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Cracking the Code- The Fascinating Truth About Taxation In America

by Peter E. Hendrickson

Lost Horizons, 2003, 232 pages, $24.95


Reviewed by Steve Thomas


Any student of liberty and of the founding of the United States has to know intuitively that the current tax code of our federal government could have never been the intention of our Founding Fathers.  One can take it as a given that the Founders would be disheartened and outraged by the growth and perversion of the federal government – and the abuse of power it employs in collecting taxes from the people.


I have often wondered how much different the course of American history would be if an economist like Milton Friedman or James Buchanan  – with two hundred years of hindsight – could be transported back in time to advise the Founders on Constitutional issues like taxation.  Perhaps they could provide the Founders with insights that would have made the Constitution impervious to time and the “factions” that so troubled them.


In his recently published book, Cracking The Code: The Fascinating Truth About Taxation In America, libertarian author Peter Eric Hendrickson makes it perfectly clear that America’s Founders were very much aware of the dangers associated with the federal government’s power to tax.  Accordingly, they established a wholly viable system of checks and balances within the Constitution to prevent the federal government from abusing its taxing power.  Hendrickson also points out that the Founders actually had a renowned economist (if indirectly) advising them: a capable Scotsman by the name of Adam Smith.


The Constitution calls for direct taxes (i.e., those which are unavoidable) to be apportioned according to each state’s population.   That means that federal taxes are supposed to be collected from the states proportionate to their percentage of the nation’s total population – not directly from individuals. 


Even the Sixteenth Amendment, which is widely misunderstood as having established an “income” tax, actually represents only a slight modification of the tax already in place at the time of its proposal.  It did not change the Constitution’s restriction on direct taxation.


Nonetheless, a widespread misunderstanding of the effects of that amendment has successfully been exploited to convince Americans that everything changed in 1913.  People wrongly believe that the amendment gives the government the legal ability to take citizen’s property at will – but nothing could be further from the truth, says Hendrickson.  There’s a reason why we hear all the time that it’s a ‘voluntary’ system, and it’s not because we all ‘volunteer’ to save the government the trouble of doing the paperwork.


It is Hendrickson’s contention that the only people from whom the federal government can legally demand an “income” tax are those who are direct beneficiaries of the federal government.  Such parties would include federal employees, contractors and those who benefit from government licensing.   In other words, if you are a private citizen who earns a salary, Hendrickson claims that you do not have to pay “income” taxes – including FICA – to the federal government.


Don’t believe him?  Then go to Hendrickson’s website (www.losthorizons.com) and bear witness to the unthinkable: a letter from the IRS acknowledging that his claim of “money improperly withheld.” is valid.  But don’t expect your accountant or attorney to jump on Hendrickson’s bandwagon any time soon.  Their jobs – and those of millions of others – depend on your confusion and fear when it comes to the IRS and the bewildering tax code it enforces.


Cracking The Code is a product of the information age. The Internet and its search engines allowed Hendrickson to not only wade through the entire tax code, but to investigate and cross-reference its content: all 3,413,780 words of it.  What Hendrickson found is that the tax code, regardless of its confusing and misleading language, is consistent with the Constitution’s original restriction on direct taxes – and that there is no legal way for the federal government to enforce an “income” tax on the labor or earnings of private citizens.  Hendrickson cites clear and consistent case law throughout the book to back his claim – including a plethora from the United States Supreme Court.


Readers of Cracking The Code will undoubtedly experience a paradigm shift in their thinking as they make their way through its pages.  Skepticism and doubt will slowly be replaced with certainty and conviction as Hendrickson systematically walks his readers through the law and the tax code’s maze of confusion.  But it won’t come easy.


As Thomas Paine once wrote in Common Sense, “ . . . a long habit of not thinking something wrong, gives it the superficial appearance of being right, and raises at first a formidable outcry in defense of custom.”  Paine’s wisdom undoubtedly applies to the sentiments most Americans have when it comes to the way income taxes are imposed upon them.


There’s no shortage of frivolous books on the market that make the claim that you can avoid taxes.  Cracking The Code is not one of them.  It is a judicious and thoughtful work written by an American patriot deeply dedicated to the rule of law.  Hopefully, this book will find its way into the hands of concerned citizens, legal scholars and federal judges who truly believe in upholding the Constitution – and who are sympathetic to the cause of liberty.


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Steve Thomas is a freelance writer and businessman in Detroit, Michigan, and an Adjunct Scholar with the Mackinac Center For Public Policy in Midland, Michigan.

Crack the Code