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Discussion of Direct Taxes and the 16th Amendment

The unsigned writer above is correct, and the Third Circuit certainly isn’t needed to confirm that the 16th Amendment is irrelevant to the taxing powers of Congress (a point which I made above). Furthermore, he agrees with my claim that the name of the tax is irrelevant, because any name which Congress might attach to a tax is merely statutory. All statutory law is subordinate to the Constitution because it is the source of the power under which Congress is allowed to enact statutes. I believe that over the years, the Supreme Court has pretty much confirmed the following principles:

1. Within the States, Congress is limited to collecting taxes that are not direct, along with duties, imposts and excises.

2. Since the Constitution was adopted, Congress always could tax incomes.

3. Although the name of any tax is irrelevant to the taxing powers of Congress, because of the limitations in Article 1, “income” as defined for use within the States can only be something on which an indirect tax can be laid and collected.

4. The 16th Amendment did not affect that authority. It merely superseded the principle decided in Pollock that indirect taxes laid on the profits derived from real property must be apportioned, so that Congress could again tax corporate profits. (Significantly, the holding that such taxes are labeled as being “direct” has not been overturned, allowing these “special” direct taxes to be laid and collected without apportionment yet today.)

4. Article 1 controls the application of the 16th Amendment.

5. Since Article 1 allows the federal government to lay and collect only indirect taxes within the States, the subject of any tax under the purview of the 16th Amendment can only be that on which an indirect tax can be imposed.

6. Indirect taxes are those imposed on the profits derived from privileged activities, such as earning profit (interest) on invested capital.

“A tax laid upon the happening of an event, as distinguished from its tangible fruits, is an indirect tax[.]”— Tyler v. U.S., 281 U.S. 497, 502 (1930)

“‘Direct taxes bear immediately upon persons, upon the possession and enjoyments of rights; indirect taxes are levied upon the happening of an event or an exchange.’”—Knowlton v. Moore, 178 U.S. 41, 47 (1900)

7. Direct taxes, therefore, are taxes which are not indirect, and include those imposed on the possession of property.

8. Congress has not enacted an indirect tax (excise) on either the activity of generating money (laboring, or working for hire) or on the event of transferring property (money) from employer to employee, such that the only tax left is a tax on the tangible fruits (the money which was exchanged for the labor).

9. Money is property. Whether it is also called “income” is irrelevant.

10. A tax on property (whether real or personal) is a direct tax.

11. Such a tax is prohibited by Article 1.

Confirming that it is the effect of the tax which controls into which class a particular tax falls and not its name, the Supreme Court said:

“The power to tax is the one great power upon which the whole national fabric is based. It is as necessary to the existence and prosperity of a nation as is the air he breathes to the natural man. It is not only the power to destroy, but it is also the power to keep alive.

This necessary authority is given to congress by the constitution. It has power from that instrument to lay and collect taxes, duties, imposts, and excises, in order to pay the debts and provide for the common defense and general welfare; and the only constitutional restraint upon the power is that all duties, imposts, and excises shall be uniform throughout the United States, and that no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration directed to be taken, and no tax or duty can be laid on articles exported from any state. Const. art. 1, 8, and section 9, subds. 4, 5. As thus guarded, the whole power of taxation rests with congress.

The commands of the constitution in this, as in all other respects, must be obeyed. Direct taxes must be apportioned, while indirect taxes must be uniform throughout the United States. But, while yielding implicit obedience to these constitutional requirements, it is no part of the duty of this court to lessen, impede, or obstruct the exercise of the taxing power by merely abstruse and subtle distinctions as to the particular nature of a specified tax, where such distinction rests more upon the differing theories of political economists than upon the practical nature of the tax itself.

