Friends,
I am going to make an important request of each of you, which I will put
forward at the end of this introduction.
Over the last several years, ever since I stumbled on to the little book by
Peter Hendrickson titled "Cracking the Code" (CtC) in connection with
research and preparation for my defense against outrageous claims being made
against me in an IRS audit, I have shared some of what I have learned with
individuals who I thought would be interested in having this information.
Many of the individuals who received my messages are attorneys, Certified
Public Accountants, medical professionals, academics, and persons with many
years of business experience. Yet I have received exactly zero response
regarding this information - with one exception - a person who offers an
on-line course on the U.S. Constitution insists that the Sixteenth Amendment
authorizes an unapportioned direct tax on all receipts just as the IRS
claims, notwithstanding the clear prohibitions against this interpretation
by the provisions of Article I of the U.S. Constitution, as affirmed by a
long history of U.S. Supreme Court decisions outlined below in this article
by Mr. Hendrickson.
At some inconvenience to myself on Labor Day, I have taken the trouble of
converting a pdf file into MS Word in order to present to you this most
enlightening and informative essay by Peter Hendrickson. If you will take
the time and trouble to read it carefully and digest its meaning, it should
give you a perspective on your understanding of the true significance of the
Sixteenth Amendment (which is not what the IRS claims), and on your true
financial obligations to the federal government, which will require you to
revise and correct everything you thought you knew about the federal income
tax.
I am now on my third reading of CtC and its companion "Your Grandfather Was
Not a Moron" (a sequel to CtC which provides some thoughtful analysis of the
importance of the rule of law and its relationship to the income tax in a
constitutional republic).
With a background which includes an MBA in finance and accounting, some
part-time work experience preparing income tax returns for airline flight
crews with an Enrolled Agent, and many years managing investments for the
TWA Pilots Defined Contribution Retirement Plan, I come to this subject with
some "knowledge".
What I learned has shocked and stunned me. The simple truth is that our
government has been defrauding the American people in a massive hoax to
confiscate private wealth for the benefit of a massive expansion of the
federal government which the Constitution does not permit. The machinations
which brought this about began in the FDR administration during World War II
and have continued to this day.
[Prior to 1940, federal income tax revenues were quite limited and few
Americans filed income tax returns. Following the enactment of the "Current
Tax Payment Act of 1943", and the re-introduction of tax withholding in the
United States (which had been repealed by the Income Tax Act of 1916)
federal income tax revenues began rising sharply and exploded in the late
1950s and early 1960s as the post-war generation accepted the government
misrepresentations of the scope of the federal income tax. This was due in
great part to removal of specific references in the Internal Revenue Code
which had previously resided there regarding the limitations on the scope of
the income tax, and on careful suppression of all references to important
Supreme Court decisions which affirmed the constitutional restrictions on
the taxing authority of the government, particularly the Pollock decision in
1895 and the Brushaber decision in 1916. These Supreme Court decisions have
never been modified, altered, or superseded in any way.]
The scheme involves a complex combination of the deployment of custom terms
which alter the meaning of common terms (such as "wages", "employee",
"employer", "trade or business", "United States") , obscuration of the
original taxing authority under which the income tax is enforced,
obfuscation of language in IRS publications, serial rearrangements of the
Internal Revenue Code making the tracing of liability determination
exceedingly difficult, and outright intimidation by IRS agents who violate
the constitutional rights of American citizens as a matter of routine
procedure. This is all done with conscious intent in order maintain the
appearance of technical compliance with the limitations of the Constitution
while fraudulently convincing the American people that they have income tax
liabilities when no such liabilities exist.
The degree of audacity and unscrupulousness necessary to pull this off is
stunning and almost beyond comprehension, but I have become convinced that
everything Peter Hendrickson and many others have concluded, including
constitutional attorneys, tax attorneys, and former IRS agents, is
completely and absolutely true.
So this is what I ask of each of you - please set aside all of your
preconceived notions about the income tax. Then read Peter's article below
carefully and thoughtfully. After doing this, give me some feedback on your
reaction. Even if your fear of the raw power of the IRS has been keeping you
in line, tell me what course of action you would take if this is all true
and your fears of the IRS were not a factor. I will compile the responses
and share the results with all of you.
Here are some possible responses:
1. This is BS
2. This can't be true - the government would not engage in such a massive
fraud
3. This can't be true - too many smart people pay their income taxes without
complaint
4. This can't be true - the government needs the money
5. This can't be true - my CPA said so
6. This can't be true - my attorney said so
7. This can't be true - my accounting professor/business
professor/investment broker said so
8. This can't be true - my father/mother/parents/uncle always paid their
income taxes and they knew what they were doing
9.This can't be true - millions of American people would not be giving
billions of dollars to the government to support a massive and growing
federal bureaucracy if they did not have to fork over their hard-earned
money
10. I don't care what the Supreme Court said - I can read the 16th Amendment
and it says a direct tax is allowed without apportionment
11. I am too afraid of the Internal Revenue Service to even think about the
implications of this information
12. I think Peter Hendrickson may be on to something
A Concerned Citizen
******************************
**
The Fascinating Truth About the 16th Amendment
The income tax is just an excise; capitations still require apportionment;
and you've been taken to the cleaners
MY FRIEND, ALL YOUR LIFE YOU'VE BEEN TOLD THAT THE 16TH AMENDMENT was a
transformational event in the history of the United States Constitution by
which an unapportioned direct federal tax on "all that comes in" was
authorized.
You've been told that the amendment reversed the preceding 137-year-old
Constitutional tax structure prohibiting such taxes-- under which the
American people had grown to be the freest, most prosperous, and most
optimistic people in the history of the world-- in favor of a
radically-different structure under which the scandal-ridden and
deeply-distrusted denizens of Washington, D.C. were granted carte blanche to
reach directly into every wallet, be it that of a Wall Street tycoon or that
of the average working stiff.
