Sunday, November 30, 2008

A Former IRS Commissioner's Statement

Because so many people are now pushing to pass a Fair Tax here in Michigan, I was doing some research into the history of taxation. The Fair Tax Proposal can be viewed HERE.

This is a consumption TAX and will extend to things that have before been exempt from sales tax such as FOOD, SERVICES and LABOR. Consumption tax was tried in the past. Here is some history.

Excerpt from the Corporate Income Tax Act of 1909

That every corporation, joint stock company or association, organized for profit and having a capital stock represented by shares ... now or hereafter organized under the laws of the United State or of any State ... shall be subject to pay annually a special excise tax with respect to carrying on or doing business by such corporation ... equivalent to one per centum on the entire net income over and above five thousand dollars received by it from all sources during such year....

The Corporate Tax Act of 1909 (36 Stat. 11, 112) imposed an excise tax on corporations for the privilege of doing business in corporate form. However, the excise tax was measured by corporate income. Thus the act was the origin of the current corporate income tax, which has been part of our federal tax system ever since and is currently the source of about 10 percent of federal revenues.

In 1895 the Supreme Court decided that Congress could not impose an income tax directly on individuals, because that would violate the constitutional requirement that all "direct" taxes be apportioned (that is, divided in a proportionate way) among the states on the basis of their population. The 1909 act defined the corporate tax as an excise tax and therefore as an "indirect" tax that was not subject to apportionment. The constitutional problem of imposing an income tax without apportionment was resolved with the passage of the Sixteenth Amendment in 1913, so that from that point on the tax could be redefined as a direct income tax.


In the nineteenth century, federal revenues were derived primarily from tariffs, which were a form of consumption tax on imported goods. Like all consumption taxes, the tariffs were regressive (that is, imposed a heavier burden on the poor, because the poor consume a higher proportion of their income than the rich). State revenues depended primarily on property taxes, which because of enforcement difficulties were collected almost exclusively from real property. In the late nineteenth century there was a significant increase in wealth held in intangible forms, such as stocks and bonds. This wealth escaped both the federal tariff (because it was not consumed) and the state property tax (because it was intangible rather than "real").

The first income tax was imposed during the Civil War and raised significant revenues, but it was allowed to expire at the end of Reconstruction in 1872. Proponents of the income tax believed that this tax was fairer than the tariffs because it was progressive (that is, taxed the rich more than the poor) and was able to reach intangible wealth. The first post–Civil War income tax (imposed both on individuals and on corporations) was enacted in 1894 following the financial panic and recession of 1893, which was widely blamed on over-concentration of wealth (too few people holding too much wealth) and financial speculation (transactions that involve high risk). The Supreme Court struck down the 1894 tax in 1895, but proponents continued to push for an income tax. (The issue featured prominently in the election campaigns of 1896 and 1900.)

And then I found this statement by a Former IRS Commissioner.

T. Coleman Andrews served as commissioner of IRS for nearly 3 years during the early 1950s. Following his resignation, he made the following statement:

"Congress [in implementing the Sixteenth Amendment] went beyond merely enacting an income tax law and repealed Article IV of the Bill of Rights, by empowering the tax collector to do the very things from which that article says we were to be secure. It opened up our homes, our papers and our effects to the prying eyes of government agents and set the stage for searches of our books and vaults and for inquiries into our private affairs whenever the tax men might decide, even though there might not be any justification beyond mere cynical suspicion."

"The income tax is bad because it has robbed you and me of the guarantee of privacy and the respect for our property that were given to us in Article IV of the Bill of Rights. This invasion is absolute and complete as far as the amount of tax that can be assessed is concerned. Please remember that under the Sixteenth Amendment, Congress can take 100% of our income anytime it wants to. As a matter of fact, right now it is imposing a tax as high as 91%. This is downright confiscation and cannot be defended on any other grounds."

"The income tax is bad because it was conceived in class hatred, is an instrument of vengeance and plays right into the hands of the communists. It employs the vicious communist principle of taking from each according to his accumulation of the fruits of his labor and giving to others according to their needs, regardless of whether those needs are the result of indolence or lack of pride, self-respect, personal dignity or other attributes of men."

"The income tax is fulfilling the Marxist prophecy that the surest way to destroy a capitalist society is by steeply graduated taxes on income and heavy levies upon the estates of people when they die."

[As matters now stand, if our children make the most of their capabilities and training, they will have to give most of it to the tax collector and so become slaves of the government. People cannot pull themselves up by the bootstraps anymore because the tax collector gets the boots and the straps as well.]

"The income tax is bad because it is oppressive to all and discriminates particularly against those people who prove themselves most adept at keeping the wheels of business turning and creating maximum employment and a high standard of living for their fellow men."

"I believe that a better way to raise revenue not only can be found but must be found because I am convinced that the present system is leading us right back to the very tyranny from which those, who established this land of freedom, risked their lives, their fortunes and their sacred honor to forever free themselves

Wait a minute, he said that the 16th Amendment repealed Article IV of the Bill of Rights. Lets look at the Original 1835 Michigan Bill of Rights.

Search and seizure.

8. The person, houses, papers and possessions of every individual shall be secure from unreasonable searches and seizures; and no warrant to search any place, or to seize any person or things, shall issue without describing them, nor without probable cause, supported by oath or affirmation.

Acts void.

21. All acts of the legislature contrary to this or any other article of this Constitution shall be void.


§ 23 Enumeration of rights not to deny others.

Sec. 23.

The enumeration in this constitution of certain rights shall not be construed to deny or disparage others retained by the people.

So it was up to the Supreme Court to determine what the 16th Amendment really authorized.

"Evidently Congress adopted the income as the measure of the tax to be imposed with respect to the doing business in a corporate form...The annual gains of such corporations are certainly to be taken as income for the purpose of measuring the tax."

Strattion's Independence, LTD. HOWBERT, 321 US 399 (1913)

"...concluding that the classification of direct was adopted for the purposes of rendering it impossible to burden by taxation accumulations of property, real or personal, except subject to the regulation of apportionment,"

"The confusion is not inherent, but rather arises from the conclusion that the 16th Amendment provides for a hitherto unkown 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. And the far reaching effect of this erroneous assumption..."

Brushaber v Union Pacific Railroad Co. 240 US 1 (1916)

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