Set My People Free
A man who bears false witness against his neighbor is like a club, a sword, and sharp arrow.
Proverbs 25:18
Do you not know that to whom you present yourselves slaves to obey, you are that one’s slaves whom you obey, whether of sin leading to death or of obedience leading to righteousness?
Romans 6:16
If you are among the declining percentage of individual Americans still paying federal income tax--now precariously around 50 percent--you want to read this monograph. You want to read this because you want to understand how the United States federal income tax system, as practiced and enforced, involves and is largely founded upon bearing false witness against your neighbor (or yourself). The federal income tax therefore involves a non-neutral ethical choice. You want to read this because you want to know if you are consciously or unconsciously complicit in violating any ethical rules so that you can change course. Practically, you may you also want to know how and why billionaires pay no federal income tax while millions of average wage earners in the lower income brackets still do.
When you have finished reading this you I hope will understand that, as written, the United States income tax is a perfectly legal, perfectly moral, and perfectly constitutional indirect, excise tax. I also hope you will see that, as applied and enforced, it is an illegal, immoral, unconstitutional direct capitation tax. This transubstantiation from legal and moral tax to illegal and immoral tax is made possible only by people bearing false witness against one another. I hope that those who read and understand this piece and follow its recommendations will someday peacefully, openly, honesty and permanently end the illegal and overbroad enforcement of a limited, legal tax.
There is much legitimate controversy over the federal income tax. It has driven people mad, caused them to fly planes into buildings and resulted in many being imprisoned, where some have died. Many smart people, as well as quite a few ne'er-do-wells, have made compelling legal and constitutional arguments against it. Some very credibly claim that the 16th Amendment was never properly ratified.
My view is a little different. I don't believe that there is a perfectly accurate technical interpretation of the 10-million word Internal Revenue law and regulations. They could all be right or none of them could be right. The problem is this: if there is a perfectly accurate understanding of the federal income tax and that understanding is not shared or accepted by federal judges, it does not matter. The reasons for this are the 1803 case of Marbury v. Madison, progressivist control over the federal bureaucracy, and the Federalist Society's success in lobbying for appointment of statist, pro-establishment judges. Nothing can change from the top-down until these two things change. Because the powerful never give up power voluntarily, top-down change in unlikely. Change must be wrested from the powerful from the bottom up, by the relatively powerless working together, civilly and non-violently, to unseat the powerful. Societal revolution is usually violent and results in one gang of thieves replacing another. Devolution is much rarer and involves the relatively powerless banding together to author a new societal script. This piece recommends civil, cooperative devolution.
At one time in my relationship with the federal income tax, I saw all of its supporters as evil, depraved, thieves. While that may be true in some individual cases, what I now see is a very complicated and opaque law, a moral failure, and a government with collective and largely unconscious “confirmation bias”—unwilling to accept that a large percentage of its income tax receipts are obtained through compelled and often unknowing dishonesty. As I see it, the federal income tax system compels (through fines and threats of imprisonment) a lot of ordinary human beings to say materially false things about each other (under oath and penalty of perjury), specifically regarding the federally taxable character of income paid to one another. The result is the fractional enslavement of hundreds of millions of common, everyday wage earners.
The root causes of what I perceive as a pervasive income tax delusion are a combination of: (1) an ambiguously and cleverly crafted1943 withholding tax law enacted and misrepresented to the public amidst patriotic WW2 sentiment; and (2) human beings unknowingly bearing false witness against one another. Lack of courage, lack of rigorous honesty, and lack of brotherly love, not the federal income tax or its enforcers, is what has actually misdirected vast sums of wealth from generations of private productive wage earners into the sewer of the federal bureaucracy in Washington, D.C.
Authority follows from taking responsibility. At some point in the near future, millions of employers will recognize that they are currently lying about the federally taxable character of the wages paid to their private employees. They will then take responsibility for their actions and stop giving authority (and money) to a dishonest, bullying federal tax collector. If you are a private employer, this article will show you how to do this effectively, in cooperation with your fully informed and consenting employees, with as little risk as is possible.
WHO ARE YOU AND WHY SHOULD I LISTEN TO YOU?
I am a member in good standing of both the United States Supreme Court bar and the U.S. Tax Court bar. I actively practiced law for 23 years. The Minnesota Supreme Court suspended my law license in 2015 because I sued the 2008 bailout banks in quiet title actions in an attempt to prevent fraudulent foreclosures conducted by the bailout banks holding securitized mortgages. The oral argument of that disciplinary case is here. The Minnesota Supreme Court suspended my license notwithstanding the fact I am the only lawyer in Minnesota history who has tried and won a quiet title case invalidating recorded securitized mortgages. This fact and my efforts to help over 600 Minnesota families battling foreclosures following the 2008 financial crisis made Minnesota federal judges very unhappy. The federal judges were so upset with my efforts that they fined me out of business and the federal judiciary's ringleader filed the first-ever ethical complaint against me, resulting in my ongoing suspension.
If you care about the details of the disciplinary proceeding, the case the licensing authorities claim that I have unethically ignored--Jackson v. MERS—is a dead letter in Minnesota and everywhere else. MERS and the bailout banks themselves recognized how flawed the Jackson decision was and is and have chosen instead, on their own and despite the Minnesota Supreme Court’s permission granted in Jackson, to forever prohibit foreclosures in the name of MERS. This is detailed in the oral argument above. Minnesota state-wide property records confirm this and therefore confirm that Jackson is a dead letter in Minnesota. There have been exactly zero Minnesota foreclosures in the name of MERS after MERS amended its rules in 2013 to prohibit foreclosures in the name of MERS. The banks and MERS instead require that foreclosures be in the name of or on behalf of the note owner as I demanded in the quiet title suits. A quiet title claim, however, also requires the bank to prove, in court, that it actually owns the note (i.e., paid for it and acquired it by legitimate means, not bailouts). A quiet title claim thus subjects the bank's claim to cross examination; that is, the bank must prove to a jury what the fraudulently robosigned property records allege--that the 2008 bailout bank is the legal owner of the note and is therefore entitled to foreclose the mortgage. Based on my successful quiet title experience, in a fair trial (a big if in the sad state of today’s justice system) the bailout banks would never be able to prove ownership of notes that they acquired through bailout gifts and Federal Reserve-coerced transfers following the 2008 financial collapse. In order to succeed at trial, a bailout bank holding a securitized mortgage would have to show that the mortgage was originally properly securitized (my experience indicates that this is impossible) and further that they are legal owners of the note and paid valid consideration for it. Again, impossible. If you want to understand why, read the link.
I earned my income tax chops the hard way.
I first represented Pete Hendrickson, on appeal after he was convicted of felony income tax avoidance charges and after his trial lawyer Mark Lane could no longer represent him. From my perspective, Pete's strategy and tactics were destined to fail because they involved demanding that federal judges admit that Pete was "right" and the feds were wrong. Pete’s strategy depended on a federal judge behaving fairly, impartially, and against the financial interests of the U.S. federal government. In short, very unlikely. Sadly, Pete’s confrontational and stubborn attitude resulted in him being thoroughly tarred-and-feathered not only by judges and the media but also by some viciously effective liberty folks. I knew of Pete's personality vulnerabilities going in, and I nevertheless accepted his case because I had read his book, found his research thorough and his arguments compelling. I wanted to test their merits against the best income tax prosecutors in the country. I expected that the refiner's fire of the adversarial process would enlighten me by burning out any dross or misunderstanding of federal income tax law.