Explanations as to why the rich and happy Americans of the early 20th
Century would do such a thing to themselves have
always been vague-- they typically amount to something about a populist or
progressive impulse that swept the country in favor of sticking it to the
"Robber Barons". Missing is any reason why such an impulse would embrace a
universal tax reaching not just the robber barons, but their alleged victims
in the working class, as well (along with every little shopkeeper, every
mid-level success-story working out the American dream, and everyone else,
too).
Also missing from these stories is any explanation of why the several states
would ratify such a tax, under which they would inevitably lose power and
significance in favor of their federal competitor. Further, these stories
leave out the fact that there already WAS an income tax on the books and
still in force at the time of the 16th Amendment, which had been
successfully deployed over the preceding 52 years without Constitutional
problems, save for a single instance in which the US Supreme Court had taken
issue with its application to merely two single varieties of realized
income.
These stories don't mention that, in fact, huge portions of our modern body
of income tax law pre-date the 16th Amendment
<http://losthorizons.com/
even though Congress publishes a comprehensive
<http://losthorizons.com/
derivation table
<http://losthorizons.com/
explicitly identifying the pre-16th Amendment-origins of these still-current
statutes.
The fact is, an awful lot is left out of these stories purporting to explain
the seemingly inexplicable decision of the prosperous American people of the
early 20th Century to chuck a system that had served them so well for so
long-- because they're just stories. They're fiction, so they don't have to
make sense. Those telling these stories want you to believe otherwise for
reasons of their own, but the truth is, the 16th Amendment did nothing these
story-tellers want you to imagine it did. Instead, the amendment merely
overruled a Supreme Court decision that had briefly interrupted the
application of the already-long- standing tax (the twice-heard case of
Pollock v. Farmer's Loan & Trust,
<http://supreme.justia.com/
429, and 158 U.S. 601, (both 1895)), while making no changes to its
pre-amendment nature.
The Income Tax Was Established As an Excise on Privilege
From its inception the "income tax" has been an excise that applies only to
gains from the profitable exercise of federal privileges (and therefore
needn't be apportioned), as the Pollock court itself noted (here in Justice
Field's separate concurring opinion):
"...in Springer v. U. S., 102 U.S. 586 , it was held that a
tax upon gains, profits, and
income was an excise or duty, and not a direct tax, within
the meaning of the
constitution, and that its imposition was not, therefore,
unconstitutional."
Pollock v. Farmer's Loan & Trust, 157 U.S. 429, 1895.
Nonetheless, in its Pollock ruling, the court embraced an argument that when
applied to <http://losthorizons.com/
realized in the form of dividends and rent,
<http://losthorizons.com/
transformed into a property tax on the personal property sources (stock and
real estate) from which the gains were derived. The tax on these fruits,
said the court, amounted to a tax on the trees (even though the analogy is
less than perfect, since the thing really being taxed is neither the fruit
nor the tree, but rather the privileged activity that produced the "fruit",
which might be described as "using government fertilizer to make one's
orchard flourish").
The 16th Amendment Merely Says That Privileged Gains Can't Escape The Tax
By Resorting To Pollock's "Source" Argument
The 16th Amendment says the Pollock court's conclusion was wrong (or, in any
event, is overruled). The amendment provides that Congress can continue to
apply the income tax to gains that qualify as "incomes" (that is, the
subclass of receipts that had always been subject to the "income" excise due
to being the product of an exercise of privilege) without being made to
treat the tax as direct and needing apportionment when applied to dividends
and rent by virtue of judicial consideration of the source:
"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. Constitution,
16th Amendment)
The amendment doesn't transform the "income tax" into a direct tax; nor
modify, repeal, revoke or affect the apportionment requirement for
capitations and other direct taxes.
It simply prohibits the courts from using the overruled reasoning of the
Pollock decision to shield otherwise excisable dividends and rents from the
tax.
As Treasury Department legislative draftsman F. Morse Hubbard summarizes the
amendment's effect for Congress in hearing testimony in 1943:
<http://losthorizons.com/
"[T]he amendment made it possible to bring investment income
within the scope of
the general income-tax law, but did not change the character
of the tax. It is still
fundamentally an excise or duty..."
This isn't Hubbard's personal opinion. Almost immediately after the
amendment was declared adopted in 1913, and the income tax was revived after
its 18-year hiatus since the Pollock decision, the application of the tax
was again challenged (in Brushaber v.
<http://supreme.justia.com/
<http://supreme.justia.com/
Frank Brushaber, a New Yorker with investments in the Union Pacific Railroad
Company, based his suit on a series of contentions about the 16th Amendment.
The Supreme Court took the case with the intention of settling all issues
regarding the purpose and meaning of the amendment and declaring the ongoing
nature of the income tax as affected thereby.
The lengthy, detailed and unanimous ruling issued by the court (in
Brushaber) declares that the amendment has no effect on what is and what is
not subject to the income tax, and does nothing to limit or diminish the
apportionment provisions in the Constitution concerning capitations or other
direct taxes.
Here are two more good summaries of the Brushaber ruling to add to F. Morse
Hubbard's:
"The Amendment, the [Supreme] court said, judged by the
purpose for which it was passed, does not treat income taxes as direct taxes
but simply removed the ground which led to their being considered as such in
the Pollock case, namely, the source of the income. Therefore, they are
again to be classified in the class of indirect taxes to which they by
nature belong."
Cornell Law Quarterly, 1 Cornell L. Q. 298 (1915-16);
<http://losthorizons.com/
"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, quoted above. Direct taxes were, notwithstanding the advent of
the Sixteenth Amendment, still subject to the rule of apportionment*"
Legislative Attorney of the American Law Division of the
Library of Congress Howard M. Zaritsky in his 1979 Report No. 80-19A,
<http://losthorizons.com/
entitled 'Some Constitutional Questions Regarding the Federal Income Tax
Laws'.
So, the class of what qualifies as "income" subject to the tax remains the
same after the amendment as it had been before it.