In deciding upon the validity of a tax with reference to these requirements, no micro-scopic examination as to the purely economic or theoretical nature of the tax should be indulged in, for the purpose of placing it in a category which would invalidate the tax. As a mere abstract, scientific, or economical problem, a particular tax might possibly be regarded as a direct tax, when, as a practical matter pertaining to the actual operation of the tax, it might quite plainly appear to be indirect. Under such circumstances, and while varying and disputable theories might be indulged as to the real nature of the tax, a court would not be justified, for the purpose of invalidating the tax, in placing it in a class different from that to which its practical results would consign it. Taxation is eminently practical, and is in fact brought to every man's door; and, for the purpose of deciding upon its validity, a tax should be regarded in its actual, practical results, rather than with reference to those theoretical or abstract ideas whose correctness is the subject of dispute and contradiction among those who are experts in the science of political economy.”—Nicol v. Ames, 173 U.S. 509, 515 (1899)

The inverse of the above statement is that to validate a tax it cannot be placed into a class different than that to which its practical results would consign it. Regardless of how someone wants to characterize the income tax, its practical results (the diminution of property held) consign it to the direct class. Calling it indirect to validate it under Article 1 satisfies neither the Constitution nor the Supreme Court.Wixpositor 04:45, 2 January 2007 (UTC)

Dear Wixpositor:

Your statement that "the 16th Amendment is irrelevant to the taxing powers of Congress" is incorrect, and no court has ever ruled that the Sixteenth Amendment is irrelevant. You keep quoting language from court decisions, incorrectly referring to that language as a "holding" of the court, and claiming that the language says what you wish it meant rather than what it really says. This is original research on your part -- and worse -- it is incorrect.

Let's look as some of your latest assertions:

I believe that over the years, the Supreme Court has pretty much confirmed the following principles:

1. Within the States, Congress is limited to collecting taxes that are not direct, along with duties, imposts and excises.

That's incorrect. With respect to income taxes, neither the Supreme Court nor any other Federal court has ever ruled that Congress "is limited to collecting taxes that are not direct, along with duties, imposts and excises." You cannot cite a single case where any court has so ruled -- because there is none.

The statement: "Since the Constitution was adopted, Congress always could tax incomes" is actually correct -- unfortunately for your own conclusion (see below).

The statement that "'income' as defined for use within the States can only be something on which an indirect tax can be laid and collected" is incorrect and pretty much meaningless. No court has ever come up with a ruling like this.

The statement that the Sixteenth Amendment "merely superseded the principle decided in Pollock that indirect taxes laid on the profits derived from real property must be apportioned, so that Congress could again tax corporate profits" is incorrect. As the Court indicated in Brushaber, the Sixteenth Amendment removed the requirement that had been imposed by Pollock that the courts consider whether an income tax was deemed direct or, alternatively, indirect (i.e., removed the requirement that we consider the source of the income) in determining whether Congress can constitutionally tax that income with respect to the apportionment requirement. Sorry, but the Supreme Court in Brushaber and other cases -- and all other Federal courts -- have consistently upheld the tax statutes since 1913 from attacks on the basis of the direct - indirect arguments.

Thus, your statement "that such taxes are labeled as being 'direct' has not been overturned, allowing these 'special' direct taxes to be laid and collected without apportionment yet today" is idiosyncratic and, from a legal standpoint, nonsense.

Your statement that "Article 1 controls the application of the 16th Amendment" is idiosyncratic and meaningless. It is correct to say that the Amendment has modified the application of Article I as defined in Pollock -- by overruling Pollock.

The statement that indirect taxes "are those imposed on the profits derived from privileged activities, such as earning profit (interest) on invested capital" and the quotes you inserted from Tyler and Knowlton v. Moore not only do not support your position, if anything they actually degrade it.

The statement that direct taxes "are taxes which are not indirect, and include those imposed on the possession of property" is partially correct! The problem for you is that it does not support your ultimate conclusion (see below).

Your statement that "Congress has not enacted an indirect tax (excise) on either the activity of generating money (laboring, or working for hire) or on the event of transferring property (money) from employer to employee [ . . . ]" is not only incorrect, it is silly. Congress has imposed taxes (whether deemed direct or indirect) on income. The income event of the receipt of wages certainly does involve the transferring of property (money) from employer to employee -- but the event is being taxed in its character as an income event (not as a "transfer" event, which it also most certainly is). Transfer taxes, by contrast, have indeed been imposed by Congress as well; examples of these taxes are the gift tax and the estate tax.

The statements: "Money is property" and "Whether it is also called “income” is irrelevant" are actually correct. The problem for you is that your statements are also immaterial to your conclusion.

