Remarkable Remedy

Jean Carpenter

II First Event

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The Sixteenth Amendment

"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."

THE FIRST EVENT went largely unnoticed in 1913. The proclamation of ratification of the Sixteenth Amendment on February 25, supposedly authorized the income tax.

Even so it would be still another 29 years before the exchange for our labor, "wages" and "salaries," would be considered "income" and would begin to be taxed -- with the "temporary" Victory Tax Act of 1942. That happened in spite of the fact that the courts have ruled wages and salaries to be an even exchange for the property in our labor. An even exchange cannot logically be construed as "income." Only interest, dividends, and other such gain were supposeed to be considered "income."

How, then, was our government financed during its first 166 years -- the years in which our nation became one of the greatest in the history of the world? Could it be so financed again? And why are we now suffering such a painful and burdensome tax?

Most citizens despise the income tax, but are willing to pay what they have been led to believe is their "fair share." Most do not understand that taxes need not be painful.

This is not a "tax protest" book. Taxes are among the least of our worries. Not that taxes are trivial Ñ they are not. But there are other things more momentous. Nevertheless, it is important to understand their vital role, and how they affect a nation's prosperity.

Before we look at the Income Tax Amendment, let us consider two possible scenarios that illustrate how taxes can be used for ill Ñ or for good É

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Taxes, Like Fire, can be ...

... a devastating foe ...

If those in power wished to impoverish a prosperous nation, one very effective weapon could be: oppressive taxation.

Living standards could be reduced by penalizing productivity: by taxing the fruit of labor (wages and salaries); and by graduating this tax so that the greater the productivity, the higher the penalty. The tax could be enforced by rigorous prosecution and severe penalties, making tax collectors greatly feared. Personal and private information -- trustingly volunteered by taxpayers (at the cost of untold hours consumed in preparation) -- in return for small reductions in their taxes, would provide a powerful means of control.

Needed allies could be found among the more wealthy, by creating loopholes in the tax system in which they could protect their income and property from taxation.

Tax system incentives, with a program under the guise of "welfare," would effectively promote family break-ups, illegitimate children, and general indolence, and usurp the natural responsibility of the community and the church. "Poor Paul," whether deserving or not, would be the pretext for robbing "Peter." Most of the loot would finance administration, but "Poor Paul" would receive enough to assure continuance of his dependency.

Bureaucracies would grow like cancer. High ranking administrators, enjoying the luxury of high salaries and perks, would be certain allies -- as would "Poor Paul." The tax-burdened citizens, trusting government to care for the needy, would forget that charitable giving through the much more efficient "Salvation Armies" and "Goodwills" is far less costly and greatly more rewarding to both giver and recipient, than funding "welfare" through the extortion of taxation.

Tax revenues could be squandered with payment of exhorbitant overcharges and with frivolous programs (constitutional restraints notwithstanding).

With "free trade" all playing fields could eventually be levelled to a worldwide low standard of living. Without import duties protecting industry from the unfair competition of slave labor, mere survival would force domestic factories to go abroad, multiplying the numbers of those unemployed and on welfare. Small ranchers and farmers would be forced out of business, unable to compete in the world markets.

State and local governments, eagerly grasping a "share" in the loot through federal funding of state and local projects, would become partners in oppression, further concentrating central control.

The destructive force of taxation could be magnified by the requirement of mountains of forms Ñ for taxes and other regulated areas of life as well -- devouring both time and wealth. Nurses, for example, could be required to spend more time pushing pencils than caring for patients. Costs would skyrocket.

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In 1968, there were 435,000 bureaucrats for 1,378,000 patients in hospitals. In 1990, there were 1,222,000 bureaucrats for 853,000 patients!
-- N Y Times, Aug. 6, 1993, p. A 28

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All property could be surreptitiously confiscated by means of taxation, which like rent, is enforceable by eviction (is that not "confiscation"?). The people could keep their deeds and the illusion of ownership. Tenements and slums could be fostered with a tax rate based upon property value, penalizing those who improve property, and rewarding deterioration. Estate taxes could eradicate inheritances (except from the wealthy and powerful), often necessitating liquidation to pay the tax.

In short, a general principle and goal of taxation would be to erode the standard of living by penalizing productivity and wise investment, and rewarding immorality, indolence, and even crime.

Freedoms could be further eroded by Òconsumer protectionÓ policies. Any consumer fraud -- alleged or real -- could be ample excuse to legislate and regulate.