I was not able to reverse Pete's conviction, but the process of representing him taught me much about the specific merits of his position and other perspectives in the "tax truth" movement. The federal prosecutors and judges involved in Pete's case artfully avoided every substantive argument. Nowhere in the decisions will you find the most relevant issue: why did Federal District Court Judge Gerald Rosen refuse to allow the jury to see and read for themselves two statutes that Pete relied on in taking his position? This is a familiar pattern in federal tax proceedings. Instead of addressing U.S. Supreme Court cases and the law actually cited, prosecutors and trial court judges manipulate the process by shielding facts from the jury. Appellate judges then: (1) avoid the main argument, essentially a denial of substantive due process; (2) label it "frivolous," and/or (3) engage in ad hominem name-calling. I am not certain that objective truth can be known in this world, but if it can then a good litmus test for identifying truth would be if 5 or more federal judges have labeled it frivolous. The closer one gets to objective (and uncomfortable) truth, the angrier and more hysterical federal judges and officials become.
In the early 2010's I also maintained a correspondence with several other vilified or imprisoned tax "protestors," including Irwin Schiff. Irwin wrote me letters complaining about how a federal trial judge had railroaded his conviction (actually true) and how he expected that some sort of "writ" that I had never heard of was going to be his ticket out of jail (unlikely). Brilliant and courageous Irwin died chained to a federal hospital prison bed in Terre Haute, Indiana.
I sincerely liked and appreciated the people I met in the tax truth movement. I found all of them to be sincere. Many of these folks, however, much like federal judges, believed that their specific and often unique interpretation of the 10 million-word Code (with regulations) was the only "right" or "accurate" one. In terms of logic and reasoning, many had fixed views and made very certain and categorial statements about what the federal income tax "was." This is an unreasonably risky position for anyone who is not wearing a black robe and sitting on a federal pedestal with guaranteed lifetime employment.
Then I was introduced to former IRS agent Joe Banister. Joe proceeded from what felt to me like a much different spirit. As a former IRS criminal investigator, Joe did not claim what the Code was, but rather what it was not. Orthodox Christian theology calls this the apophatic approach. It is similar to analytical inversion, it involves working backwards to solve a problem. The idea is not to prove what something is, but rather prove, as best you can, what it is not and leave the burden of proving what it is on the proponent. Joe was a licensed CPA and a decorated, accomplished IRS criminal investigator. After determining what the federal income tax was not (a direct capitation tax on all US citizens), and to whom it did not apply (him), this former IRS criminal investigator refused to file federal income tax returns. Joe's former employer, the federal government, brought criminal "failure to file" charges against him. Joe was allowed to tell his story to a jury and won.
Joe isn't the only capable and competent person to successfully challenge the lawful scope of the federal income tax. Others have publicly expressed humble, sane, and sober views on the nature of the income tax without demanding that others see things from their viewpoint. They include attorneys Larry Becraft, Tom Cryer and Wharton graduate Phil Hart.
Somewhere in the 2008 to 2010 timeframe, my research and analysis done, confirmed and re-confirmed, I determined that filing income tax returns under penalty of perjury claiming that I had earned federally taxable income was bearing false witness against myself. So I wrote the IRS and Minnesota Department of Revenue and informed them of my position. I told them that my letter represented a formal withdrawal of my consent from an unconstitutionally over-broad direct tax collection scheme built on the back of a legal, constitutional, indirect excise tax. I also informed these taxing authorities that I believed the scheme was materially abetted by people bearing false witness against each other. I briefly explained my analysis and why I believed, from my reading of the Code and Supreme Court decisions, the federal income tax did not apply to me. I also sent final checks--around $60,000 to the IRS and around $20,000 to the State of Minnesota. I felt this was the only civil, non-rebellious way to opt out of a dishonest system built on lies.
I heard nothing back for years.
I did not hide my views. In 2009 I wrote several articles about my understanding of how the federal income tax worked for the website Strike the Root. Bearing false witness I believe best summarizes my view of the federal income tax problem with how the law is written, applied, and enforced.
From 2010 to 2015 I operated my law firm, Butler Liberty Law, consistent with this view of the federal income tax. I informed my employees of my analysis, paid them directly as contractors, with no withholding, and did not "bear false witness" against them by filing false 1099s or W-2s against them. If the employee wanted such a form filed with the IRS, we filed it. I respected that their view may not agree with mine.
In 2016 I learned that a federal grand jury was convened in Minnesota for the purposes of indicting me on charges of willful failure to file federal income tax returns. The grand jury did not return an indictment. I don't know how or why. I only know that the grand jury proceeding was commenced, the federal government subpoenaed my former bookkeeper to testify, and two IRS agents with guns on their hips traveled 300 miles to interview her just prior to her scheduled testimony. The grand jury proceeding mysteriously died on the vine shortly after that interview.
Finally, in 2018 the State of Minnesota charged me with willful failure to file income tax returns. Thirty-six states, including Minnesota, have an income tax that piggy-backs directly on the federal scheme. That is, liability for state income tax exists only if one is "required to file" a federal income tax return and has federally taxable income. I did not file state returns for the same reason I did not file federal returns. I studied the Code and the caselaw and determined that the indirect, federal excise tax called the "income tax" did not apply to me or my income. In December of 2018 I filed this Affidavit with the Court and asked the judge to dismiss the case. The judge denied the motion. The prosecution moved the Court to bar me from testifying about anything in the Affidavit. The judge agreed, stating that she would "not allow the tax law to be put on trial." Barring my testimony violated the United States Supreme Court's decision in Cheek v. United States and thus dictated an adverse outcome.
With no opportunity to present a meaningful defense, on March 20, 2019 a jury of ten 30-something women, and two young men, convicted me of willful failure to file income tax returns for the years 2012 and 2013 after deliberating for less than an hour. I was convicted of a crime of non-action, an omission, accompanied by this unlawful motive for not acting: desiring to "defeat the income tax." In one respect, the verdict was perfectly accurate. If the verdict stands for the proposition that I desire to defeat the federal income tax as it is currently being illegitimately, unconstitutionally, and over-broadly applied and enforced, I am most definitely guilty. After two years of successful probation, this crime against the state has now been reduced to a misdemeanor, effectively a parking ticket.
The judge in my case, Judith Tilsen, resigned in 2020 exactly 14 days after I provided to the Minnesota law licensing authorities the Affidavit that she had suppressed from the jury in my case. You can watch the disciplinary proceeding, which one of the Minnesota Supreme Court Justice's called "absurd," here. Despite the absurdity of seeking to sanction an already-suspended lawyer who at the time was working for $14 an hour in a grocery store, on June 9, 2021, the Court determined that that I deserved to be suspended for four years, with no right to petition for reinstatement.
Judge Tilsen's father, Ken Tilsen, was a professed communist who reputedly founded the communist lawyers society at the University of Minnesota law school. I don't hold that against him. Other than our radically different epistemological foundations, Ken Tilsen and I actually have a lot in common. He too was an enemy of the state and its taxing authorities. Ken was repeatedly harassed and audited by the IRS and was subpoenaed to testify for the House Un-American Activities Committee. That said, because her father was a Marxist and because Karl Marx advocated a progressive income tax and a central bank as necessary means to destroy orthodox, civil society, I was not surprised that Judge Tilsen refused to allow me to explain to the jury the legality and constitutionality of a direct capitation tax applied and enforced within the sovereign states. Epistemology is the ultimate divider. It is nevertheless unfortunate that Judge Tilsen's legacy will include refusing to allow "tax law to be put on trial" when it was used to harass and abuse her father.
I understand that many people who read this may not care about being lied to and stolen from. There will always be a certain percentage of the population that believes in the "noble lie" and/or that it is somehow anti-social or deviant to expect the government to behave honestly and with integrity. I nevertheless hope the moral issue that I present--the case of ethical cause and effect--will cause a perhaps small but influential group of people to see that the solution to big problems is often contained in small, individual moral choices. This piece is directed to that Remnant.