If something didn't qualify as taxable without apportionment prior to the
16th Amendment it still cannot be taxed without apportionment. The Supreme
Court reiterates this in ruling after ruling:
"The Sixteenth Amendment, although referred to in argument,
has no real bearing
and may be put out of view. As pointed out in recent
decisions, it does not extend
the taxing power to new or excepted subjects..."
U.S. Supreme Court, Peck v. Lowe,
<http://supreme.justia.com/
"[T]he settled doctrine is that the Sixteenth Amendment
confers no power upon
Congress to define and tax as income without apportionment
something which
theretofore could not have been properly regarded as
income."
U.S. Supreme Court, Taft v. Bowers,
<http://supreme.justia.com/
481 (1929).
"[T]he sole purpose of the Sixteenth Amendment was to remove
the apportionment requirement for whichever incomes were otherwise taxable."
45 Cong. Rec. 2245- 2246 (1910); id. at 2539; see also
Brushaber v. Union Pacific R. Co., 240 U. S. 1, 240 U. S. 17-18 (1916)
U.S. Supreme Court, So. Carolina v. Baker,
<http://supreme.justia.com/
(1988).
Summing it all up, the 16th Amendment comes down to this: The Pollock court
had said, "Congress has laid a tax on a big class of excisable objects
(which it calls "incomes"), and it's all good. But when the tax is applied
to dividend and rent "incomes", it actually functions as a property tax on
their sources and therefore, in regard to those two "incomes", the tax has
to be apportioned."
The 16th Amendment simply says, "Nix to that last bit."
______________________________
___________________________
The Income Tax Remains An Excise, and Unapportioned Capitations Remain
Prohibited
THE EASIEST WAY TO COMPREHEND THE LEGAL REALITY OF THE "INCOME TAX" TODAY in
light of the actual meaning and effect of the 16th Amendment is to simply
think of the Pollock decision as having gone the other way.
Simply imagine that the Pollock Court had upheld the application of the tax
to excisable dividends and rent without apportionment, and the 16th
Amendment had never happened. What we would have had from that course of
events is exactly what we have now-- federal authority for an indirect
excise tax falling only on objects suitable to that type of tax, unthwarted
by the argument that if applied to excisable dividends and rent, that excise
tax becomes a property tax requiring apportionment.
But there's another easy way to grasp the legal reality of the "income" tax
today in light of the actual meaning and effect of the 16th Amendment, too.
That is to remember that the amendment caused no change to the apportionment
rule for direct taxes (as declared in all those Supreme Court rulings and
other authorities quoted above). This means that taxes on general revenues
and/or the unprivileged activities which produce them-- Constitutionally
designated as "capitations"-- remain subject to that rule.
Here is the Supreme Court again declaring the ongoing vitality of the
apportionment rule (the 16th Amendment notwithstanding), and specifically
distinguishing the income tax as an excise and not a capitation:
"If [a] tax is a direct one, it shall be apportioned
according to the census or enumeration. If it is a duty, impost, or excise,
it shall be uniform throughout the United States. Together, these classes
include every form of tax appropriate to sovereignty. Whether the [income]
tax is to be classified as an "excise" is in truth not of critical
importance [for this analysis]. If not that, it is an "impost", or a "duty".
A capitation or other "direct" tax it certainly is not."
U.S. Supreme Court, Steward Machine Co. v. Collector of
Internal Revenue,
<http://supreme.justia.com/
(1937) (Emphasis added; citations omitted.)
Thus, what the income tax DOES fall on, as the excise that it is, can be
roughly but usefully perceived by remembering that it CAN'T fall on (or be
measured by) the objects of a capitation,
<http://losthorizons.com/
are:
"all that comes in";
"every different species of revenue";
"the fortune or revenue of each contributor";
"the [common-meaning] wages of labour";
"what is supposed to be one's fortune [per] an assessment
which varies from year to year"; or
"[an assessed percentage] of [one's] supposed
[commonly-defined] income").
The Income Tax is Only Written And Administered as an Excise on Privilege
NOW, HERE IS WHAT WILL BE THE MOST SURPRISING THING OF ALL, in light of what
you have just learned about the nature of the tax and the rules to which it
is subject: The "income tax" laws make no attempt to violate the excise and
capitation rules!
Though the mechanisms by which it does so are a bit difficult to find, the
tax law, as written, confines itself carefully and scrupulously to nothing
but gains resulting from the exercise of federal privilege, just as any
federal excise tax must do. It is not by accident or oversight that, for
instance, the "wages" subject to the tax, or the phrase "trade or business"
as used in the context of the tax, are custom-defined in the law.
<http://losthorizons.com/
As written, the "income tax" laws leave unprivileged earnings and receipts
untouched, never crossing the line into the realm of capitations. As
written, the "income tax" remains a proper excise, and as such, doesn't
apply to the earnings of most Americans.
This shouldn't be surprising (just as nothing else you've read here should
be). But unfortunately, a mature scheme has been in place for about the last
70 years which is designed to trick those ignorant of the nuances of the law
into inadvertently declaring their unprivileged earnings to be privileged,
allowing the government to treat them as subject to the tax. You can learn
all about how that works, how to keep from falling prey to this trick, and
how to correct the ill effects of having fallen for this trick in the past,
in 'Cracking the Code- The Fascinating Truth About Taxation In America'.
<http://losthorizons.com/
SO, THAT'S IT, MY FRIEND! Now you know that the 16th Amendment never
authorized an unapportioned general tax (and I suspect you're beginning to
realize that for all of your working life you've probably been one of those
Americans victimized by the misapplication of what the "income tax" really
is).
Frankly, I imagine that you've always suspected this. After all, the 16th
Amendment is a Constitutional amendment, the highest possible expression of
the popular will possible, and the mythology about the amendment says it was
intended to authorize a universal tax on everyone's revenue. And yet, 30
years goes by after its adoption in 1913 before more than a small fraction
of Americans are affected in any way by the income tax!