The statement "A tax on property (whether real or personal) is a direct tax" is correct assuming that you mean "a tax on property by reason of its ownership." Again, the problem for you is that this argument doesn't get you anywhere (see below).

The statement that "Such a tax is prohibited by Article 1" is incorrect. Article I does not now and has never prohibited any kind of direct tax whatsoever merely because it happens to be a direct tax. Again, the only restriction in article I is that a direct tax be apportioned among the states according to population, and that an indirect tax be imposed with uniformity. The problem is that this Article I restriction was modified by the Sixteenth Amendment with respect to any kind of income tax you may want to consider. If it's an income tax, then with respect to the apportionment requirement Congress has the power to lay and collect it without having to consider whether it's a direct tax or an indirect tax. Read the Sixteenth Amendment again. There is nothing in the Sixteenth Amendment that limits its application to "income taxes that happen to be direct" or to "income taxes that happen to be indirect."

Instead of trying to elaborate your own personal theory about the constitutionality of Federal income taxes, you would be better served for purposes of Wikipedia by locating primary and secondary authority on constitutionality. You have mixed up some legally correct statements (which you apparently do not understand actually degrade your own position rather than help it) with some wildly incorrect statements.

You keep citing cases like Brushaber and Eisner v. Macomber but you ignore what the Supreme Court ruled in those cases. For example, in Eisner v. Macomber, the court ruled that a stock dividend that did not constitute a distribution of cash or any other property to a corporate shareholder was not income to the shareholder. You cite Nicol v. Ames, 173 U.S. 509 (1899), where the Court actually upheld the validity of a tax law called the War Revenue Act of 1898. In Brushaber the Supreme Court upheld the constitutionality of the income tax law. Gee, that's helpful. Instead of citing the rulings in those cases, you take language from those cases -- language, by the way, that is not a holding -- and claim that the language means something other than what it says. This is partly why Wikipedia has its policy: no original research.

No one is arguing that "Article I has lost its original vitality." What the courts have consistently ruled, however, is that under Article I Congress always had the power to tax incomes, and that the Sixteenth Amendment removed the requirement that we consider the source of the income (i.e., removed the requirement that we try to figure out whether the tax on that income is "direct" or "indirect") in determining, with respect to the apportionment requirement, whether the Congress has the power to impose that tax.

You have admitted that you "ignore" the appellate court decisions where you consider the courts to have been "confused" -- and we can see why; the courts ruled against your argument. You quote from the same Supreme Court decisions that many tax protesters repeatedly quote from, but you claim that the quotes mean something other than what they say -- and you ignore the holdings, the rulings, in those cases. In Brushaber for example you ignore the holding of the Court that the income tax was constitutional. Mr. Frank Brushaber lost the case, remember? Please read the articles on Precedent, Ratio decidendi and Obiter dictum for background.

For example, you cite the Bowers v. Kerbaugh-Empire case for the assertion that income is "corporate profit" (meaning that income is ONLY corporate profit). The problem is that neither in that case nor in any other Federal court case has any court ever ruled that income means only corporate profit. This argument is sometimes called the Merchants' Loan argument. Every court that has been presented with this argument has rejected it. This rejection by every Federal court deciding the issue has occurred over and over and over.

You incorrectly imply that the Supreme Court is at odds with the lower Federal courts on these issues -- yet you cite no example of where the Supreme Court ruled one way and a lower court ruled the other (hint: there are no such cases!).

No Federal court has ever ruled that wages are not includible in income for Federal income tax purposes. No Federal court has ever ruled that wages are not taxable. No Federal court has ever ruled that an income tax on wages is a "direct" tax (not that it matters after 1913 anyway). Every Federal court that has decided the issue has ruled that wages are includible in income under Article I as modified by the Sixteenth Amendment, and are taxable. Some examples of these cases are clearly cited in the article Tax protester constitutional arguments.