THE JIG IS UP
What a blessing the 2020 "pandemic" has been. We have learned how susceptible we all are to the psychological tics and baked-in-the-cake flaws in our human makeup. We have been simultaneously subjected to a mass Milgram experiment (complete with a bossy little man in a white lab coat), a mass Stanford prison experiment with state governors assigned to the role of wardens, and bombarded with media- and politician-fueled psychological manipulation, including social proof bias, focusing error bias, and financial incentive bias (rewarding doctors and hospitals for connecting death to "covid"). Warren Buffett's partner and Bill Gate's divorce attorney Charlie Munger would call this cacophony of psychology manipulation a "lollapalooza" event. The brilliant Angelo Codevilla was ahead of the curve and recognized at the outset that the pandemic narrative was actually a coup.
As time passes and the real evidence is gathered, it is increasingly clear that in 2020 many were deceived into believing that the entire world was experiencing a very dangerous "pandemic," rather than a perhaps slightly enhanced and slightly more lethal seasonal flu. Many believed this based on "evidence" that existed only on smart phone screens and in their fertile imaginations. The real data--the infection to fatality rate (with fatalities likely overstated because of powerful financial incentives)--has always indicated that the 2020 flu season was not materially different than any other in terms of mortality risk, particularly for those in good health or under 70 years old. The 2020 seasonal flu was very real and was especially lethal for the ill, the obese, and the aged. For the vast majority of the world, it was no different than any other seasonal flu.
2020 has thus openly exposed the duplicity and illegitimacy of Western elites and authority figures. This is a gift. It is now clear to the masses that the 21st century's ruling elites are not capable of or qualified to lead anyone anywhere. 2020's authority figures--governors, courts, federal bureaucrats, mass media, Big Data experts, Big Health experts, scientists, and Ivy League mathematical modelers--have been exposed as transparently self-interested, fatally biased, financially motivated, and woefully flawed human beings. In short, no different than the rest of us and therefore not authoritative in any sense.
Author Martin Gurri has written an important book entitled: The Revolt of the Public. Gurri's thesis is that globally we are experiencing a crisis in authority and it is being fueled by a relentless and unavoidable "information tsunami." Because accurate information is the world's most valuable resource and because the internet is rapidly breaking down the information gap between the ruling elites and the masses, Gurri notes that very soon it will be very dangerous to be person in a position of authority standing on an inexplicably dry seabed. With the price of accurate information falling rapidly and the pace of the public's ability to gather and meaningfully filter information rapidly increasing, the "accurate information" divide between rulers and ruled has vanished like the tide before a tsunami. Following Gurri's thesis, this is dangerous if you are in a position of authority and have used inaccurate or incomplete information to mislead people to their physical or financial detriment. The information tsunami--an overwhelmingly high tide of accurate information--is coming and will wash out all the authoritarian liars and propagandists: including lockdown state governors and federal health officials.
And the IRS.
AN EXCISE IS CIVILIZED; A CAPITATION AN ABOMINATION
Which brings me to the income tax.
First, the basics. Article I, section 9 of the United States prohibits any federal, direct tax that is not apportioned. Article I, section 8 prohibits any excise tax that is not "uniform." To understand the difference between direct and excise taxes, an example will help. For every gallon of gasoline sold in the United States, the federal government charges 18.4 cents. The gas tax is an excise tax because it derives from a specific economic transaction--the sale of the gallon of gas. It is "excised," or "taken out of" a specific transaction. That is the nature of an excise. State sales taxes are excises. The federal gas tax is also uniform because it is the same for every gallon of gas in every state. An excise tax need not be apportioned in order to be constitutional. It must be uniform; that is, be the same percentage for the sale of every gallon of gas. The federal gas tax is a perfectly constitutional indirect, excise tax. As will be shown below, the authors of the constitution recognized that, all other things being equal, a clearly defined and clearly limited excise tax is less objectionable and less dangerous than a "direct," or capitation, tax. This is because excise taxes can often be avoided. Direct taxes cannot. The federal gas tax can be avoided or minimized by driving less. Or riding a bike. Direct taxes are dangerous because once the person or thing that is the subject of the tax is caught in the tax net, it is very difficult to get out. That is why the framers required that direct taxes be apportioned, so that state and individual sovereignty and the "vertical separation of powers" inherent in the constitution would serve as a check against federal tax enforcement and collection within the states.
Although there is some debate over the accurate distinction between a direct and indirect tax, probably the best definitions are contained in the Supreme Court's decision in Pollock v. Farmer's Loan & Trust. In that case, the court, citing Adam Smith and other 18th century sources with whom the Founder's were familiar, the court stated that direct taxes typically attach to people or property and typically tax the revenue or productivity of the person or thing taxed. In contrast, indirect taxes typically target not people or property, but transactions, and most often purchases of commodities. The target or subject of a direct tax is usually the owner of something productive. The target of an excise tax is typically a seller of something, the gas tax being the best example. That said, the Supreme Court did at one time contort itself into incomprehensibly holding that a tax on carriages was an indirect, excise tax on personal property.
What is interesting about the federal income tax is that, as will be shown below, the Supreme Court has determined that it is an excise tax. Unlike typical excise taxes that apply to discrete commodity and property transactions, the federal income tax, as applied, claims to continuously attach to people doing productive things. If (a) a person; (b) does something productive to generate dollars, then (c) the federal income tax extracts a percentage of that productivity. Most historical direct taxes on human beings (capitations or poll taxes) were for nominal fixed sums, and did not extract a percentage of personal productivity. In this sense, because in practice the federal income tax applies to all wages and wage earners, it is really a form of fractional indentured servitude. The federal income tax treats tax subjects--common wage earners--like active commodities. The more productive the person in terms of wages, the more revenue generated for the federal government. The super-rich can avoid the indentured wage trap by paying themselves no wages or de minimus wages.
APPORTIONMENT--A CHECK ON DIRECT FEDERAL TAXING POWER
The concept of apportionment means "divided by percentage of population" and is based on the census. The 435 representatives in the U.S. House of Representatives are apportioned among the states based on their percentage of the overall population. South Dakota and Wyoming each have one representative in the U.S. House of Representatives and California has 53 representatives. This is because the 435 total congressional representatives are apportioned (divided by population) among the states and because every state is entitled to a minimum of one representative. For a federal direct tax to comply with the Constitution, it would have to be apportioned in the same way. According to article I, section 9, the amount of direct tax that the federal government could collect from any individual state must be equal to that state's percentage of the overall U.S. population. The percentage of direct tax collectible from the states would accord with this chart, with California bearing approximately 12 percent of the total direct tax, and Wyoming bearing .17 percent of the total.
Whether you perceive them as heroes, villains, or self-dealing traitors to the Articles of Confederation, the men who gathered in Philadelphia in 1787 to draft the United States Constitution were aware of the danger of the federal government's power to directly tax individuals and property within state boundaries. Apportionment was an important compromise and was the states’-rights mechanism intended to prevent, or at least hobble, the federal leviathan from overrunning and commandeering state and individual sovereignty. Prior to 1913, apportioned direct taxation occurred only nine times, all in cases of war or national emergency. When the emergency subsided, so did the federal government's power to directly tax property and people within state boundaries.
Federal direct tax history is thoroughly documented in the two Pollock cases: Pollock I and Pollock II (together "Pollock"). In Pollock the United States Supreme Court struck down a direct, federal income tax that expressly applied to all "United States citizens." The reason? Because a direct, unapportioned tax on the incomes of all U.S. citizens violates Article I, section 9 of the Constitution.