Plainly, had the 16th Amendment actually been meant to authorize a universal
tax, we would have seen income tax filings by every adult American no later
than 1914 and every year from there forward. In reality though, only 9.36%
of all money-making Americans
<http://losthorizons.com/
file any kind of tax document in any year from 1913 to 1939, on average.
<http://losthorizons.com/
This was a period at the very beginning of which even simple factory workers
were making $1,500 a year (with pay-rates climbing), and during which the
tax only exempted $1,000
<http://losthorizons.com/
of "income".
<http://losthorizons.com/
But back then everyone understood that the $1,000 of exempted gains-- and
the amounts above that to which the "income tax" applied-- were different
kind of gains from the unprivileged variety received by factory workers and
most everyone else.
In fact, the very highest annual percentage of "income tax"-filing
money-making Americans for the whole period (which included World War I and
the "Roaring Twenties") was only 17.3%. It was not until the early 1940s, in
the midst of World War II and after decades of relentless disinformation
about the nature of the 16th Amendment and the meaning of "income" by
corrupt elements of a revenue-hungry state, beneficiaries of
misunderstanding in professions like tax law and accounting and
"progressives" who had always wanted a universal tax that the percentage
cracked 50%.
This campaign of disinformation was assisted by increasing state influence
in schools, propaganda resources which included exhortations by the likes of
Donald Duck, <http://losthorizons.com/
of deep mental softening during the rigors of the Great Depression.
Needless to say, no such campaign would have taken place had the 16th
Amendment actually authorized the general tax in which you are encouraged to
believe. When was the last time you were regaled with appeals to "pay
property taxes" by a cartoon animal in a state-financed film?
Unfortunately, the campaign succeeded. You were invited to believe the
Leviathan-serving mythology about the 16th Amendment, and you did. In thrall
to that myth, you have made the income tax a reality in your own life,
despite it likely having no actual legal application to your activities. In
thrall to that myth, you have been actively declaring your unprivileged
earnings to be the privileged kind to which the "income tax" that we really
DO have actually applies. You can get a good idea of how that works by
reading the little story of
<http://losthorizons.com/
Bicycles'. <http://losthorizons.com/
I'LL LEAVE IT TO YOU TO DECIDE the significance of this truth about the
"income tax amendment".
But if you wish, go to losthorizons.com,
<http://losthorizons.com/
painstaking detail, including, among much else, exactly what this knowledge
has meant for the tens of thousands of Americans who have been using it to
reclaim complete authority over property they otherwise had lost (or would
lose) to a tax which has proven to not apply to their activities and
earnings (including the "Social Security" and "Medicare" versions of the
tax). I'm not talking about some abstract legal claim. I'm talking about
checks in the mailbox-- refund checks of every penny withheld and every
penny paid-in, <http://losthorizons.com/
many cases. <http://losthorizons.com/
More important by far than the money, though, is the reclaiming of rightful
authority over the power which attends control of that wealth. Individual
control of that power is central to the Founders' Constitutional design for
maintaining a limited government subject to the rule of law, because the
Constitution does not enforce itself, and left undefended by grown-up
American men and women, it is the natural course of things for liberty to
yield and for government to gain ground.
The Founders' design relies on you acting on behalf of your own interests
and retaining control of your own wealth and property. By doing so, you
function as part of an invisible hand imposing restraint and discipline on
the federal government, keeping it small, obedient and respectful, as it is
intended to be.
Small, obedient and respectful government results in freedom and prosperity
for all Americans. <http://losthorizons.com/
This "invisible hand" restraint operates just like Adam Smith's better-known
economic "invisible hand" engine-of-prosperity. Like its counterpart, the
restraint-engine is fueled by millions of decisions intended only to benefit
each American individually, which nonetheless act organically to benefit all
by keeping the state small and harmless to liberty. For nearly all of the
150 years or so during which the restraint-engine ran strong before
sputtering into "idle" in the 1940s, the state remained in harness and the
American people grew in prosperity while preserving their liberties.
TO SEE THE GRAPHIC GO TO:
"On the Size and Growth of Government", Federal Reserve Bank of St Louis
Review, Jan/Feb 2006, Page 3 Figure 1
http://research.stlouisfed.
A graphic comparison of the
fed-state constrained by the Constitutional tax rules upheld by the
Brushaber Court versus the
fed-state since widespread understanding of those rules has been
lost down the memory-hole
This "invisible hand" engine of freedom is, in fact, the ONLY mechanism
whereby effective constraints can be laid on the state. Certainly the
founding generation felt this way, as evidenced by the prescriptions
regarding taxes within the federal charter.
Had the framers been willing to rely upon the political process to keep the
state under control, no rules concerning the taxing power would have been
seen as necessary. But they were not so naive. In fact, the framers were so
conscious of the dangers inherent in a state able to control how much of the
people's fuel it would burn that in the first version of the United States
Constitution, known as the Articles of Confederation, the fed-state was
denied any ability to collect money on its own authority whatever.
Even the modest permission for federal self-fueling reluctantly granted in
our current Constitution partakes of that same narrow-eyed view. In fact,
the apportionment requirement for all capitations and other direct taxes--
by which the American people are insulated from any federal reach directly
into their pockets, and any tax other than imposts, duties and excises on
purely voluntary activities is made difficult and highly
politically-accountable-- is the only provision that appears in the
Constitution twice.
The Founders knew how a state gets out of control and dangerous to liberty.
They provided against it with care.
AS I NOTED ABOVE, THOUGH, RESPONSIBILITY FOR KEEPING the framers' engine of
freedom humming along is on you and me. In the absence of countervailing
pressure from individual men and women, dangerous-- even ruinous-- state
power automatically grows.
We're suffering from the effects of long years of individual
irresponsibility today. Still, even as far gone to neglect as we are right
now, all that is needed to set things right is for each of us to rise to our
feet and do our part.
Learn more, <http://losthorizons.com/
my friend. Liberty is just over the horizon.