Much utilized could be the common strategy of the dictator who, coveting the profits of the butter industry, caused the butter to be salted with dirt. Repeated incidents, well publicized, resulted in a clamor for reform. In response to public demand he took over the butter industry.

Freedom could be eroded through treaties, subjecting citizens to regulations and taxation by foreign agencies not subject to electoral accountability.

Capacity for clear thinking, and standards of ethics and morality, could be undermined by diluting basic academics with belief and attitude remediation -- funded by federal tax revenues. ("Dumbed down" children would not grow up to become troublemakers to the system.)

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... or a useful servant ...

If, on the other hand, those in power desired to bless and prosper a nation, one very effective tool could be: restrained and responsible taxation.

All essential government services could be adequately funded by excise taxes and import duties, simultaneously protecting domestic products from the competition of slave labor. Fair trade agreements could promote healthy competition for quality and efficiency.

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The first major bill to pass the national Congress, was a tariff bill on some 60 articles.
-- Senator Ernest Hollings (D-S.C.) before the National Press Club on July 12, 1990

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Excises (taxes on commercial activity) are always paid in the end by the consumer, who usually has a choice (if such things as groceries and medicines are exempted). One can avoid the tax by not purchasing the article.

Taxes need not be oppressive, but could be used in the protection of life, liberty, and property. Tax credits could be employed to encourage compliance with environmental standards. Thus, for example, could ecologically clean fuels be made competitive. Caveat: all government power invites abuse and should be severely restrained.

A reasonable at-time-of-sale excise tax on residential property, replacing the annual deterioration- rewarding residential property tax, would not infringe upon property rights.

Taxes on wages and salaries, which penalize productivity and violate privacy, would be prohibited. Judges could render unbiased judgments without fear of retribution from the tax collector.

All would enjoy full use of the money they earn and the property they own. From their abundance they could, without hardship, enjoy the blessing of caring for the genuinely poor and handicapped. Families could live comfortably on one income, as they did in the past.

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The Judges ... shall ... receive for their services, a Compensation, which shall not be diminished during their Continuance in Office. (emphasis added)
-- Article 3, Section1, of the Constitution

The salaries of judges should thus be exempt from taxation. This clause ensured justice by protecting judges from fear of reprisal.

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Cause of Poverty in the Presence of Abundance

"The power to tax involves the power to destroy." So said Chief Justice John Marshall in his opinion in the case of McCulloch v. Maryland. The Founding Fathers intentionally and wisely limited federal government and severely restricting the taxing power. They knew that many services could be much more efficiently provided by state and local governments and communities.

The truly free economic system born in the colonies of Jamestown (1607) and Plymouth (1620) became the model for the free enterprise system secured for us by the Constitution. They had tried, with devastating effects -- and then rejected -- a communal style of property ownership and labor.

When they restored individual ownership and self-reliance, the result was a free enterprise system with abundance, and a superior standard of living. That system made the United States the most prosperous nation in the world during its first 166 years -- without oppressive taxation.

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When our people were fed out of the common storehouse and labored jointly together, glad was he who could slip away from his labor or slumber over his task. É we reaped not so much corn from the labor of thirty as now three or four will provide for themselves.
-- From The Diary of Capt. John Smith

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Can anyone miss seeing the law of cause and effect at work in our tax system?

A scientist who works for Winrock International Institute for Agricultural Development (providing technical assistance and encouragement to under-developed countries worldwide) was asked the cause of poverty in countries that have abundant natural resources. "Government policy," was his terse reply.

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É in our "compassion" for the poor we have doomed É millions É to a life of dependency and despair. The "War on Poverty" has trapped them not only in permanent poverty, but in a dehumanized existence that wrenches families apart, foments violence and drug abuse on the streets, and makes their escape to a good life prohibitively expensive.
-- George Roche, President of Hillsdale College, in One by One, Hillsdale College Press, p. 163

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Startling Tax Facts: Who? How? For What?

No one denies that government must be funded. However, who can be taxed, what can be taxed, how it can be taxed, and how the revenues are spent, must be determined by the clear prescriptions laid down in the rule book, which is the Constitution.

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Startling tax facts are brought to light by prominent lawyer, Jeffrey A. Dickstein, in his book, Judicial Tyranny And Your Income Tax. He researched every tax law and every tax case in U.S. history. Through this unique and exhaustive study, he provides undisputable proof that how we are now taxed is contrary to what the Founding Fathers intended, and shows how it evolved. His absorbing "Introduction," reprinted in The Treasury, is an easily understood summary of what everyone needs to know about taxes.