The dissent in Pollock I accurately describes the import of the Pollock decision:
The injustice and harm which must always result from overthrowing a long and settled practice sanctioned by the decisions of this court could not be better illustrated than by the example which this case affords. Under the income-tax laws which prevailed in the past for many years, and which covered every conceivable source of income…vast sums were collected from the people of the United States. The decision here rendered announces that those sums were wrongfully taken, and thereby, it seems to me, creates a claim, in equity and good conscience, against the government for an enormous amount of money… I say, creating a claim, because, if the government be in good conscience bound to refund that which has been taken from the citizen in violation of the Constitution, although the technical right may have disappeared by lapse of time, or because the decisions of this court have misled the citizen to his grievous injury, the equity endures, and will present itself to the conscience of the government.
Pollock I, p. 637-38.
After Pollock, the issue of the income tax did not die. From 1909 to 1913, Congressional wrangling, evidenced by Senate Joint Resolutions 25, 39 and 40, attempted to amend the Constitution to remove the apportionment rule and allow for a "direct" income tax. This effort failed. Congress did not remove the apportionment rule from the Constitution. It remains to this day. This is perhaps the most important fact in the history of the federal income tax.
Unable to directly overturn the Pollock decision by removing apportionment from the Constitution (Plan A), in 1913 Congress instead adopted the 16th Amendment as Plan B.
The 16th Amendment allows for a tax on "incomes" "without apportionment." That is, unlike the direct tax in Pollock that applied to the income of all "U.S. Citizens," the 16th Amendment applies to "all income" of undefined subjects. The 16th Amendment therefore allows a tax on all incomes within the constitutional power and jurisdiction of the federal government. We know from Pollock that that this does not and cannot constitutionally extend to “every citizen” of the United States. The 16th Amendment does not identify the people, property, or transactions to whom or to which the authorized income tax applies. The scope is left to the Constitution and Congress. The constitutional limitations on the scope of federal taxing power as detailed in Pollock remain untouched, that is: (1) excise taxes must be uniform; and (2) direct taxes must be apportioned. The statutory limitations--the express jurisdictional limitations contained in the Code--are detailed more fully below.
The question of what effect the 16th Amendment had on federal taxing powers was resolved in Supreme Court decisions in Brushaber v. Union Pacific and Stanton v. Baltic Mining. These two decisions, made for the purpose of clarifying the scope and effect of the 16th Amendment, state that the federal income tax is an excise tax on "income." Brushaber also holds that the 16th Amendment did not expand federal taxing power or authorize an unapportioned direct tax:
...the proposition and the contentions under the [the 16th Amendment]...would cease one provision of the Constitution to destroy another. That is, it would result result in bringing the provisions of [the 16th] Amendment exempting a direct tax from apportionment in irreconcilable conflict with the requirement that all direct taxes be apportioned.
Eisner v. Macomber further holds that the 16th Amendment did not extend federal taxing power and does "not extend [federal] taxing power to new subjects."
Brushaber and Eisner make clear that the 16th Amendment did not perform an end-run on constitutional apportionment. Congress failed to remove apportionment from the Constitution. Nor does the 16th Amendment abrogate or overrule Pollock--a direct, unapportioned tax on the income of every citizen of the United States is still unconstitutional.
NO TAXATION BY IMPLICATION
In United States v. Merriam, the Supreme Court stated:
On behalf of the Government it is urged that taxation is a practical matter and concerns itself with the substance of the thing upon which the tax is imposed rather than with legal forms or expressions. But in statutes levying taxes the literal meaning of the words employed is most important, for such statutes are not to be extended by implication beyond the clear import of the language used. If the words are doubtful, the doubt must be resolved against the Government and in favor of the taxpayer.
Gould v. Gould agrees, in case of doubt, taxing statutes are to be construed "most strongly against the government."
The rule of law from Merriam and Gould is that federal judges may not employ creative interpretation to expand the jurisdictional scope of taxation laws. Tax law is limited to its express terms.
Taxation by implication violates the United States Constitution.
WHO IS RESPONSIBLE?
The Supreme Court thus informs us: (1) the 16th Amendment authorizes the federal government to collect a tax on "incomes" but in no way expands the federal government's taxing power or jurisdiction; and (2) the express language of taxing statutes defines their scope--that is, there can be no creative interpretation of words to include things not included. The 16th Amendment did not expand federal taxing authority, did not make direct, unapportioned taxation lawful, and did not overrule Pollock.
If the federal income tax is an excise tax, then the next question is: who does the Code say is liable for the income tax, that is, who is responsible for paying it? The Code contains at least 23 federal excise taxes all detailed in paragraph 25 of this Affidavit. In excise tax parlance, the person responsible is the person that an excise statute "makes liable" for the excise. Every federal excise tax has a "makes liable" section. So who does the Code "make liable" for the federal income tax?
This is where the story gets interesting. The Internal Revenue Code is divided in "subtitles." The subtitle devoted to the income tax is Subtitle A.
In all of Subtitle A, there is only one section stating who is made liable for the federal income. That is section 1461, which provides:
Every person required to deduct and withhold any tax under this chapter is hereby made liable for such tax and is hereby indemnified against the claims and demands of any person for the amounts of any payments made in accordance with this chapter.
"This chapter" referenced in section 1461 is chapter 3 of subtitle A. The specific people and entities that are subject to federal income tax are: (1) non-resident aliens (section 1441); (2) foreign corporations (section 1442); (3) foreign tax-exempt organizations (section 1443); ((4) Virgin Islands source income recipients (section 1444); (5) "foreign persons" who have received income from disposition of U.S. real estate (section 1445); and (6) foreign partners receiving income from U.S. partnership operations (section 1446).
That's it. Those are all the people and entities that are subject to the United States federal income tax. Nowhere listed in chapter 3 are: private wage-earners residing within the 50 States.
I realize that it is a very hard pill to swallow that the express scope of the federal income tax scheme is very narrow and limited to payments to foreigners. This was hard for IRS criminal investigator and licensed CPA Joe Banister to accept too. Imagine suffering the ultimate in cancel culture--loosing your CPA license, being prosecuted by your former employer, and being mercilessly vilified and libeled as a rebellious "tax protestor." Real live heroes exist, we just don't hear much about them.
Several Supreme Court decisions go beyond the express confines of Subtitle A and allow domestic, United States corporations to withhold profits earned and report that their U.S. citizen investors had received federally taxable income. Cases like Brushaber often involve income received from a business, in Brushaber the Union Pacific Railroad, that owes its existence to federal law and federal authorization. This "federal privilege" aspect of the income tax will be discussed in more detail below. Another consistent pattern in every significant United States Supreme Court case, however, involves someone (sometimes the "taxpayer" himself) first filing an information return with the federal government either claiming or denying federally taxable income. In this sense, it is possible that any "information return" filed with the federal government may functionally admit or submit the income to the jurisdiction of an insatiable federal government. Once jurisdiction is conceded, then the courts are free to draw on any provision of the Code to declare the income taxable. Just as one entrusting hens to a wolf for safekeeping should not be surprised when the wolf determines that that some of the hens are his, one should not be surprised that the federal government finds taxable income even where an information return declares no taxable income. Information returns, filed under oath and penalty of perjury, establish jurisdiction, and therefore allow the tax collector to determine liability. In short, simply filing a return creates a bias in favor of taxability.
Let’s take a breath here.
Again, the apophatic approach first determines what something is not. So far, we know: (1) the income tax is not a direct capitation tax that applies to every U.S. citizen because such a tax would violate article I, section 9; (2) the 16th Amendment did not expand federal government taxing power or federal taxing jurisdiction and did not overrule Pollock; (3) the only persons "made liable" for the indirect, excise tax that is the federal income tax are the "sources" identified in Subtitle A who pay federally taxable income to foreign investors who have earned profits from U.S. operations; and (4) we know that the United States Supreme Court says in Merriam that taxation by implication (or interpretation) violates the Constitution.