- Peter Hendrickson
LOST HORIZONS
I am going to make an important request of each of you, which I will put
forward at the end of this introduction.
Over the last several years, ever since I stumbled on to the little book by
Peter Hendrickson titled "Cracking the Code" (CtC) in connection with
research and preparation for my defense against outrageous claims being made
against me in an IRS audit, I have shared some of what I have learned with
individuals who I thought would be interested in having this information.
Many of the individuals who received my messages are attorneys, Certified
Public Accountants, medical professionals, academics, and persons with many
years of business experience. Yet I have received exactly zero response
regarding this information - with one exception - a person who offers an
on-line course on the U.S. Constitution insists that the Sixteenth Amendment
authorizes an unapportioned direct tax on all receipts just as the IRS
claims, notwithstanding the clear prohibitions against this interpretation
by the provisions of Article I of the U.S. Constitution, as affirmed by a
long history of U.S. Supreme Court decisions outlined below in this article
by Mr. Hendrickson.
At some inconvenience to myself on Labor Day, I have taken the trouble of
converting a pdf file into MS Word in order to present to you this most
enlightening and informative essay by Peter Hendrickson. If you will take
the time and trouble to read it carefully and digest its meaning, it should
give you a perspective on your understanding of the true significance of the
Sixteenth Amendment (which is not what the IRS claims), and on your true
financial obligations to the federal government, which will require you to
revise and correct everything you thought you knew about the federal income
tax.
I am now on my third reading of CtC and its companion "Your Grandfather Was
Not a Moron" (a sequel to CtC which provides some thoughtful analysis of the
importance of the rule of law and its relationship to the income tax in a
constitutional republic).
With a background which includes an MBA in finance and accounting, some
part-time work experience preparing income tax returns for airline flight
crews with an Enrolled Agent, and many years managing investments for the
TWA Pilots Defined Contribution Retirement Plan, I come to this subject with
some "knowledge".
What I learned has shocked and stunned me. The simple truth is that our
government has been defrauding the American people in a massive hoax to
confiscate private wealth for the benefit of a massive expansion of the
federal government which the Constitution does not permit. The machinations
which brought this about began in the FDR administration during World War II
and have continued to this day.
[Prior to 1940, federal income tax revenues were quite limited and few
Americans filed income tax returns. Following the enactment of the "Current
Tax Payment Act of 1943", and the re-introduction of tax withholding in the
United States (which had been repealed by the Income Tax Act of 1916)
federal income tax revenues began rising sharply and exploded in the late
1950s and early 1960s as the post-war generation accepted the government
misrepresentations of the scope of the federal income tax. This was due in
great part to removal of specific references in the Internal Revenue Code
which had previously resided there regarding the limitations on the scope of
the income tax, and on careful suppression of all references to important
Supreme Court decisions which affirmed the constitutional restrictions on
the taxing authority of the government, particularly the Pollock decision in
1895 and the Brushaber decision in 1916. These Supreme Court decisions have
never been modified, altered, or superseded in any way.]
The scheme involves a complex combination of the deployment of custom terms
which alter the meaning of common terms (such as "wages", "employee",
"employer", "trade or business", "United States") , obscuration of the
original taxing authority under which the income tax is enforced,
obfuscation of language in IRS publications, serial rearrangements of the
Internal Revenue Code making the tracing of liability determination
exceedingly difficult, and outright intimidation by IRS agents who violate
the constitutional rights of American citizens as a matter of routine
procedure. This is all done with conscious intent in order maintain the
appearance of technical compliance with the limitations of the Constitution
while fraudulently convincing the American people that they have income tax
liabilities when no such liabilities exist.
The degree of audacity and unscrupulousness necessary to pull this off is
stunning and almost beyond comprehension, but I have become convinced that
everything Peter Hendrickson and many others have concluded, including
constitutional attorneys, tax attorneys, and former IRS agents, is
completely and absolutely true.
So this is what I ask of each of you - please set aside all of your
preconceived notions about the income tax. Then read Peter's article below
carefully and thoughtfully. After doing this, give me some feedback on your
reaction. Even if your fear of the raw power of the IRS has been keeping you
in line, tell me what course of action you would take if this is all true
and your fears of the IRS were not a factor. I will compile the responses
and share the results with all of you.
Here are some possible responses:
1. This is BS
2. This can't be true - the government would not engage in such a massive
fraud
3. This can't be true - too many smart people pay their income taxes without
complaint
4. This can't be true - the government needs the money
5. This can't be true - my CPA said so
6. This can't be true - my attorney said so
7. This can't be true - my accounting professor/business
professor/investment broker said so
8. This can't be true - my father/mother/parents/uncle always paid their
income taxes and they knew what they were doing
9.This can't be true - millions of American people would not be giving
billions of dollars to the government to support a massive and growing
federal bureaucracy if they did not have to fork over their hard-earned
money
10. I don't care what the Supreme Court said - I can read the 16th Amendment
and it says a direct tax is allowed without apportionment
11. I am too afraid of the Internal Revenue Service to even think about the
implications of this information
12. I think Peter Hendrickson may be on to something
A Concerned Citizen
******************************
**
The Fascinating Truth About the 16th Amendment
The income tax is just an excise; capitations still require apportionment;
and you've been taken to the cleaners
MY FRIEND, ALL YOUR LIFE YOU'VE BEEN TOLD THAT THE 16TH AMENDMENT was a
transformational event in the history of the United States Constitution by
which an unapportioned direct federal tax on "all that comes in" was
authorized.
You've been told that the amendment reversed the preceding 137-year-old
Constitutional tax structure prohibiting such taxes-- under which the
American people had grown to be the freest, most prosperous, and most
optimistic people in the history of the world-- in favor of a
radically-different structure under which the scandal-ridden and
deeply-distrusted denizens of Washington, D.C. were granted carte blanche to
reach directly into every wallet, be it that of a Wall Street tycoon or that
of the average working stiff.