Your personal research fails on two levels. First, you are not following the rules for proper legal analysis. What this means is that you are ignoring the holdings (the rulings) in the Supreme Court cases that you apparently believe somehow support your own conclusions, and you are instead quoting what is often obiter dicta from the cases -- and then arguing that the text means something other than what it says. By ignoring the actual Supreme Court holdings in these cases and, by your own admission, ignoring the rulings in the lower appellate court decisions (which, by the way, are consistent with the Supreme Court rulings, not inconsistent), you are painting a false picture of what the courts have ruled.

Second, the original research you are performing, and the resulting conclusions you are reaching, violate the Wikipedia policy regarding NO ORIGINAL RESEARCH.

Rather than ignoring court decisions -- Primary authority -- that you admit you personally consider "confused" and rather than trying to do your own research to reach your own conclusions, please review the Wikipedia rules and guidelines on Verifiability and No Original Research. Look for primary and secondary authority based on research by reputable sources.

Additionally, the arguments you are trying to raise do not belong in this article anyway. Even if these arguments came from reliable primary and secondary authority, they would belong in the article on Tax protester constitutional arguments with the other arguments about the Sixteenth Amendment. Yours, Famspear 10:12, 2 January 2007 (UTC)

Just as a post-script, I'd like to point out another example. In the 1991 Supreme Court case of Cheek v. United States, a criminal case, the U.S. Supreme Court noted that the taxpayer and others involved in prior civil tax litigation had been "informed by the courts that many of their arguments, including that they were not taxpayers within the meaning of the tax laws, that wages are not income, that the Sixteenth Amendment does not authorize the imposition of an income tax on individuals [ . . . ]" were frivolous (that's the term the Court used). Mr. Cheek, a pilot for American Airlines, was convicted of tax evasion and various other tax charges in connection with his refusal to pay Federal income taxes on his wage or salary income from American Airlines. The Supreme Court reversed Cheek's first conviction because of an error made by the trial court judge in the court's instruction to the jury about the meaning of the term "willfulness." See Cheek v. United States, 498 U.S. 192 (1991). At his retrial, Mr. Cheek was again convicted -- this time with a correct jury instruction. That conviction was upheld by the United States Court of Appeals for the Seventh Circuit. Then, despite Mr. Cheek's request for a writ of certiorari, the United States Supreme Court refused to hear his arguments about that conviction. See United States v. Cheek, 3 F.3d 1057 (7th Cir. 1993), cert. denied, 510 U.S. 1112 (1994). Mr. Cheek's conviction in connection with willfully attempting to evade Federal income tax on wage and salary income having been affirmed by the Seventh Circuit, Mr. Cheek went to prison. Contributor Wixpositor's theory that the U.S. Supreme Court and the lower courts somehow disagree over the application of Article I, of the Sixteenth Amendment -- and of the taxability of wages or salaries received by an individual -- is simply incorrect. Yours, Famspear 17:29, 2 January 2007 (UTC)

Post-post script: Sorry, but I can't resist more comment. Let's look at this statement: "However, the Sixteenth Amendment could not alter anything in Article 1 because the Sixteenth Amendment does not contain the term 'direct tax' and Article 1 does not contain the term 'income.'" This statement highlights the one of the problems I believe our contributor is presenting with this kind of original research and, bluntly original, idiosyncratic thought. Statements like this, while they may appear facially reasonable to the general readership of an encyclopedia, have no foundation in law. There is absolutely no U.S. legal rule or doctrine that would require that the Sixteenth Amendment contain the terms "direct tax" or "income" in order for the Amendment to modify the provisions of Article I that do or do not contain those terms.

Let's look at this statement: "The quote to which bd2412 derisively refers as being 'pure idiocy on the part of its author' is from the Brushaber decision, and unequivocally holds that the Sixteenth Amendment does not allow an unapportioned direct tax." The statement is totally incorrect.

BD2412's comment was not made in reference to any language from the Brushaber decision. The comment was made in response to a Wikipedia user's suggestion that "if the amendment authorized a direct tax, it would cause one part of the Constitution to come into irreconcilable conflict with Article 1, Section 2, Clause 3 and Article 1, Section 9, Clause 4." Editor BD2412 was correctly pointing out the fallacy behind this strange argument -- an argument which, again, has no foundation in U.S. law.