THE "SOURCE" OF THE PROBLEM: ENVY, FEAR, MILTON, BEARDSLEY, AND "EMPLOYERS"
As we see from the above discussion, the key choke-point in any excise tax system is the "source" of the federally taxable payment. Excise taxes are collected at the "source." This is true of all federal excise taxes. The person who makes the allegedly federally taxable payment is the key to the system functioning properly. The persons "made liable" for the federal gas tax, for example, are the "source" of the federal gas tax withholding tax. These are the retail sellers of gas. Gas retailers are responsible for collecting the gas tax and they do. They collect and withhold this excise tax (add it to the per-gallon price of gas at the pump), withdraw it from your account when you pay for the gas, and then pay it to the federal government.
A little history and more understanding of frail human psychology, however, are necessary to fully understand the source of the income tax problem and how we arrived at a point in which 125 million people are fractionally indentured into the federal income tax system.
There was not much opposition to the 16th Amendment and the federal income tax in 1913. That was because it was not targeted at the average person. Also, because of the failure of Senate Joint Resolutions 25 and 39, it was not perceived to authorize a direct tax on people and property within the states. Finally, it was pitched and promoted as an envy-appeasing "soak the rich" law applying exclusively to investment profits and so was passed without much resistance. This chart indicates that only .9 percent of the total people allegedly subject to the income tax filed returns in 1913. Those that had federally taxable "income" (likely investment profits), paid a 1 percent excise tax. The percentage of filers gradually climbed during WWI and WWII and spiked after 1943. Before the start of WWII, the percentage of filers was about 11 percent. After 1943, the rate of filers was 80 percent.
Something obviously happened in 1943 that caused a significant percentage of people who formerly did not have, or at least did not believe they had, a federal tax obligation to start filing federal income tax returns after 1943.
What happened in 1943? Like any good story there are some important villains in the federal income tax plot. The main villains in this story are Milton Friedman and Beardsley Ruml. These are the two men most responsible for the withholding tax embodied in the Current Tax Payment Act of 1943. This was the first time in income tax history "employers" were required to withhold income taxes from their employees' paychecks and pay them directly to the federal government. Both Ruml and Friedman were Rockefeller agents. Ruml's resume includes the head of the New York Fed, Chairman of the Board of Macy's, and involvement in Rockefeller eugenics studies. Milton Friedman was a young staff economist working in the Treasury Department. Both men are deeply associated with the Rockefeller-funded University of Chicago and various other Rockefeller interests.
This informative legislative timeline of the Current Tax Payment Act of 1943 shows the radically different character and scope of the federal income tax before and after 1943. and how it was pitched as the “Ruml Plan.” Because the law (interestingly) exempted upper income brackets for the first year, before casting a new, wider net to include lower income wage earners, FDR initially opposed it: “I cannot acquiesce in the elimination of a whole year's tax burden on the upper income groups during a war period when I must call for an increase in taxes and savings from the mass of our people.”
The practical result of 1943's withholding tax is that most targets or subjects of the federal income tax do not come in through the front door--Subtitle A and the actual "income tax" law--but rather through the back door--Subtitle C, which does not relate to income taxes, but rather "employment taxes."
So today, when an average, private wage earning employee finds that he has an obligation to file a federal income tax return, it is not because he is "made liable" under either Subtitle A (Income Tax) or even "made liable" under Subtitle C (Employment Tax), but rather he is "made liable" because his employer (or some other third party) has filed, pursuant to the 1943 Act, under oath and penalty of perjury, an ”information return" alleging that the employer has paid federally taxable income to the employee. In short, the law doesn’t make the employee liable, the information return filed by his employer makes the employee liable.
History and the law therefore corroborate the view that the federal income tax is a very limited, very constitutional, indirect excise tax which, as a result of the withholding authorized by the Current Tax Payment Act of 1943, has metasticized into a comprehensive, direct capitation tax. As implemented and enforced, the income tax necessarily violates several provisions of the United States Constitution, most particularly the apportionment requirement in article I, section 9.
Indirect, excise taxes are collected from a "source" that is made liable for the tax. In the case of the federal gas tax, it is gasoline retailers. In the case of income tax collected through Subtitle C, it is "employers." No wage-earning employee is "made liable" for income tax under Subtitle C (or Subtitle A for that matter). Instead, employers are "made liable" for an employment "tax" under sections 3402 and 3403 of Subtitle C. Section 3402 requires employers paying "wages" to deduct "a tax determined in accordance with the tables or computational procedures prescribed by the Secretary [of the Treasury]." Section 3403 makes employers liable for a federal tax to be set and enforced by federal bureaucrats and also informs employers that they are not liable to anyone (i.e, their employees) for any wrongful payment of the tax.
Again, private employees working within the United States are not directly responsible or liable for any federal Subtitle A income tax associated with their wages. Subtitle A makes this clear. If an employee's wages are subjected to federal income tax, it is because that employee's employer has, in response to the sanctions (section 3402) and non-sanctions (section 3403) in Subtitle C, filed an "information return" asserting that the employee’s wages are subject to the federal income tax. Prior to 1943, the limited available data indicate that no private employer filed under oath information returns claiming that their employee’s wages were represented federally taxable income and no private employer withheld any federal income tax from any private employee's wages.
This raises the question: today, when an employer files an under-oath information return with the federal government claiming that the employer has paid federally taxable income to an employee, is the employer telling the truth or lying? Does such a statement establish jurisdiction (“oath-spoken”) where none existed before? The historical timeline—very lax voluntary compliance with the federal income tax prior to 1943 and radically increasing “compliance” after 1943—suggests that the thing that that most aided the expansion of the federal income tax was perhaps employers being required to file “information returns” claiming that the wages paid to their private employees represented federally taxable income.
The jurisdictional scope of Subtitle A--the actual income tax--did not change in 1943. As we will see, the definitions of employer and employee in Subtitle C did not change in 1943. Many of the definitions in Subtitle C can be traced to the 1860's and the Civil War, when Lincoln first implemented an income tax (and an accompanying withholding obligation on payors of federal wages) on federal employees.
The only material differences between the pre-1943 and post-1943 application and enforcement of the federal income tax are: (1) prior to 1943 no private employer anywhere filed any information return claiming or alleging that the wages paid to their employees represented federally taxable income; and (2) after 1943 a very high percentage of employers did start claiming that private wages paid to their employees represented federally taxable income.
The "devil in the details" of Subtitle C is contained sections 3401(c) and 3121(e). These are the sections that define who is or is not an “employee” and what is or is not a “state.” Under the 1943 withholding definitions, the definition of "employee" in section 3401(c) does not include private employees:
(c) Employee
For purposes of this chapter, the term “employee” includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation.
Further, in the FICA/FUTA chapter, the definition of "states" in section 3121(e) does not include the 50 states:
(1) State
The term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
To a student of federal tax authority and history, the foregoing definitions appear purposefully calculated to stay within Constitutional limits and at the same time contain deliberate ambiguity by using the word “includes.” However, remember Merriam? Merriam holds that taxing statutes only tax what is clearly and unambiguously identified. According to Merriam, judges cannot creatively expand taxable jurisdiction through statutory interpretation. No taxation by implication. Merriam says that the definitions of “state” in section 3121(e) and “employee” in 3401(c) cannot include anything not expressly listed. Further, as will shown below, many federal laws expansively define employee, employment, wages, and state to include private employees within the 50 sovereign state. Clearly federal lawmakers know how to expressly define things that they want to capture and include within any particular law. These limiting definitions therefore do not appear to be error.
