly appear to be the imposition of an unapportioned capitation,
without ever quite stepping over the line into overt unconstitutionality by
an explicit claim of power that it does not possess.
The scheme relies upon that misunderstanding and that misplaced faith
to lead the average citizen to believe, and behave as though, congress does
have such a power. It is technically
left to each citizen to determine whether they are subject to the tax, and
to proactively decline to participate in the charade (one who does not
proactively decline is presumed to “comply voluntarily”), but as a
practical matter, the vast majority of citizens are defrauded into
a detailed explanation of how this all works, read 'Cracking the Code- The
Fascinating Truth About Taxation In America'.)
This kind of practice is ancient, if not honorable. For all time, liars have run fabrications up the flagpole to see what their targets will buy into and then take what they can get. This version is particularly successful in that the tax IS legally imposed upon every individual involved in its administration-- every federal judge, every IRS agent, every U.S. Marshall, and every congressman are Constitutionally taxed by the code for the receipts proceeding from their optional and, under the law, privileged, government service. Even those officials who are aware of the distinction between private and public receipts are thus able to declare with a more-or-less straight face that, for instance, “Of course, wages are taxable!”. They simply leave out the fact that ‘wages’, in the tax code, is a carefully defined legal term, the meaning of which only includes their earnings.
Furthermore, an enormous industry of lawyers, CPA’s and “enrolled agents” has come into existence which provides high-priced services related to compliance with the code. Practitioners in this industry, unsurprisingly, do nothing to dissuade private, un-taxable clients from any misunderstanding of the law.
of these accessories to what is clearly a constructive fraud relies, for
personal liability protection, on the afore-mentioned legal fiction that
each Constitutionally un-taxable individual victimized by the scheme
voluntarily declares themselves to be taxable, voluntarily signs a form
declaring their receipts to be “income”, voluntarily declines to
challenge their presumptive status as “taxpayers”, etc..
It is, nonetheless, a fiction. No
one voluntarily taxes themselves this way.
Rather, a massive, corrupt effort has been vigorously and
successfully deployed for decades to effectively impose the income tax as an
unconstitutional capitation by means of lies and intimidation.
Anyone who has made it to the point of reading these words is no dimwit, and therefore understands the truth, however disconcerting that truth may be. In light of that certain fact, I must ask each of you, Can you continue this way? Surely, you cannot! Surely, you have not given up on the promise of America as a bastion of liberty and the rights of man! Is it not clear that as goes the rule of law, so goes all the rest?
Are you so jaded and worn down, or fearful of and willing to bow before corrupt resistance to the lawful assertion of your rights, that you will hunker down and be content with only so much as the villains decline to take from you? Or, sufficiently prosperous and well-fed, will you bide your time in peace, calculating that the vicious end of this road will not be reached while you are here to suffer it? I hope not, but I tell you that unless you act, one or more of these shames is upon you, and the future crimes of those wielding power unrestrained by law will be properly laid at your feet.
I do not fear for the future, and the fate of my children and yours, when I observe that evil is in the world; it has always been so. I DO fear for the future when I confront the possibility that the will to resist evil is no longer in the world.
Peter E. Hendrickson For
a few observations on some of the ill effects of the income tax, see Why
For a few observations on some of the ill effects of the income tax, see Why It Matters