The Liberty Tree Lantern

Wealth of Nations, Smith has a four-page section

entitled, “Taxes upon the Wages of Labour.” Five times in this section Smith states

that a tax on wages is a direct tax. And as we saw above, Smith says it is a species of

a capitation tax. id. at 534-38.

Plan d’un mémoire sur les impositions, 1764, he

wrote:

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“The tax which the proprietor pays immediately on his revenue is called direct

tax. The tax which is not assessed directly on the revenue of the proprietor,

but which falls on the cost of production of the revenue, or on the expenditure

of the revenue, is called indirect tax.” Teachings of Political Economists

defining Direct and Indirect Taxes, at 3, by Max West, Pollock v. Farmers’

Loan and Trust Co., 157 U.S. 629 (1894).

Gallatin agreed too. Albert Gallatin, in his Sketch of the Finances of the United

States, wrote:

“The most generally received opinion, however, is, that by direct taxes in the

Constitution, those are meant which are raised on the capital or revenue of the

people; by indirect, such as are raised on their expense.

“The taxes which it is intended should fall indifferently upon every different

species of revenue are capitation taxes…These must be paid indifferently from

whatever revenue the contributors may posses.” Rehearing Brief of Appellant

at 112, Pollock v. Farmers’Loan and Trust Co., 158 U.S. 601 (1895).

17. Admit or deny that labor is property. See note that follows.

In the case of Butchers’ Union Co. v. Crescent City Co., 111 U.S. 746 (1883),

Supreme Court Justice Field wrote in his concurring opinion at page 757:

“It has been well said that, ‘The property which every man has in his own

labor, as it is the original foundation of all other property, so it is the most

sacred and inviolable.’”

18. Admit or deny that a tax on property is a direct tax. See notes that follow.

To speak of a poll tax (or other direct tax on a natural person) as a tax on property

requires resort to the legal theory that a freeman is owner of himself and his labor

force in a sense analogous to a master’s ownership of his slave.” Prof. Isaac A. Loos,

Allen Ripley Foote, The Division Between State and Local Taxation, State and Local

Taxation, Second International Conference, International Tax Association, 203, 206

(1909).

“Direct taxes are those that are levied ‘upon the very person who it is supposed

as a general thing will bear their burden.’ The general property, the income

tax, the poll tax, may be classed as direct taxes for the reason that when a

person pays one of these taxes, he is likely to bear the burden himself and is

not likely to shift it to another.” Israel Freeman, Constitutionality of Federal

Corporation Tax Law, 72 Central Law Journal 59 (1911).

19. Admit or deny that the executive branch of government must follow the intent of

the legislative branch which must itself conform to the intent of the Constitution.

See notes that follow.

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“One of the most readily available extrinsic aids to the interpretation of

statutes is the action of the legislature on amendments which are proposed to

be made during the course of consideration in the legislature. Both the state

and federal courts will refer to proposed changes in a bill in order to interpret

the statute as finally enacted. The journals of the legislature are the usual

source for this information. Generally the rejection of an amendment indicates

that the legislature does not intend the bill to include the provisions embodied

in the rejected amendment.” Sutherland on Statutory Construction, sec. 48.18

(5th Edition).

“It is plain, then, that Congress had this question presented to its attention in a

most precise form. It had the issue clearly drawn. The first alternative was

rejected. All difficulties of construction vanish if we are willing to give to the

words, deliberately adopted, their natural meaning.” U.S. v. Pfitsch, 256 U.S.

547, 552 (1921).

20. Admit or deny that the Senate considered and rejected including

direct taxation within the authority of the Sixteenth Amendment. See

notes that follow.

The evidence that direct taxes are without the authority of the Sixteenth Amendment

is overwhelmingly compelling. The Senate voted on the Sixteenth Amendment

(S.J.R. #40) at 1 o’clock on July 5, 1909. Senator Aldrich had earlier tried to ram it

through the Senate on Saturday, July 3rd, a holiday weekend, for an immediate vote

without debate when only 52 senators were present. A few senators protested and the

vote was set for the following Monday. During the debate on July 3rd, several

amendments were proposed to S.J.R. #40 that came up for a vote at the appointed

hour of 1 PM Monday, July 5, 1909.

There also was an amendment by Senator McLaurin of Mississippi. After a long

discussion by him about direct taxes, Senator McLaurin proposed this amendment to

S.J.R. #40 as follows:

“The SECRETARY. Amend the joint resolution by striking out all after line 7

and inserting the following: The words ‘and direct taxes’ in clause 3, section 2,

Article I, and the words ‘or other direct,’ in clause 4, section 9, Article I. of the

Constitution of the United States are hereby stricken out.”

44 Cong. Rec. 4109 (1909).

The Senate rejected this, as this amendment failed by voice vote. Had it passed, it

would have provided authority for a species of income tax that was inherently a direct

tax to be levied without apportionment.