The actual language from Brushaber, with my bracketed insertions, is as follows: "But it clearly results that the proposition [by Frank Brushaber] and the [above listed erroneous] contentions under it [i.e., under Mr. Frank Brushaber’s erroneous proposition], if acceded to, would [incorrectly] cause one provision of the Constitution to destroy another; that is, they [Mr. Frank Brushaber’s erroneous contentions] would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned." The Court was rejecting Frank Brushaber's contentions. As explained later in the text of the decision, the Court did not accede to Mr. Brushaber's contentions. Mr. Brushaber lost the case.

Next, let's look at the assertion that the court in Brushaber "unequivocally holds that the Sixteenth Amendment does not allow an unapportioned direct tax." That is totally incorrect. The Court in Brushaber did not hold any such thing.

There were several holdings in Brushaber. One of the most important holdings is that the Revenue Act of 1913, imposing income taxes that are not apportioned among the states according to each state's population, is not unconstitutional.

How do we know that the Court held this? Well, Mr. Frank Brushaber argued that the income tax --which admittedly had not been apportioned among the states according to population -- was unconstitutional. The parties actually litigated that issue. The Court considered Mr. Brushaber's argument, and specifically discussed his argument in the text of the opinion. The Court then rejected Mr. Brushaber's argument. Mr. Brushaber, the appellant, lost the case.

The proper analysis of law is not a process of making it up as you go along. Proper analysis is not a process of coming up with arguments that "sound good." Proper analysis does not consist of taking quotations from court opinions and then arguing that those quotations mean the opposite of what the courts ruled in those cases. Refer to Precedent, Ratio decidendi, and Obiter dictum. Legal analysis of court decisions is complex and multi-layered but, in its fundamental form, involves figuring out what the parties actually fought about and what the court actually decided about what they actually fought about. This means that much of the text of a court opinion, while useful, is what we call obiter dicta. Whether obiter dicta (words said in passing) happen to be correct statements of law or not, they are, under the U.S. legal system, non-binding. In other words, most of the verbiage from the text of a court opinion is not a statement of a holding in the case.

Now, for yet another version of my "experts and non-experts in Wikipedia" speech.

A basic tenet of Wikipedia is that non-experts are allowed to edit in technically complex areas in which they hold no expertise. The concomitant concept is that, on de facto basis, non-experts are being held to the same standards as the Wikipedia experts. (By the way, although I may have been designated as an expert in a legal proceeding, I myself cannot designate myself as an expert. Expert status is something that someone else can confer on you; it is not something you generally claim for yourself, at least not in the fields of accounting and law in the U.S.A.) In relatively technical areas such as medicine, physics, engineering, law, etc., you cannot, in Wikipedia, simply make it up as you go along. If, in editing legal articles, you don't know a holding from an obiter dictum, someone may call you on it.

And, as restrictive or unfair as it may sound, Wikipedia is not the place for original research and new ideas created by Wikpedia editors. Instead, look for reliable primary sources, secondary sources, or tertiary sources (which roughly correspond to the legal concepts of Primary authority and Secondary authority). Yours, Famspear 02:50, 3 January 2007 (UTC)

Further Response and Discussion

Latest Introduction Dear fellow editors: My comments over the last few days and Famspear’s seeming non-Wikipedian reply to them (“nonsense,” “idiosyncratic,” “meaningless,” “silly,” etc.) along with the inaccurate and misleading claims in some of his own answers has led me to believe that I’ve hit a nerve on the direct tax issue. When one has no adequate response, one retreats to invective in an attempt to convince other readers that the subject under discussion is without merit even though no proof is offered. Famspear provided no countervailing authorities yet claimed that, for example, “[n]o court has ever come up with a ruling like this.” What he means to say is that he has not seen a case with a ruling like this. For this statement to be accurate he would have had to examine every case on the subject that has ever been handed down, and I doubt that he has done this. Therefore, his own statement shares the same characteristics he gives to mine.