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The Constitution provides for two types of taxes: direct taxes (Article I, Section 9), and indirect taxes (Article I, Section 8). Indirect taxes, such as duties, excises, or sales taxes are voluntary (many states appropriately exempt groceries and prescription medications). Indirect taxes can be avoided (if you don't buy, you don't pay). Direct taxes are far more oppressive. These are not voluntary. They are taxes laid directly on individuals (such as taxes on wages and salaries). For this reason, direct taxes were severely restricted, primarily by means of apportionment. (Constitution, Article I Section 9 Paragraph 4.)

According to Hamilton in Nos. 12 and 13 of the Federalist Papers, the burden of taxation was to fall upon commerce (indirect taxes) and not to come from "the pockets of the people" (direct taxes). Much of federal government revenue still comes from such indirect taxes as import duties and excises. Income tax, on the other hand, is a direct invasion of your pockets.

Washington, D.C., has become a pitcher with a gigantic sponge (the bureaucracy) inside, filled with water by us taxpayers. And we have to do handsprings to qualify for the little that is poured back. Most stays in the sponge and is utterly wasted. For example, 72 cents or more of every dollar spent by government on entitlements is absorbed by costs of administration -- compared to 25 cents for administration of the average charity.

The need for fiscal reform was exposed in detail by the President's Private Sector Survey on Cost Control, known as the Grace Commission. President Reagan had asked some highly successful businessmen to analyze government, in order to identify waste and abuse.

A summary of the findings of the Grace Commission is found in Burning Money, authored by J. Peter Grace. He and his colleagues performed this gigantic task at their own considerable expense.

They made 2,478 suggestions which would effect a savings of $424.4 billion over three years. Without raising taxes or cutting any programs, we could be operating in the black within a very short time by cutting only the waste, abuse, and inefficiency. (More easily said than done.)

They identified the most important factor in the cause of waste as that "creative" legislative invention known as the "rider," which allows Congress to slip in vast quantities of unrelated special interest projects. This is called "pork barrel" legislation. Meanwhile, nobody asks the big question: Is there any authority under the Constitution for the federal government to enact such legislation?

If we can prevent the government from wasting the labors of the people under the pretense of taking care of them, they must become happy.
-- Thomas Jefferson, in a letter to Thomas Cooper, Jan. 29, 1802

You will perhaps have been alarmed, as some have been, at the proposition to abolish the whole of internal taxes. But it is perfectly safe É By suppressing at once the whole of internal taxes, we also abolish three-fourths of the offices now existing and spread over the land...
-- Thomas Jefferson, in a letter to John Dickenson, Dec. 19, 1801

One of Thomas Jefferson's first actions upon assuming office in 1801 was to abolish internal taxes; he discharged an army of tax collectors; É and yet, in eight years, he paid off one-half of the original national debt.

-- Dr. Martin A. Larson,

-- this and the preceding quotations, from Jefferson, Magnificent Populist, by Dr. Larsen

The Grace Commission made another, even more startling discovery. They found that about 58% of revenues from personal income taxes goes to pay interest, and another 25% is wasted. That equals 83% of the total revenues collected from income tax -- and does not take into account the expense of preparation of forms: 5.4 billion hours at a cost of $600 billion in 1990! (Rena Pederson, in the Dallas Morning News, 7/24/94)

The federal government could perform all essential functions at a fraction of the current budget, and without reaching into our pockets. It could do it by strictly adhering to the Constitution, as specifically mandated in the Tenth Amendment. State and local governments could perform most legitimate functions of government far more economically.

Income Tax Is Not Needed

The figures clearly show that the federal government does not need the income tax in order to perform essential and constitutional functions. It was more than adequately financed with no tax on wages or salaries for its first 166 years.

... not primarily to raise money for the State, but to regulate the citizen and to regenerate the moral nature of man. The individual citizen will be called on to lay bare the innermost recesses of his soul in affidavits, and with the aid of the Federal inspector, who will supervise his books and papers and business secrets, he may be made to be good, according to the notions of virtue at the moment prevailing in Washington.

(See related quote of Thomas Greco, box p. 61.)

What can we do? First, let us look at the Sixteenth Amendment...

If Judges Cannot Agree ...

The 16th Amendment supposedly authorizes the taxing of income:

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.

Prior to 1913 there was simply no substantial question as to what was lawful taxation. But since 1913 much has been written concerning this amendment. Unfortunately, there is little agreement among judges as to its true meaning.