Lastly there was an amendment by Senator Bristow of Kansas to replace S.J.R. #40

with S.J.R. #39. S.J.R. #39 read:

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“The Congress shall have the power to lay and collect direct taxes on incomes

without apportionment among the several States according to population.”

id. At 4120-1.

This substitute amendment also included a provision to elect senators by popular

vote. After some debate this was also rejected by voice vote. The election of Senators

by popular vote was soon thereafter approved by the 17th Amendment. Therefore this

instant amendment failed because of the direct tax provision.

Brushaber case, 240 U.S. 1 (1916), both Brushaber and

the government argued that the Sixteenth Amendment provided for an exception to

the apportionment rule such that a direct tax could be collected without

apportionment. See notes that follow.

This issue was presented squarely to the Supreme Court in the following cases:

Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916); Tyee Realty Co. v.

Anderson, 240 U.S. 115 (1916); Thorne v. Anderson, October term 1915, No.394

(24,613); Dodge v. Osborn, 240 U.S. 118 (1916); and Stanton v. Baltic Mining Co.,

240 U.S. 103 (1916). Mr. Brushaber, Tyee Realty Co. and Mr. Thorne all had the

same attorney, a Mr. Julian Davies from New York City of the law firm Davies,

Tolles, Glenn and Schurick. Mr. Davies asserted in his brief in each of these cases as

follows:

“The effect of the Sixteenth Amendment was merely to waive the requirement

of apportionment among the States, in its application to a general and uniform

tax upon incomes from whatever source derived…

“The evident purpose of this amendment was not to abandon the former policy

of safeguarding the several sections of the Union against disproportionate

taxation, but merely to substitute an apportionment according to incomes

‘from whatever source derived,’ in lieu of a per capita apportionment.” Br.for

appellant at 9-11, Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916).

In other words, according to litigant Brushaber, the income tax was still a direct tax.

Only the criteria for apportionment changed. Apportionment was now alleged to be

based on incomes instead of the per capita apportionment originally required by the

amicus curae brief, the Government argued a similar position:

“(b) Apportionment being restricted to direct taxes only (Flint v. Stone Tracy

Co., supra 152), the Sixteenth Amendment, in removing that restriction,

recognized any tax upon income ‘from whatever source derived’ as a direct

tax, and as such subject to the apportionment rule unless specially exempted.”

Brushaber v. Union Pac. R.R. Co., supra.

22. Admit or deny that the Supreme Court rejected arguments that the Sixteenth

Amendment provided authority for an un-apportioned direct tax within the several

States. See notes that follow.

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Brushaber case:

“[t]he contention that the Amendment treats a tax on income as a direct tax,

although it is relieved from apportionment and is necessarily therefore not

subject to the rule of uniformity as such rule only applies to taxes which are

not direct, thus destroying the two great classifications which have been

recognized and enforced from the beginning, is also wholly without

Brushaber v. Union Pac. R.R. Co., supra at 18.

Buttressing the conclusion that the Sixteenth Amendment does not provide authority

for an un-apportioned direct tax on the labor of an American Citizen living and

working in the several States, we go to Harvard Law Review’s commentary on the

Brushaber Case:

“In Brushaber v. Union Pac. R.R. Co., Mr. Chief Justice White, upholding the

income tax imposed by the Tariff Act of 1913, construed the Amendment as a

declaration that an income tax is ‘indirect,’ rather than as making an exception

to the rule that direct taxes must be apportioned.” The Income Tax and the

Sixteenth Amendment, 29 Harvard Law Review 536 (1915-6).

Brushaber:

“The contention of the appellant was as follows:

(1) The Sixteenth Amendment provided for a new kind of a direct tax, a tax on

incomes from whatever source derived.

The court, through Chief Justice White, held that the tax [in Brushaber] was

constitutional. The major proposition of the appellant’s argument is not true.

Hence, the conclusion does not follow. The sixteenth amendment [sic] does

not permit a direct tax, (in fact as it will later be shown, the court does not

think that the amendment treated the tax as a direct tax at all), carrying with it

the distinguishing characteristic of a hitherto unrecognized uniformity.

The amendment, the 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.” Ramon Siaca, The

Federal Income Tax Law of 1913: Construction of the Sixteenth Amendment,

1 Cornell Law Quarterly 298, 299 and 301 (1916).

Said another way, the theory upon which the Pollock Case was decided was

overturned by the Sixteenth Amendment. See also Constitutional Law: Income Tax:

Sixteenth Amendment, 4 California Law Review 333, 335-6 (1915-6), and

Washington Notes, The Income Tax Decision, 24 The Journal of Political Economy

299, 300 (1916).