Additionally, for example, he states: “The problem [with my claim] is that this Article I restriction [its limitation on direct taxes] was modified by the Sixteenth Amendment with respect to any kind of income tax you may want to consider.” I will add another invective to the mix about this particular claim: Hogwash! Furthermore, he offers no authority in support of his assertion—principally, in my view, because there is so much on the other side of the question. Even though the following statement by the Court is in the realm of ratio decidendi, as Famspear points out above, and even though the following case did not involve individuals, I believe that when the Supreme Court speaks to a broad subject in issuing a more narrow ruling that their statement falls within stare decisis. The 16th Amendment did not modify anything about Article 1. That’s my claim, because the Supreme Court said so:

”The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the amendment was adopted.”—Eisner v. Macomber, 252 U.S. 189, 205 (1920)

Let’s see if we can figure this out in plain English. The above quote first says that “the 16th Amendment must be construed”. This means that its application must be determined. Then it says, “in connection with the taxing clauses (plural) of the original Constitution”. This means considered with the Article 1 limitations on direct taxes. Then it says, “the effect attributed to them”. This means as applied to the federal government. Then it says, “before the amendment was adopted”. This means before the amendment existed. Therefore, stringing everything together, we arrive at:

”The application of the 16th Amendment must be determined by being considered with the Article 1 limitations on direct taxes as applied to the federal government before the amendment existed.”—Eisner v. Macomber II (see above)

Hmmm. It would appear that this is a fancy way of saying that the 16th Amendment has absolutely no effect on the original taxing clauses. Also, there are other cases which say essentially the same thing differently. This is but one example of an inaccurate claim on Famspear’s part about my points.

I can’t crank out responses as fast or as voluminous as he can crank out inaccurate answers, so I can’t answer point by point. Also, after looking more closely at Wikipedia and at my admittedly brash “entrance” into its world of editing (as opposed to dialoging), I will fold my tent and remain on the sidelines for others to take up the gauntlet since I appear to not be the proper person for making encyclopedic entries. And to Famspear, I certainly do thank you for your efforts to keep the main page only encyclopedic in content and pointing out to me that my comments only belong here. I agree with your goal. But before returning to the sidelines, I would like to comment on Famspear’s latest post.

Brushaber Revisited In Famspear’s latest post he quotes Brushaber, with his own comments in brackets. Here, I will insert a paragraph from Brushaber with my own comments in brackets, then Frank Brushaber’s contention regarding a direct tax, followed by Famspear’s comments, then comment further.

My quote from Brushaber and comments: “We are of opinion, however, that the confusion [on Frank Brushaber’s part] is not inherent, but rather arises from the [his] 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. [Brushaber claims that the 16th Amendment authorizes a direct tax that doesn’t require apportionment] And the far-reaching effect of this [Brushaber’s] erroneous assumption will be made clear by generalizing the many contentions advanced in argument to support it[.]” [Brushaber is wrong, as we will show]

Brushaber’s erroneous assumption: “(a) The Amendment authorizes only a particular character of direct tax without apportionment, and therefore if a tax is levied under its assumed authority which does not partake of the characteristics exacted by the Amendment, it is outside of the Amendment, and is void as a direct tax in the general constitutional sense because not apportioned.”—240 U.S. at 11

Famspear’s quote and comments: “‘The actual language from Brushaber, with my bracketed insertions, is as follows: "But it clearly results that the proposition [by Frank Brushaber] and the [above listed erroneous] contentions under it [i.e., under Mr. Frank Brushaber’s erroneous proposition], if acceded to, would [incorrectly] cause one provision of the Constitution to destroy another; that is, they [Mr. Frank Brushaber’s erroneous contentions] would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned." The Court was rejecting Frank Brushaber's contentions. As explained later in the text of the decision, the Court did not accede to Mr. Brushaber's contentions. Mr. Brushaber lost the case.”