Explanations as to why the rich and happy Americans of the early 20th
Century would do such a thing to themselves have
always been vague-- they typically amount to something about a populist or
progressive impulse that swept the country in favor of sticking it to the
"Robber Barons". Missing is any reason why such an impulse would embrace a
universal tax reaching not just the robber barons, but their alleged victims
in the working class, as well (along with every little shopkeeper, every
mid-level success-story working out the American dream, and everyone else,
too).
Also missing from these stories is any explanation of why the several states
would ratify such a tax, under which they would inevitably lose power and
significance in favor of their federal competitor. Further, these stories
leave out the fact that there already WAS an income tax on the books and
still in force at the time of the 16th Amendment, which had been
successfully deployed over the preceding 52 years without Constitutional
problems, save for a single instance in which the US Supreme Court had taken
issue with its application to merely two single varieties of realized
income.
These stories don't mention that, in fact, huge portions of our modern body
of income tax law pre-date the 16th Amendment
<http://losthorizons.com/
even though Congress publishes a comprehensive
<http://losthorizons.com/
derivation table
<http://losthorizons.com/
explicitly identifying the pre-16th Amendment-origins of these still-current
statutes.
The fact is, an awful lot is left out of these stories purporting to explain
the seemingly inexplicable decision of the prosperous American people of the
early 20th Century to chuck a system that had served them so well for so
long-- because they're just stories. They're fiction, so they don't have to
make sense. Those telling these stories want you to believe otherwise for
reasons of their own, but the truth is, the 16th Amendment did nothing these
story-tellers want you to imagine it did. Instead, the amendment merely
overruled a Supreme Court decision that had briefly interrupted the
application of the already-long- standing tax (the twice-heard case of
Pollock v. Farmer's Loan & Trust,
<http://supreme.justia.com/
429, and 158 U.S. 601, (both 1895)), while making no changes to its
pre-amendment nature.
The Income Tax Was Established As an Excise on Privilege
From its inception the "income tax" has been an excise that applies only to
gains from the profitable exercise of federal privileges (and therefore
needn't be apportioned), as the Pollock court itself noted (here in Justice
Field's separate concurring opinion):
"...in Springer v. U. S., 102 U.S. 586 , it was held that a
tax upon gains, profits, and
income was an excise or duty, and not a direct tax, within
the meaning of the
constitution, and that its imposition was not, therefore,
unconstitutional."
Pollock v. Farmer's Loan & Trust, 157 U.S. 429, 1895.
Nonetheless, in its Pollock ruling, the court embraced an argument that when
applied to <http://losthorizons.com/
realized in the form of dividends and rent,
<http://losthorizons.com/
transformed into a property tax on the personal property sources (stock and
real estate) from which the gains were derived. The tax on these fruits,
said the court, amounted to a tax on the trees (even though the analogy is
less than perfect, since the thing really being taxed is neither the fruit
nor the tree, but rather the privileged activity that produced the "fruit",
which might be described as "using government fertilizer to make one's
orchard flourish").
The 16th Amendment Merely Says That Privileged Gains Can't Escape The Tax
By Resorting To Pollock's "Source" Argument
The 16th Amendment says the Pollock court's conclusion was wrong (or, in any
event, is overruled). The amendment provides that Congress can continue to
apply the income tax to gains that qualify as "incomes" (that is, the
subclass of receipts that had always been subject to the "income" excise due
to being the product of an exercise of privilege) without being made to
treat the tax as direct and needing apportionment when applied to dividends
and rent by virtue of judicial consideration of the source:
"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. Constitution,
16th Amendment)
The amendment doesn't transform the "income tax" into a direct tax; nor
modify, repeal, revoke or affect the apportionment requirement for
capitations and other direct taxes.
It simply prohibits the courts from using the overruled reasoning of the
Pollock decision to shield otherwise excisable dividends and rents from the
tax.
As Treasury Department legislative draftsman F. Morse Hubbard summarizes the
amendment's effect for Congress in hearing testimony in 1943:
<http://losthorizons.com/
"[T]he amendment made it possible to bring investment income
within the scope of
the general income-tax law, but did not change the character
of the tax. It is still
fundamentally an excise or duty..."
This isn't Hubbard's personal opinion. Almost immediately after the
amendment was declared adopted in 1913, and the income tax was revived after
its 18-year hiatus since the Pollock decision, the application of the tax
was again challenged (in Brushaber v.
<http://supreme.justia.com/
<http://supreme.justia.com/
Frank Brushaber, a New Yorker with investments in the Union Pacific Railroad
Company, based his suit on a series of contentions about the 16th Amendment.
The Supreme Court took the case with the intention of settling all issues
regarding the purpose and meaning of the amendment and declaring the ongoing
nature of the income tax as affected thereby.
The lengthy, detailed and unanimous ruling issued by the court (in
Brushaber) declares that the amendment has no effect on what is and what is
not subject to the income tax, and does nothing to limit or diminish the
apportionment provisions in the Constitution concerning capitations or other
direct taxes.
Here are two more good summaries of the Brushaber ruling to add to F. Morse
Hubbard's:
"The Amendment, the [Supreme] court said, judged by the
purpose for which it was passed, does not treat income taxes as direct taxes
but simply removed the ground which led to their being considered as such in
the Pollock case, namely, the source of the income. Therefore, they are
again to be classified in the class of indirect taxes to which they by
nature belong."
Cornell Law Quarterly, 1 Cornell L. Q. 298 (1915-16);
<http://losthorizons.com/
"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, quoted above. Direct taxes were, notwithstanding the advent of
the Sixteenth Amendment, still subject to the rule of apportionment*"
Legislative Attorney of the American Law Division of the
Library of Congress Howard M. Zaritsky in his 1979 Report No. 80-19A,
<http://losthorizons.com/
entitled 'Some Constitutional Questions Regarding the Federal Income Tax
Laws'.
So, the class of what qualifies as "income" subject to the tax remains the
same after the amendment as it had been before it.
