Death by Taxes: A Sordid History


 

April is the time of year when I reflect back to the passage of the 16th Amendment and the Federal Reserve Act. Two juggernauts that have done more damage to our standard of living than any other pieces of legislation. There is nothing good about being taxed, especially having your income taxed. It is important to understand the delusion that most people have about the “necessity” of governments to tax their citizens.

Amendment XVI

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 Sordid History

The 16th Amendment was not the first time this country decided to tax it’s citizens directly. During the War Between the States, Congress passed the Revenue Act of 1861 in which it taxed the personal income of its citizens which levied a 3% tax on all incomes over $800. It was replaced by the Revenue Act of 1862 which increased the levy to 3% of all incomes over $600 and 5% on all incomes over $10,000. The Revenue Act was raised again over time but was repealed in 1872.

In 1894, Congress passed the Tariff Act of 1894 which levied taxes on income from interest, dividends and rents. The US Supreme Court took up the matter in Pollack v. Farmers’ Loan and Trust where it decided in a 5 to 4 decision that these taxes were a direct tax and thus must be apportioned according to states’ census population results. An almost impossible task to administrate.

Justice White, who wrote the dissenting opinion stated,

“It is, I submit, greatly to be deplored that after more than 100 years of our national existence, after the government has withstood the strain of foreign wars and the dread ordeal of civil strife, and its people have become united and powerful, this court should consider itself compelled to go back to a long repudiated and rejected theory of the constitution, by which the government is deprived of an inherent attribute of its being—a necessary power of taxation.”

This decision did not sit well with the Populists of the midwestern and western states who felt that too much money was sitting in too few hands and it wasn’t their hands. All was fine when the railroads were booming and westward expansion was taking place. But, when the economy began to grow so efficiently that prices began to drop for farm commodities and not so much for new farm equipment, something had to be done. The popular sentiment was that eastern speculators needed to share their good fortune with western farmers. The Democrats, lead by William Jennings Bryan, later adopted an income tax plank in the party platform. So, in the fog of Theodore Roosevelt’s war on the trusts, the Progressive Republicans capitalized on this motivation to “soak the rich”. It was Republican Senator Norris Brown of Nebraska, in 1909, who authored the 16th Amendment in an attempt to replace the unconstitutional Tariff Act of 1894. It was touted to the public as tax relief for the wage earner. Senator Brown was of the belief that since the wealthy had more real estate and other property they should, in turn, pay more to have that property protected. Until the adoption of the 16th Amendment, the public financed the federal government through excise taxes and tariffs. It was Brown’s contention that tariffs were an undue burden on wage earners as the costs of the tariffs meant higher prices. Nowhere did Brown intend the income tax amendment to give Congress a new power to directly tax the worker’s wages. A debate began as to what “income” actually meant.

The establishment Republicans had decided that the amendment process was the best strategy. They had doubts that it would ever be ratified by the required three-fourths of the states. Legally, they would have been correct. The ratification process in several states was completely corrupted and should have disqualified their votes. Kentucky voted on the wrong version of the amendment. Oklahoma changed the wording in the amendment to mean just the opposite. Tennessee, Texas, Mississippi, Ohio, Arkansas, Minnesota, New Mexico, West Virginia, Indiana, Nevada, North Carolina, Illinois, and Louisiana violated their own constitutions during their ratification processes, disqualifying their votes. Many of these states also failed to send in the proper documentation to Secretary of State Philander Knox who oddly counted them all as approving for ratification. Six states were either not heard from or rejected it, yet Knox took it upon himself to count the unknown states as approving, namely Pennsylvania and Virginia. Two states, Massachusetts, and Vermont rejected it on recorded votes, but at the last minute submitted passage to Knox without any recorded votes.

After the amendment was controversially ratified in 1913, Congress began to introduce all kinds of “sources” of taxable income into the tax code. Erroneously they included wages, but in an act of charity, Congress exempted the first $4,000 of income. Until World War II this wasn’t a big deal. But during the war, the economy and wages were growing, and in the spirit of patriotism, people began paying taxes on their labor. The whole debate over the definition of “income” or whether wages should be taxed was long forgotten. Americans have ever since been brainwashed into believing that they have the civic duty to pay taxes on their wages by an amendment that was wrong-headed and corrupted from the start.

Conclusion

Understand the ratification of the 16th Amendment meant that the State leviathan had put a lien on all property produced by its citizens. In essence, it’s saying that the State has first claim on all property and has the power to decide how much property the citizenry is allowed to keep. Such an idea is monarchical and opposes the principles this country had been founded on. In the next part of this series, we’re going to see how much damage occurred by putting so much power in the hands of the federal government. We will look at the moral and economic implications. We’ll also discover how it transformed the relationship the citizens had with the government from one of principal and agent to one of slave and master.

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[Image credit: Venture Beat]

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