My Analysis of the Above Quotes Above we have the Court’s analysis of why Brushaber was wrong and the bad things that would happen if his view prevailed. I certainly do agree with Famspear’s comments about the the above paragraph. However, as I read it, Famspear runs counter to his own arguments. Article 1 requires that all direct taxes be apportioned among the States. Frank Brushaber said, “no, the 16th Amendment authorizes a particular direct tax that doesn’t require apportionment.” The court said, “no, Mr. Brushaber, you’re wrong; all direct taxes require apportionment. If one didn’t, that would destroy the general requirement (in Article 1) that they all must be apportioned.” That’s what the above statement says, and I agree with it. In fact, the Court’s rejection of Brushaber’s contention that there can be a direct tax that is collected without apportionment is exactly why the federal tax on personal property (money) is not allowed under Article 1—it is a direct tax collected without apportionment, which the Supreme Court rejected in the Brushaber decision as being a tax without foundation. He claimed that his tax was unconstitutional because the 16th Amendment allowed an unapportioned direct tax of a particular character that did not require apportionment, and the tax on the dividends from his shares of Union Pacific was outside that provision of the Amendment. He lost the case, not because the tax of which he complained was outside his special direct tax (there was no such special direct tax), but rather because it was an indirect tax for which the 16th Amendment again allowed collection since it had superseded the holding against such collection in Pollock.

Commentary I guess I’m missing something. Frank Brushaber (a non-resident alien from Belgium) appears in court with a claim 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.” The Court then goes on to amplify the contents of his contentions and then says that they are erroneous—that the 16th Amendment did no such thing (“...the far-reaching effect of this erroneous assumption...”). The Brushaber Court then goes on to quote Pollock, validating the application of the original taxing clauses to the Brushaber case:

'In the matter of taxation, the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely: The rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts, and excises.'—240 U.S. at 13, quoting Pollock

What I seem to be missing is any shred of proof that the Constitution somehow allows the federal government to collect an unapportioned direct tax within the States, regardless of what it is named. The Brushaber case construed the 16th Amendment as a declaration that an income tax must be indirect to harmonize the tax with Article 1. It did this rather than declare the tax to be direct and thereby have the 16th Amendment become a mechanism to destroy the two great classifications by making an exception to the rule that all direct taxes must be apportioned.

The income tax One point that people seem to miss is that there is not “the income tax.” A tax imposed by a single statute can be either direct or indirect (a distinct tax in either one of two distinct classes) depending on what is being taxed and the effect on the one who pays it. All the 16th amendment did was to prevent a tax on income, which is inherently an indirect tax, from being declared a direct tax (which the Supreme Court itself did in Pollock) due to a consideration of the source from which the income came (the Amendment did so when it superseded their holding in Pollock.) The 16th Amendment had nothing to do with allowing an unapportioned direct tax on personal property. It forever placed taxes on incomes within the classification of indirect taxes, but only for those that are inherently indirect from the outset. It did not turn direct taxes into indirect taxes for the convenience of the federal government or allow the collection of unapportioned direct taxes from individuals within the States whatsoever. Income taxes that are inherently in the direct class are outside the scope of the 16th Amendment and fall within the limitations of Article 1. If one diligently searches the Supreme Court decisions on taxation from the late teens and early twenties, the court confirms this claim six ways from Sunday by how it defines income (essentially, the results of the exercise of a privilege). Although I quoted the following case far above, it bears repeating because it summarizes 75 years of tax law in a single sentence:

”The legislative history merely shows that the words "from whatever source derived" of the Sixteenth Amendment were not affirmatively intended to authorize Congress to tax state bond interest or to have any other effect on which incomes were subject to federal taxation, and that the 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, 17-18 (1916).”—South Carolina v. Baker, 485 U.S. 505, n.13 (1988) (Emphasis added.)

Once again, the Supreme Court confirms my statement above that the 16th Amendment removed the apportion requirement for incomes that were taxable as indirect taxes under Article 1 (those that were “otherwise taxable”) but which Pollock had held to be direct because of their perceived effect on the underlying source. Again, the “otherwise” above refers to income taxes which are allowed under Article 1 (those that are indirect and therefore are allowed to be laid and collected within the States). Furthermore, the Court above confirms that their conclusion on this point was taken right from the Brushaber decision as well as from the submission debates. As Famspear pointed out somewhere above, a statement such as this could be considered as being dicta, but I would claim it as being accurate dicta, and in any event it certainly gives an indication as to the leanings of the Court.