If something didn't qualify as taxable without apportionment prior to the
16th Amendment it still cannot be taxed without apportionment. The Supreme
Court reiterates this in ruling after ruling:
"The Sixteenth Amendment, although referred to in argument,
has no real bearing
and may be put out of view. As pointed out in recent
decisions, it does not extend
the taxing power to new or excepted subjects..."
U.S. Supreme Court, Peck v. Lowe,
<http://supreme.justia.com/
"[T]he settled doctrine is that the Sixteenth Amendment
confers no power upon
Congress to define and tax as income without apportionment
something which
theretofore could not have been properly regarded as
income."
U.S. Supreme Court, Taft v. Bowers,
<http://supreme.justia.com/
481 (1929).
"[T]he sole purpose of the Sixteenth Amendment was to remove
the apportionment requirement for whichever incomes were otherwise taxable."
45 Cong. Rec. 2245- 2246 (1910); id. at 2539; see also
Brushaber v. Union Pacific R. Co., 240 U. S. 1, 240 U. S. 17-18 (1916)
U.S. Supreme Court, So. Carolina v. Baker,
<http://supreme.justia.com/
(1988).
Summing it all up, the 16th Amendment comes down to this: The Pollock court
had said, "Congress has laid a tax on a big class of excisable objects
(which it calls "incomes"), and it's all good. But when the tax is applied
to dividend and rent "incomes", it actually functions as a property tax on
their sources and therefore, in regard to those two "incomes", the tax has
to be apportioned."
The 16th Amendment simply says, "Nix to that last bit."
______________________________
___________________________
The Income Tax Remains An Excise, and Unapportioned Capitations Remain
Prohibited
THE EASIEST WAY TO COMPREHEND THE LEGAL REALITY OF THE "INCOME TAX" TODAY in
light of the actual meaning and effect of the 16th Amendment is to simply
think of the Pollock decision as having gone the other way.
Simply imagine that the Pollock Court had upheld the application of the tax
to excisable dividends and rent without apportionment, and the 16th
Amendment had never happened. What we would have had from that course of
events is exactly what we have now-- federal authority for an indirect
excise tax falling only on objects suitable to that type of tax, unthwarted
by the argument that if applied to excisable dividends and rent, that excise
tax becomes a property tax requiring apportionment.
But there's another easy way to grasp the legal reality of the "income" tax
today in light of the actual meaning and effect of the 16th Amendment, too.
That is to remember that the amendment caused no change to the apportionment
rule for direct taxes (as declared in all those Supreme Court rulings and
other authorities quoted above). This means that taxes on general revenues
and/or the unprivileged activities which produce them-- Constitutionally
designated as "capitations"-- remain subject to that rule.
Here is the Supreme Court again declaring the ongoing vitality of the
apportionment rule (the 16th Amendment notwithstanding), and specifically
distinguishing the income tax as an excise and not a capitation:
"If [a] tax is a direct one, it shall be apportioned
according to the census or enumeration. If it is a duty, impost, or excise,
it shall be uniform throughout the United States. Together, these classes
include every form of tax appropriate to sovereignty. Whether the [income]
tax is to be classified as an "excise" is in truth not of critical
importance [for this analysis]. If not that, it is an "impost", or a "duty".
A capitation or other "direct" tax it certainly is not."
U.S. Supreme Court, Steward Machine Co. v. Collector of
Internal Revenue,
<http://supreme.justia.com/
(1937) (Emphasis added; citations omitted.)
Thus, what the income tax DOES fall on, as the excise that it is, can be
roughly but usefully perceived by remembering that it CAN'T fall on (or be
measured by) the objects of a capitation,
<http://losthorizons.com/
are:
"all that comes in";
"every different species of revenue";
"the fortune or revenue of each contributor";
"the [common-meaning] wages of labour";
"what is supposed to be one's fortune [per] an assessment
which varies from year to year"; or
"[an assessed percentage] of [one's] supposed
[commonly-defined] income").
The Income Tax is Only Written And Administered as an Excise on Privilege
NOW, HERE IS WHAT WILL BE THE MOST SURPRISING THING OF ALL, in light of what
you have just learned about the nature of the tax and the rules to which it
is subject: The "income tax" laws make no attempt to violate the excise and
capitation rules!
Though the mechanisms by which it does so are a bit difficult to find, the
tax law, as written, confines itself carefully and scrupulously to nothing
but gains resulting from the exercise of federal privilege, just as any
federal excise tax must do. It is not by accident or oversight that, for
instance, the "wages" subject to the tax, or the phrase "trade or business"
as used in the context of the tax, are custom-defined in the law.
<http://losthorizons.com/
As written, the "income tax" laws leave unprivileged earnings and receipts
untouched, never crossing the line into the realm of capitations. As
written, the "income tax" remains a proper excise, and as such, doesn't
apply to the earnings of most Americans.
This shouldn't be surprising (just as nothing else you've read here should
be). But unfortunately, a mature scheme has been in place for about the last
70 years which is designed to trick those ignorant of the nuances of the law
into inadvertently declaring their unprivileged earnings to be privileged,
allowing the government to treat them as subject to the tax. You can learn
all about how that works, how to keep from falling prey to this trick, and
how to correct the ill effects of having fallen for this trick in the past,
in 'Cracking the Code- The Fascinating Truth About Taxation In America'.
<http://losthorizons.com/
SO, THAT'S IT, MY FRIEND! Now you know that the 16th Amendment never
authorized an unapportioned general tax (and I suspect you're beginning to
realize that for all of your working life you've probably been one of those
Americans victimized by the misapplication of what the "income tax" really
is).
Frankly, I imagine that you've always suspected this. After all, the 16th
Amendment is a Constitutional amendment, the highest possible expression of
the popular will possible, and the mythology about the amendment says it was
intended to authorize a universal tax on everyone's revenue. And yet, 30
years goes by after its adoption in 1913 before more than a small fraction
of Americans are affected in any way by the income tax!