I don't claim to know definitively the reason why the most important definitions in Subtitle C--the definition of "employee" in section 3401(c) and the definition of "state" in 3121(e)--fail to include private, wage-earning employees in the 50 states. It certainly seems plausible, however, that the federal bureaucrats who write federal tax law, know the constitutional and jurisdictional limits of federal taxing power and also know how to threaten, propagandize, and fool the gullible masses into believing in things that aren’t real, like federal authority to tax private wages within the sovereign states. Our collective experience in 2020 with federal and state authorities and a “pandemic” with a less than one percent infection-to-fatality rate (IFR) resulting in compelled so-called “vaccinations” should inform us here. Murray Rothbard’s Anatomy of the State is a must read for anyone who believes that the US government’s motives are pure when it comes to private property or individual health.
The legislative history of the 1943 Current Tax Payment Act is here. This is the law that miraculously quadrupled federal revenues and federal income tax filings without expanding the Constitutional jurisdiction of the federal income tax. Repeating what we just went over, to understand how the 1943 withholding accomplished this, one needs to examine sections 1621(c) (now 3401(c)) and 1623 (now 3403). The employees expressly included in section 1621(c) include only federal and state government employees. In light of Merriam and other provisions of the Code which expansively define employees and employment, this is at least odd. If the power and jurisdiction of the federal income tax included private employees within the states, one would expect that this definition to be more expansive. The employer liability/threat contained in section 3403 was a new feature in 1943. Prior to 1943, no private employer was threatened with violating federal law or federal prison for failing to file an information return on wages paid to private employees.
I suspect that section 1623, in addition to the other relatively broad definitions of "employer" and "wages," caused most private employers in 1943, as a matter of mistaken law-abiding prudence and World War II pressure, to over-report and over-withhold. In the midst of patriotic war fervor and while already collecting and withholding the misrepresented "social security"' and "victory" taxes, very few employers would look at section 1621 and say "that doesn't include you Joe Lunchbucket, so I am going to risk being prosecuted under section 1623 and I am not going to withhold any income taxes from your paycheck."
PLEASE EXPLAIN THIS
Anyone challenging the hypothesis that the federal income tax does not legally or constitutionally apply to most private wage-earners who pay it, must explain the vast differences in pre- and post-1943 filings and revenues. Prior to 1943, were up to 90 percent of U.S. wage earners "cheating" on federal income tax by not self-reporting? If 90 percent of the country was evading taxes during this period, why is there no evidence of this massive tax avoidance scandal in the press or media from 1913 to 1943? There is no evidence of tax avoidance because there was none. Everyone knew that the 16th Amendment did not expand federal taxing authority and also knew that the federal government did not have the right to directly tax income.
Anyone challenging the hypothesis that the jurisdictional scope of the federal income tax was radically expanded not by law but by practice--private employers being bullied and pressured, via the Current Tax Payment Act of 1943, into filing false information returns on their private employees--must also explain why section 3401(c) refrains from expressly including private employees (making the law perfectly constitutional) while other statutes show that Congress (and the bureaucrats who pull its strings) clearly know how to draft statutes that expressly include private employers. 20 USC section 6103 defines employer to "include[] both public and private employers." They must explain why, in light of Merriam, section 3121(e) (relating to employer FICA/FUTA withholding) lists only federal territories like Puerto Rico as "states," while other provisions of the Code clearly shows that the tax bureaucrats know how to include "the 50 states" within the definition of states.
Finally, anyone challenging this hypothesis must also address the human psychological factors at work in 1943, most particularly social proof and authority misinfluence biases. After our experience in 2020, it is very easy for me to understand how, in the midst of a two-front war and patriotic war fervor, very few people would be "that guy," and have the cojones to stand up and object to a vast and unconstitutional overexpansion of the federal income tax.
Thanks to the events of 2020, many of us are now more aware of how easily we can be psychologically manipulated and shouted down with repetition of the "big lie."
Charlie Munger’s Psychology of Human Misjudgment is required reading for anyone who want to understand the frailties in our human makeup and how innocent people can be misled by liars and the big lie.
THE LETTER AND SPIRIT OF FEDERAL INCOME TAX LAW--IRWIN AND PETE
No discussion of the history of the federal income tax controversy would be complete without some discussion of Irwin Schiff and Pete Hendrickson. Whatever your opinion of them, they had the courage of their convictions, stood up to Leviathan, and were imprisoned for the thought crime of conducting an independent analysis and disagreeing with federal judges. Irwin's book on the income tax was the first book banned in the United States. The transcript of Pete’s trial shows federal judge Gerald Rosen preventing Pete from presenting the actual language of sections 3401(c) and 3121(e) to the jury. Judge Rosen explains, like Judge Tilsen, that only he has the exclusive authority to tell the jury what the law “is.” Again, if the very limited definitions in sections 3401(c) and 3121(e) do not inform us regarding the lawful scope and jurisdiction of the federal income tax, then why did Judge Rosen refuse to allow the jury to read them for themselves? As a trial lawyer who is familiar with the principle “when you are explaining, you are losing” I believe it is because these limited definitions require a lot of explaining and Judge Rosen did, like Judge Tilsen, did not want the federal government to lose.
Having fairly thoroughly examined both Irwin's and Pete's views, I believe they are both mostly correct in their conclusions. Broadly stated, Irwin is correct about the limited letter of federal income tax law and Pete is right about the limited spirit of federal income tax law.
Irwin believed that the federal income tax applied only to corporate and investment profits. No profit = no tax. Most of the early Supreme Court decisions, including Brushaber noted above, are consistent with this interpretation. Subtitle A is consistent with this view. Subtitle A is actually more limited, taxing only profits paid to foreign people and entities.
Pete I believe accurately synthesizes the spirit of federal income tax law to also include income received as a direct result of exercising a federal right or privilege. The spirit of federal income tax law, however, does not and cannot exceed federal jurisdiction--federal taxing power. Supreme Court decisions and IRS publications tacitly admit this fact. It is in this gray area of federal privilege jurisdiction where the real and difficult battles are fought. In this area, there are literally "two movies on one screen”—a dual-reality where two different people, both sincere, smart, and capable, can look at the same facts and reach different conclusions. While many of Pete’s followers have had success, it is my view that nothing will change on a meaningful level until employers stand up and stop lying about their employees. Bearing false witness is an ethical issue. People must awaken to the ethical issue and must change their behavior. More on this later.
The best dual-reality example is the United States Supreme Court decision that young lawyers are all force-fed in law school as standing for the proposition that "all income everywhere is federally taxable income” is the case: Commissioner v. Glenshaw Glass. The decision in Glenshaw Glass is authored by Chief Judge Earl Warren, author of the magic-bullet Warren Report and a Grand Master Mason. In Glenshaw, Grand Master Mason Warren interprets section 61 of the Code to lead the reader to believe that all income everywhere is federally taxable gross income subject to United States federal government taxing authority and jurisdiction. A young law student could not be faulted for concluding, after reading Glenshaw, that there are no limits to federal tax jurisdiction. We know that this is in a sense practically true, not because of the Glenshaw decision, but because of the deceptively encroaching nature of the 1943 withholding tax. Any "employer" anywhere who files an information return against his "employee," submits that employee and his income to U.S. federal taxing jurisdiction. If you are cleaning beaches in Bora Bora and your Bora Bora-based employer files a W-2 falsely claiming that you have federally taxable income, then for all practical purposes you and your income will be under U.S. federal taxing jurisdiction. The Glenshaw decision, however, isn't this honest about how federal income tax jurisdiction is obtained. It is useful to note that section 61 is in Subtitle A, the income tax area of the Code, not Subtitle C, the employment tax area of the Code.