Direct and Indirect One other point of explanation. The term “indirect” refers to the effect which a tax would have on the source of the thing being taxed. For capital earning interest, a tax on the interest is considered an indirect tax on the source which produced the interest, because the source (the capital) is not diminished. On the other hand, a tax on the source itself (the capital) would be considered a direct tax because it would diminish the amount of capital remaining to earn interest. Confusion results from the fact that the tax on the interest is a direct tax on the earnings, which many also consider to be an unapportioned direct tax. However, when the whole picture is taken into account, the tax on earnings is lawfully considered to be only an indirect tax on the underlying source rather than a direct tax on the proceeds.

Can’t get more simple than that. If a particular tax is a direct tax—that is, if its burden cannot be shifted (such as with a property tax, real or personal) thereby diminishing the source (the amount of capital or of the resource remaining to produce more of the thing taxed) it is prohibited by Article 1 within the States. If that same tax is indirect—that is, if its burden can be shifted, such as a tax on manufacturing beer being shifted to a customer of the business which has produced the beer, it does not diminish the source (the resources of the beer manufacturer) and is permitted by Article 1 within the States. Its name is irrelevant.

Back two centuries ago (!) (in the 1800s), the Supreme Court gave an excellent explanation of the way these direct and indirect taxes operate, which remains true yet today:

“The ordinary test of the difference between direct and indirect taxes is whether the tax falls ultimately on the tax-payer [the one responsible for remitting it to the government], or whether, through the tax-payer, it falls ultimately on the consumer [customer]. If it falls ultimately on the tax-payer, then it is direct in its nature, as in the case of poll taxes and land taxes [and personal property taxes]. If, on the contrary, it falls ultimately on the consumer [if the business doesn’t absorb it—the customer does], then it is an indirect tax [on the business]. Such is the test, as laid down by all writers on the subject. Adam Smith, who was the great and universally received authority on political economy, in the day when the Federal Constitution was framed, sets forth a tax on a person's revenue to be a direct tax.”—Pacific Ins. Co. v. Soule, 74 U.S. 433, 437 (1868) (Emphasis added)

The 16th Amendment changed nothing in the above statement nor did it authorize a tax on a person's revenue.

Web References One last note: On this one subject (Article 1 prohibiting a direct tax within the States) I make two observations: (1) On the IRS website at http://www.irs.gov/pub/irs-utl/friv_tax.pdf, their denigration of this argument is pitifully weak. Look at Contention 6 under Constitutional Amendment Claims (page 30) about a non-apportioned direct tax. First, they attempt to divert attention from the main issue at the outset by making two assertions, one true and one untrue. They first state that “the Sixteenth Amendment does not authorize a direct non-apportioned income tax”. (True. It cannot do so because of the limitations in Article 1). They then go on to add “and thus, U.S. citizens and residents are not subject to federal income tax laws”. (Completely untrue, and completely irrelevant to the initial claim. If U.S. citizens and residents have anything taxable under the authority granted by Article 1 to the federal government to collect it, they certainly are subject to the applicable income tax laws.) This second assertion has nothing to do with the initial claim regarding direct taxes within the States but is an attempt to taint the whole subject by inference. Clever, at least in relation to the casual reader. Second, they admit that the personal income tax is a non-apportioned direct tax. So much for having to prove that. (This makes the Law of the Circuit in several Circuits that the income tax is an indirect tax somewhat suspect, at least according to the IRS, although this position is legally correct.) Second, everything they quote is from appellate cases. They do attempt to make it look “official” by showing that the Supreme Court denied cert. (under “The Law”), but that’s useless as an affirmative position, especially when there is so much countervailing case law exactly on point. (cf. Brushaber quoting Pollock on the two great classes immediately above). (2) The Wikipedia entry on tax protester constitutional arguments at http://en.wikipedia.org/wiki/Tax_protestor_constitutional_arguments wisely omits the argument entirely, presumably because it is the one argument which has enough traction (potential for debate) that it doesn’t belong in an encyclopedia. The huge amount of exchange above should confirm that contention.

Conclusion So there we have it. I won’t comment further on the inaccuracies in Famspear’s response to my earlier posts and will leave that to those who might have more time and inclination to do so. The whole federal tax scheme is pretty much summarized in my paragraphs immediately above (at least my view of them), so my conclusions speak for themselves. Thanks for this brief opportunity to at least become involved in the debate, albeit not in the proper forum.Wixpositor 23:46, 5 January 2007 (UTC)