Plainly, had the 16th Amendment actually been meant to authorize a universal
tax, we would have seen income tax filings by every adult American no later
than 1914 and every year from there forward. In reality though, only 9.36%
of all money-making Americans
<http://losthorizons.com/
file any kind of tax document in any year from 1913 to 1939, on average.
<http://losthorizons.com/
This was a period at the very beginning of which even simple factory workers
were making $1,500 a year (with pay-rates climbing), and during which the
tax only exempted $1,000
<http://losthorizons.com/
of "income".
<http://losthorizons.com/
But back then everyone understood that the $1,000 of exempted gains-- and
the amounts above that to which the "income tax" applied-- were different
kind of gains from the unprivileged variety received by factory workers and
most everyone else.
In fact, the very highest annual percentage of "income tax"-filing
money-making Americans for the whole period (which included World War I and
the "Roaring Twenties") was only 17.3%. It was not until the early 1940s, in
the midst of World War II and after decades of relentless disinformation
about the nature of the 16th Amendment and the meaning of "income" by
corrupt elements of a revenue-hungry state, beneficiaries of
misunderstanding in professions like tax law and accounting and
"progressives" who had always wanted a universal tax that the percentage
cracked 50%.
This campaign of disinformation was assisted by increasing state influence
in schools, propaganda resources which included exhortations by the likes of
Donald Duck, <http://losthorizons.com/
of deep mental softening during the rigors of the Great Depression.
Needless to say, no such campaign would have taken place had the 16th
Amendment actually authorized the general tax in which you are encouraged to
believe. When was the last time you were regaled with appeals to "pay
property taxes" by a cartoon animal in a state-financed film?
Unfortunately, the campaign succeeded. You were invited to believe the
Leviathan-serving mythology about the 16th Amendment, and you did. In thrall
to that myth, you have made the income tax a reality in your own life,
despite it likely having no actual legal application to your activities. In
thrall to that myth, you have been actively declaring your unprivileged
earnings to be the privileged kind to which the "income tax" that we really
DO have actually applies. You can get a good idea of how that works by
reading the little story of
<http://losthorizons.com/
Bicycles'. <http://losthorizons.com/
I'LL LEAVE IT TO YOU TO DECIDE the significance of this truth about the
"income tax amendment".
But if you wish, go to losthorizons.com,
<http://losthorizons.com/
painstaking detail, including, among much else, exactly what this knowledge
has meant for the tens of thousands of Americans who have been using it to
reclaim complete authority over property they otherwise had lost (or would
lose) to a tax which has proven to not apply to their activities and
earnings (including the "Social Security" and "Medicare" versions of the
tax). I'm not talking about some abstract legal claim. I'm talking about
checks in the mailbox-- refund checks of every penny withheld and every
penny paid-in, <http://losthorizons.com/
many cases. <http://losthorizons.com/
More important by far than the money, though, is the reclaiming of rightful
authority over the power which attends control of that wealth. Individual
control of that power is central to the Founders' Constitutional design for
maintaining a limited government subject to the rule of law, because the
Constitution does not enforce itself, and left undefended by grown-up
American men and women, it is the natural course of things for liberty to
yield and for government to gain ground.
The Founders' design relies on you acting on behalf of your own interests
and retaining control of your own wealth and property. By doing so, you
function as part of an invisible hand imposing restraint and discipline on
the federal government, keeping it small, obedient and respectful, as it is
intended to be.
Small, obedient and respectful government results in freedom and prosperity
for all Americans. <http://losthorizons.com/
This "invisible hand" restraint operates just like Adam Smith's better-known
economic "invisible hand" engine-of-prosperity. Like its counterpart, the
restraint-engine is fueled by millions of decisions intended only to benefit
each American individually, which nonetheless act organically to benefit all
by keeping the state small and harmless to liberty. For nearly all of the
150 years or so during which the restraint-engine ran strong before
sputtering into "idle" in the 1940s, the state remained in harness and the
American people grew in prosperity while preserving their liberties.
TO SEE THE GRAPHIC GO TO:
"On the Size and Growth of Government", Federal Reserve Bank of St Louis
Review, Jan/Feb 2006, Page 3 Figure 1
http://research.stlouisfed.
A graphic comparison of the
fed-state constrained by the Constitutional tax rules upheld by the
Brushaber Court versus the
fed-state since widespread understanding of those rules has been
lost down the memory-hole
This "invisible hand" engine of freedom is, in fact, the ONLY mechanism
whereby effective constraints can be laid on the state. Certainly the
founding generation felt this way, as evidenced by the prescriptions
regarding taxes within the federal charter.
Had the framers been willing to rely upon the political process to keep the
state under control, no rules concerning the taxing power would have been
seen as necessary. But they were not so naive. In fact, the framers were so
conscious of the dangers inherent in a state able to control how much of the
people's fuel it would burn that in the first version of the United States
Constitution, known as the Articles of Confederation, the fed-state was
denied any ability to collect money on its own authority whatever.
Even the modest permission for federal self-fueling reluctantly granted in
our current Constitution partakes of that same narrow-eyed view. In fact,
the apportionment requirement for all capitations and other direct taxes--
by which the American people are insulated from any federal reach directly
into their pockets, and any tax other than imposts, duties and excises on
purely voluntary activities is made difficult and highly
politically-accountable-- is the only provision that appears in the
Constitution twice.
The Founders knew how a state gets out of control and dangerous to liberty.
They provided against it with care.
AS I NOTED ABOVE, THOUGH, RESPONSIBILITY FOR KEEPING the framers' engine of
freedom humming along is on you and me. In the absence of countervailing
pressure from individual men and women, dangerous-- even ruinous-- state
power automatically grows.
We're suffering from the effects of long years of individual
irresponsibility today. Still, even as far gone to neglect as we are right
now, all that is needed to set things right is for each of us to rise to our
feet and do our part.
Learn more, <http://losthorizons.com/
my friend. Liberty is just over the horizon.
- Peter Hendrickson
LOST HORIZONS
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