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Brushaber case:

“The basic error of those who attacked the constitutionality of the tax, Chief

Justice White holds… was in regarding the Sixteenth Amendment as

empowering the United States to levy a direct tax without apportionment

among the States according to population. In substance, the court holds that

the Sixteenth Amendment did not empower the Federal Government to levy a

new tax…

We are of the opinion, however, that the confusion is not inherent, but rather

arises from the conclusion that the Sixteenth 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.” Income Tax Upheld In

Broad Decision, N.Y. Times, p. 5, January 25, 1916.

“The Supreme Court has held that the sixteenth amendment did not extend the

taxing power of the United States to new or excepted subjects but merely

removed the necessity which might otherwise exist for an apportionment

among the States of taxes laid on income whether it be derived from one

source or another. So the amendment made it possible to bring investment

income within the scope of a general income-tax law, but did not change the

character of the tax. It is still fundamentally an excise or duty with respect to

the privilege of carrying on any activity or owning any property which

produces income. 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 reference to the income which they produce. The income is not

the subject of the tax: it is the basis for determining the amount of tax.”

Congressional Record – House, March 27, 1943, page 2580.

23. Admit or deny that there is no evidence that can be found anywhere upon which

the government can rely in claiming that Congress intended to use the Sixteenth

Amendment to create an exception to the apportionment rule whereby a direct tax

could be levied without apportionment. See notes that follow.

An exhaustive review of the Congressional Record during the time of the debates on

no credible evidence that the members of

Congress were contemplating a direct tax on the wages and salaries of the American

People. An exhaustive review of other congressional documents during the

ratification process yields no evidence that Congress contemplated using the

Sixteenth Amendment as a vehicle to place an un-apportioned direct tax on the wages

and salaries of the American People.

no articles

that indicated Congress or the American People were contemplating a

non-apportioned direct tax on the wages and salaries of the American People.

No evidence was found in the journals on political economy and economics.

Nor was any such evidence discovered in an exhaustive search of New York Times

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articles, which are all cataloged in yearbooks as the New York Times is a newspaper

of record. As there is no evidence that can be found anywhere indicating that the

American People sought to place an un-apportioned direct tax on their wages and

salaries, we can conclude that the American People never consented to the very tax

that the Commissioner is attempting to collect in the instant case.

The entire weight of the evidence as to the purpose of the Sixteenth Amendment

indicates that its objective was to place income taxes on net income from

unincorporated business and investment into the classification of indirect taxes.

Pollock was overturned by the Sixteenth Amendment. No more and no less.

The purpose of the Sixteenth Amendment was to shift the tax burden off of

consumption and onto incomes from the accumulated wealth of the country such as to

bring tax relief to wage earners.

24. Admit or deny that the purpose of the Sixteenth Amendment was to bring

tax relief to wage earners. See notes that follow.

As there is no evidence that can be found anywhere indicating that the American

People sought to place an un-apportioned direct tax on their wages and salaries, it is

reasonable to conclude that the American People never consented to the very tax that

the Commissioner is attempting to collect in the instant case.

The entire weight of the evidence as to the purpose of the Sixteenth Amendment

indicates that its objective was to place income taxes on net income from

unincorporated business and investment into the classification of indirect taxes.

Pollock was overturned by the Sixteenth Amendment. No more and no less. The

purpose of the Sixteenth Amendment was to shift the tax burden off of consumption

and onto incomes from the accumulated wealth of the country such as to bring tax

relief to wage earners.

th Amendment created no new classification of taxes

under the Constitution, and we are therefore still left only with direct and indirect

taxes.

th Amendment provides taxation authority only for

income taxes that are inherently indirect and that such taxes must be levied according

to the constitutional rule of uniformity.

th Amendment does not provide an exception to the

constitutional rule of apportionment for direct taxes.

28. Admit or deny that any tax on wages and salaries is inherently a direct tax outside

th Amendment, and therefore, EVEN IF wages & salaries were

constitutionally valid subjects for direct taxation, that a tax upon such subjects would

be required to be apportioned among the several States according to population.

29. Admit or deny that taxes on wages and salaries are direct taxes and must be

apportioned among the several States.

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30. Admit or deny that the current tax on the wages of ordinary Americans is an unapportioned

direct tax.

Brushaber v Union Pac. R.R. Co., 240

, rejected the idea that the 16th Amendment granted to government the

power to impose an un-apportioned direct tax, such as the current tax on wages.

Brushaber v Union Pac. R.R. Co., 240

, ruled that any contention that the 16th Amendment treats a tax on

income as a direct tax is wholly without foundation.

33. Admit or deny that generically an income tax has been classed as an excise by the

Brushaber v Union Pac. R.R. Co., 240 U.S. 1 (1916).

Stanton v. Baltic Mining Co.,

that the provisions of the 16th Amendment