The facts in Glenshaw Glass are extremely narrow and are so uniquely narrow that it makes one question why the Supreme Court and its Grand Master Mason would pick Glenshaw Glass as a case to issue a broad opinion on the scope of federal taxing authority. The "income" at issue in Glenshaw was, oddly, money that Glenshaw, a glass company, received from winning a federal lawsuit. Glenshaw sued one of its competitors for federal unfair trade practices and received a federal punitive damage award. Glenshaw thus employed a federal statute to sue another business in federal court and obtained a monetary award that went over and above compensating Glenshaw for its injury. The punitive damage award simultaneously rewarded Glenshaw for bringing the suit (i.e. enforcing federal law) and punished its competitor for violating federal law. The punitive damages award at issue in Glenshaw therefore represents a rare form of income. "But for" the federal punitive damage statute and "but for" a federal court willing to enforce the statute upon Glenshaw's competitor, Glenshaw would never have received the income.
Glenshaw, when viewed with an historical understanding of the direct and indirect taxing powers in the Constitution and the 16th Amendment, is consistent with the view that the federal government has the authority to tax income coming from "rights" that it creates. Income obtained exclusively from the exercise of "federal privileges," according to the facts in Glenshaw, is federally taxable income. This is no surprise to anyone with an accurate understanding of limited federal excise taxing power. Wage withholding began with union soldiers in the Civil War. The federal government created the job of union soldier by going to war so it had the legal right to tax union soldier wages however it saw fit. The wages of federal soldiers are perfectly and constitutionally taxable. “But for” accepting (or being conscripted) into the job of serving as a Union soldier, the soldier would not have received the income.
To those of us who are awakened to the reality of the federal income tax, Glenshaw Glass represents sort of a legal Warren Report. Grand Master Warren informs us in Glenshaw that a federal tax bullet—a bullet aimed exclusively at a corporation that made the choice to pursue pursue a federally-created claim in federal court and obtained a federal anti-trust punitive damage award—has hit that corporation and made it responsible for paying federal taxes on the income that it would not have received “but for”’ the federal statute. Grand Master Warren’s magic is in writing an opinion that makes young lawyers believe that the bullet also hit every wage earner in the country.
The IRS will not say it explicitly, but it agrees with this narrow "federal privileges" interpretation of Glenshaw. I know this because when I started checking Pete Hendrickson's work before I agreed to represent him, I researched and read every case cited in an IRS publication entitled "The Truth About Frivolous Tax Arguments." It cited Glenshaw Glass and a number of other cases supposedly standing for the proposition that "all income everywhere is federally taxable income." Like Glenshaw, one must actually read the cases and analyze the facts to identify how broadly the decisions extend.
One of the cases cited in the IRS publication was Reese v. United States. The income in Reese, like the income in Glenshaw, resulted from a federal statutory punitive damage award received as a result of a federal court lawsuit. Reese was a federal employee who brought a federal sexual harassment and gender discrimination claim (based on D.C. statutes) in the District of Columbia Court of Claims. She won and also obtained a punitive damage award. While the IRS publication cited Reese for the proposition that 'all income everywhere is federally taxable,' the narrow factual issue in Reese was actually whether a federal, statutory punitive damage award was federally taxable. Of course the answer is yes because, like Glenshaw, Reese's income was the result of her exercising a federal right and federal privilege. Federal employment + federal statute + federal court lawsuit = federally taxable income.
The IRS also cited Murphy v. IRS for a similar proposition. In Murphy, a federal employee (a member of the New York Air National Guard) brought federal whistleblower claims against her federal employer and won. At issue was whether the emotional distress damage award she received was federally taxable income. In spite of a Code provision exempting personal injury damages from taxable income, the court held that Murphy's emotional distress award was taxable. The infamous Alice-in-Wonderland word-game holding from Murphy stated:
...although the Congress cannot make a thing income which is not so in fact, it can label a thing income and tax it, so long as it acts within its constitutional authority, which includes not only the 16th Amendment but also article I, sections 8 and 9.
The Murphy decision is not as horrible as this quote seems because, rather than disproving the very limited "federal privileges" spirit of the law synthesis, Murphy supports it. All the income Murphy received in her employment and through her lawsuit were federally taxable. "But for" her employing federal resources (employment, statutes, courts) she would not have received a dime. Everything Murphy received or could receive--including her emotional distress award--was federally taxable because she would not have received anything without standing on the foundation of the exercise of a federal privilege. In my view, the error that lawyers have committed since Murphy is assuming that all emotional distress damages everywhere represent federally taxable. This view expands Murphy beyond its facts in defiance of the decision's self-limitation--the decision is constrained by the 16th Amendment and section 8 and 9 of article I of the Constitution. The quote above could be accurately restated to say: the federal government can't label anything within its jurisdiction "income" (even if it's not income) and tax it. Again, federal employment + federal statute + federal court = federally taxable income.
Glenshaw, Reese, and Murphy affirm: if the income has a federal "source," and is based on a federally created right or privilege, then it is federally taxable.
RABBIT TRAILS AND TAXPAYER ENTRAILS
Some of the Code's rabbit trails are detailed above. Here I will briefly outline and repeat all the rabbit trails and show you where they all lead so you have them all in one place. You can decide for yourself whether you believe the federal income tax applies to you or your wages or your employee's wages.
As noted above, Subtitle A, the income tax subtitle of the Code, relates primarily to payments to foreign individuals and entities and so provides no insight into most of the income tax collected in the United States. The key provisions here are sections 1461 and 1441-1446.
Most income tax reporting--information returns filed by people or entities claiming that they paid someone federally taxable income--is done under the auspices of Subtitle C--the employment tax Subtitle. As noted above, sections 3402 and 3403 combine to require "employers" paying "wages" to withhold from those wages "a tax" and send it to the federal government. These sections immunize employers from any employee claims for wrongful or erroneous withholding.
Finally, all of the federal income tax rabbit trails end in the rabbit holes of section 3401(c) and 3121(e). These sections, if interpreted to include private employers, defy Merriam's "No Taxation By Implication" mandate. Taxing statues must clearly and expressly define and include the things taxed. Things not included are not taxable. Section 3401(c) does not include private employer-employee relationships. Section 3121(e) does not include the "50 states" within the definition of "states." If Grand Master Mason Earl Warren were around, he may attempt to recast the federal tax net by employing section 7701(c) which purports to "include" things not listed. It will not work. It will not work because of the "accurate information" Tsunami recognized by Martin Gurri. In the information age, lies do not last long. Even the IRS knows, as evidenced by Glenshaw, Murphy and Reese, that both the letter the spirit of federal income tax law can only extend to rights and privileges that the federal government--not the private free market--creates.
It appears to me--factually, contextually, historically, and legally--that the bureaucrats in the federal government, in need of money and working under pressure in a time of war, placed wage withholding under Subtitle C because they knew, from the Pollock and Brushaber decisions, that they did not have constitutional authority to tax private employees directly. Because they had experienced success (illegitimate in my view) with threatening and coercing employers to implement social security withholding, they chose to go with what was working and allow employers to do the dirty work of ensnaring non-federal employees in the federal tax net. This hypothesis is supported by Treasury Department General Counsel Randolph Paul's June 14, 1943 speech to the Philadelphia Bar Association:
As you know, withholding under the Victory tax was accomplished through a set of provisions specially enacted for that purpose, as part of Chapter 1 (now Subtitle A) of the Internal Revenue Code. Our meager administrative experience with that tax has indicated the desirability of a more flexible system, which will have as its ultimate goal an integration between income tax collection at the source and Social Security collection procedure. Convenience for both employer and the Government will be served by the eventual achievement of this goal. For that reason, therefore, it was suggested by the Treasury, and agreed to by the Congress, that the income tax withholding provisions be removed from Chapter I of the Internal Revenue Code and be made a new subchapter under Chapter 9 (now Subtitle C) of the Code relating to employment taxes.