Any law that cannot be simply and clearly understood by those expected to obey it is flawed. It is subject to a principle of law known as "void for vagueness." If judges cannot agree upon its meaning, how can a citizen be expected to comply? But vagueness is not its only flaw ...

Secretary Thumbed His Nose at the States

It is now known that the 16th Amendment, which has caused so much anguish and confusion, was erroneously declared ratified by the Secretary of State, Philander Knox.

Its non-ratification has been carefully and meticulously documented from state archives by William Benson in his book, The Law That Never Was. Fifteen thousand certified documents, from all of the 48 States that had considered the amendment, reveal this fact. Some States rejected it outright. Others offered proposals for modification. Furthermore, the Solicitor General specifically noted that it was not ratified in his written report to the Secretary of State (also documented by Mr. Benson, with certified U.S. Archive documents). Yet Mr. Knox, in total disregard of that report, declared it ratified! -- and so forged the first link in the chain of oppression.

Also, Ohio, was not legally a State in 1913. It was officially admitted to the Union in 1953 -- as of 1803, but retroactive laws are unconstitutional.

The 16th Amendment was simply not ratified by three-fourths of the States. Space does not permit mention of other bases for the charge of invalidity.

Yet, this amendment may turn out to be only a red herring. It is alleged to be the constitutional basis for the current federal income tax. In reality, it may have little to do with its administration. But whatever its basis, the income tax plays a vital role in the oppression of taxpayers and is an integral piece in the puzzle.

The oppression is as real as it is needless, even though it is minuscule compared to the consequences that the third event has in store for us -- barring timely intervention. But it will be relatively easily undone when we deal with the third event, which became the key link.

... a rock of credit from which abundant streams of revenue will flow whenever Congress chooses to smite it. We may be sure that it will be smitten hard and always harder, until the national conscience, if there is such a thing, revolts against the inequality and injustice of such a plan of taxation.
-- New York Times, describing newly ratified amendment in 1913

Note these astonishing comments ...

Surprising Remarks of a Former IRS Commissioner

Former Commissioner of the IRS, T. Coleman Andrews, was interviewed for the May 25, 1956, issue of U.S. News and World Report. Excerpts follow:

Question: Mr. Andrews, is it feasible to do away with the income tax? Are there other ways to get income into the Federal Treasury besides taxing the individual?

Answer: Of course there are. ... To say otherwise would be to say that we have lost the imagination and ingenuity that have made us leaders among the nations ... If we keep up with the present rate of taxation, we will come eventually to the point where no one will have anything to invest.

Question: Mr. Andrews, granting that the revenue laws are aimed at the rich, do you think they are consciously aimed at the middle class, too?

Answer: Yes I do. What do you think the inheritance tax and gift taxes were planned to do? All you've got to do is get the record. ... It's designed to put every generation back to scratch.

Question: You said a moment ago that it was your own view that this income tax could not be made to work. Did you mean this income tax, or any income tax?

Answer: ... I doubt that any full-scale income tax, rigidly enforced, can be made a primary source of a great nation's income without leading eventually to dictatorship, ....

Question: But it is raising the money the country needs, isn't it?

Answer: Yes, and I might remind you that an infirm boiler usually holds steam right up to the time when it blows up. ... [but] it amazes me that so many people seem to accept two assumptions about taxes and expenditures that I believe to be utterly fallacious and indefensible. One is that there is no substitute for the income tax; the other is that the present level of federal expenditures cannot be lowered.

Question: Why don't you think the income tax is fair?

Answer: I don't think it is fair because of the manner in which it is applied. I don't think it's fair because I object to invasion of the people's right of property by the government.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, ....
-- Fourth Amendment

Question: Don't all taxes have to come out of income unless you're going to confiscate property?

Answer: Not necessarily. We're confiscating property now. That's one of the reasons why I don't like the income tax. As I said a while ago, every time we talk about these taxes we get around to the idea of "from each according to his capacity and to each according to his needs." ThatÕs socialism. It's written into the Communist Manifesto. Maybe we ought to see that every person who gets a tax return receives a copy of the Communist Manifesto with it, so he can see what's happening to him.

Heavy progressive or graduated income tax.
-- 2nd plank, Communist Manifesto

To lay with one hand the power of government on the property of the citizen, and with the other to bestow it on favored individuals, is none the less robbery because it was done under the form of law and is called taxation.
-- Justice Miller in Loan Association v. Topeka, 20 Wall (87 U.S.) 664 (1874)

To continue: III Second Event: The Seventeenth Amendment