Mr. Paul's speech expresses gratitude for employer compliance without which federal taxation on wages would not have be possible. As I read Paul's speech, I hear him say:
We realized that we didn't have the constitutional authority and jurisdiction to tax private wages directly under Subtitle A and our collection efforts proved this. So we decided, in the middle of a war, to coerce private employers into taking the tax out of their employees' wages and paying it to us directly and then leave individual wage earners with the burden of trying to get their property back from the 800 pound federal gorilla. We think the plan is brilliant. Because we are doing this in the middle of a war, if anyone calls our bluff it will be easy to marginalize him by calling him either a traitor or crazy.
I pray that the high tide of justice will soon be upon those who have caused people like Joe Banister, Joe Stack, and Irwin Schiff to suffer and die based on lies.
CHRIST, OATHS, AND JURISDICTION
The Creator of our time-space experience, the Lord Jesus Christ, has warned us about the danger of not only false oaths, but all oaths. In Matthew, chapter 5, Christ, possessing knowledge of man's tendency to enslave and entrap his fellow man through oaths, commands His followers to "swear no oaths":
And you have heard that it was said to the ancients, "You shall not break an oath, but you shall render to the Lord your oaths.
But I tell you not to swear at all; neither by heaven, because it is the throne of God;
Nor by the earth, because it is the footstool of His feet; nor unto Jerusalem because it is the city of the great King;
Neither shall swear by your head, because you cannot make one hair white or black.
But let your word be, Yes, yes; No, no; for anything more than these is of the evil one.
Matt. 5:33-37.
The term jurisdiction means "oath spoken." When we offer our oath or allegiance to someone or something, we effectively draw a territorial line around ourselves and place ourselves under the authority of the person or entity to whom we have offered our oath. Romans 6:16. Christ knew this. The most traditional Christian believers know this. This is why Orthodox Christians do not swear oaths to enter into communion with the Church or even when they get married. Rather, catechumens offer a confession of faith, which is not a sworn allegiance to anyone or anything, but a publicly professed view of reality. Couples who wish to get married in the Church do not swear an oath to each other, but rather offer their relationship to God to consecrate and baptize. The danger of oaths is also why traditional, Orthodox jews recite the Kol Nidre on Yom Kippur.
Spiritual law is fortunately clearer than the Internal Revenue Code. Both God and Satan require man's consent to operate in their lives. When man consents to God and diligently seeks to align his will with God's Will, then God cooperates and moves with man. When man consents to Satan, Satan operates man by controlling and enslaving him. Withdrawing consent from the internal spiritual territory captured by Satan is therefore the first step to release from bondage.
Compelling people to lie, under oath, about the federally taxable character of money paid to one another is not how God operates. Where the Spirit of the Lord is, there is liberty. 2 Cor. 3:17. The perpetuation of the evil mis-application and over-broad enforcement of the federal income tax begins with false information, filed under oath and penalty of perjury.
COMPLYING AND NOT LYING
So what is the way out? How can common people stand against federal lies and bullying theft without spending time in a federal prison? In my view, there is only one way to untie the noose that is the federal income tax.
In my view, the real devolution of power and the real “Revolt of the Public” will occur when private employers and their employees choose to begin working together to put the money wrongfully siphoned by the federal government back into employees' pockets. Unwinding and untangling from the corrupted income tax trap will involve complying with the law—filing necessary forms with the IRS—and at at the same time telling the truth about the federally taxable character of income paid to private, wage-earning employees. Because bailouts and stimulus checks are rapidly consuming the seed corn of savings and future production, this can't happen soon enough. The federal government can print money; it cannot print goods and services.
Assuming that both an employer and employee agree that the employee and his wages are not covered by sections 3401(c) and 3121(e), I see release from the overbroad application of the federal income tax as a 3 step process:
1. Employers should not disobey federal law. They should continue to report federally taxable income paid to employees in sections 3402 and 3403. Private employers should continue to file W-2s and 1099s with the IRS. They should also pragmatically continue to withhold the sums that the federal government alleges to be owed.
2. If an employee agrees that his wages are not federally taxable and agrees to file a matching “zero return,” the employer should deposit the withheld funds in an escrow account, preferably with a state-chartered credit union.
3. After the employee files a matching zero return with the IRS and provides proof of the filing to the employer, the employer releases the withheld funds to the employee.
The employer pays to the employee the amounts held in escrow only after the employee provides the employer with proof of a matching zero return filed with the IRS. If there are two witnesses to the fact that the employee's wages are not subject to the federal income tax, the IRS will be in the unenviable position of explaining why sections 3401(c) and 3121(e) do not include private wage-earners in the 50 sovereign states. The IRS and federal prosecutors will be forced to deal with this truism: when you are explaining you are losing.
Is there risk? Yes. The risk is in section 7201 of the Code and is a fine of up to $5000 or five years in jail. This law, however, requires proof of willful intent to "evade" or "defeat" the income tax. This 3 step method makes proof of evasion very difficult, if not impossible. If the employer or employee is dragged into court, they have each other as a witness. Neither of them willfully evaded or attempted to defeat anything. The facts will show that they were transparent, open, and honest with the IRS at every step. The law, the actual definitions in section 3121(e) and 3401(c) will be directly at issue. The employer’s and employee’s subjective reading and understanding of these definitions will be admissible and will be valid defense to any willful evasion claim. This is the Supreme Court’s holding in Cheek v. U.S.
Risk can be further minimized by beta testing with a small subset of employees. That is, employers should do this first only with fully informed and fully consenting employees. Employers should treat other employees at they have in the past—withhold and send quarterly deposits to the federal government. When the non-participating employees see that the process (hopefully) works and see that filing truthful returns that match their employers’ truthful returns results in an effective 15-25 percent wage increase, they will join the club. Financial incentives are superpowers. Particularly in an environment of rising inflation/loss of purchasing power.
Criminal convictions and jail time thankfully still require juries. In my view, it is unlikely that juries will convict anyone where both material witnesses agree on the fundamental facts and where the actual law does not say what the prosecutors and judge claim it says. It will be clear to the jury that the villain in the court psycho-drama is not the innocent employer or employee but the thieving federal government. Ultimately, capable lawyers given a fair opportunity will be able to show that the villain has been stealing from the juror and the juror’s family since at least 1943.
In my view, the initial best candidates for this process are: (1) private employers in predominately "red" states with no state income tax--e.g. Texas, South Dakota, Florida, Wyoming; and (2) ESOPs anywhere. ESOPs are statutorily income tax-exempt entities. In addition to the problems above, federal prosecutors will be forced to explain why the wages of employees of a tax exempt entity are federally taxable, when not one dollar of revenue that the business receives from its operations is federally taxable.
CONCLUSION: A TIME FOR CHOOSING
Another William Butler, William Butler Yeats, captures the mood in 2021 in this poem:
The Second Coming
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
--William Butler Yeats
The blessing of 2020 is that it is becoming clearer that there is no neutral ground:
If you dip into any college, or school, or parish, or family—anything you like—at a given point in its history, you always find that there was a time before that point when there was more elbow room and contrasts weren’t quite so sharp; and that there’s going to be a time after that point when there is even less room for indecision and choices are even more momentous. Good is always getting better and bad is always getting worse: the possibilities of even apparent neutrality are always diminishing. The whole thing is sorting itself out all the time, coming to a point, getting sharper and harder.
That Hideous Strength
--C.S. Lewis
Pick a side.