Download The Voluntary Income Tax

The Voluntary Income Tax
by Jacob Halbrooks
Every year, millions of Americans pay what they believe to be is a required federal income tax. The
income tax is a tool that the federal government has successfully manipulated in order to deceive people,
and though many love to complain about giving up hard-earned money and filling out 1040 income tax
forms, few bother to research the subject. Unfortunately, the Internal Revenue Code is written in such a
way that most people cannot understand it on their own. As a result, they turn to tax consultants to
determine what they will pay the government. In turn, these tax consultants often rely upon publications
that the IRS distributes to tell their customers their tax liability. This cycle makes it easy for the IRS and
the government to enshroud the true nature of the tax system in mystery and to deceive people into
believing that they are liable for something called an income tax.
The first topic that merits recognition when discussing the federal income tax is the constitutionality of it
and the difference between direct and indirect taxes. The Constitution of the United States of America is
actually quite clear on what powers Congress has to impose taxes. "The Congress shall have power to
lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defence
(sic) and general welfare of the United States; but all duties, imposts and excises shall be uniform
throughout the United States." (Article 1, Section 8) From this section, it would seem that no power has
been given to Congress to lay an income tax as we know it, and also that all taxes that Congress can lay
have to be equal throughout the states. Taxes are also mentioned elsewhere in the Constitution. "No
capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein
before directed to be taken." (Article 1, Section 9). This section makes it quite clear that Congress does
not have the power to lay a direct tax unless equally divided upon everyone.
At this point a distinction needs to be made between direct and indirect taxes. A direct tax is a tax that is
imposed upon everyone and to which everyone pays an equal share. "If for example, the Congress
(which now has 435 representatives) needed $435 million for the general defense of the country, they
would divide the total amount by the respective representatives, and each state would get a bill. In this
case, Rhode Island which has 2 Representatives would get a bill for 2/435ths of the bill, or 2 million
dollars." (Robbins). Another example of how a direct tax might constitutionally be imposed is if the federal
government taxed every individual for a set amount, say $5. This form of taxation would be a capitation
tax.
An indirect tax, on the other hand, generally takes the form of an excise tax and is laid on activities or
privileges, such as the current federal indirect taxes on purchasing gasoline or making long distance
phone calls. However, these taxes must still be uniform throughout the states, and you will never pay
more federal tax on pumping gas from one state to another. The difference between the types of taxes is
that indirect taxes are imposed upon activities such as the sale of certain goods or government privileges
and are thus avoidable. Direct taxes, on the other hand, are unavoidable.
Now, it must be determined which type of tax our federal income tax would fall under. As applied by the
Internal Revenue Service and the majority of Americans, the tax is an unavoidable tax on any wages
earned. However, the amount paid is determined by the total wages earned in a year, among a multitude
of other factors. Since the tax is unavoidable, it must be a direct tax. However, the tax is not imposed in
proportion to the census as dictated by Article 1, Section 9 of the Constitution, so it must be an
unconstitutional direct tax. Since earning a living is not a government-granted privilege, the tax cannot
therein be considered indirect. Since it must then be of the direct form, the only way it could be
constitutional is if everyone was required to pay the same amount, for example $1000 a year. As we will
see later, the courts have ruled that an income tax is in fact by nature indirect, but people have been
voluntarily paying a direct tax on their income regardless.
The question of the constitutionality of the federal income tax has arisen many times, and the IRS
responds by pointing to the 16th Amendment of the Constitution, which states "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 16th Amendment is the quick
answer many give to Congress' authority in laying direct income taxes and upon first glance seems to
actually grant them the power to do so. Further inspection of this amendment, however, will reveal that
the amendment granted Congress no new power of taxation.
On the surface, the 16th Amendment appears to grant government an unlimited taxing ability. However, if
the amendment did in fact grant this power to Congress, then it would lie in direct conflict with Article 1,
Sections 8 and 9, both of which prohibit the type of direct tax many believe the 16th Amendment
authorizes. The amendment did not alter or repeal these previous articles in any way, so it can therefore
not lie in direct conflict with them. The only viable conclusion is that the 16th Amendment did not
authorize Congress an unlimited power to tax.
The key part of the phrasing of the 16th Amendment is "from whatever source derived," describing where
a tax on incomes would originate. A casual reading would seem to imply that this means that it does not
matter where the income is derived. However, as we know, an indirect tax can only authorize taxes on
certain activities. Therefore, it must then be determined which activities that enable the income, or
sources, can be taxed. Those sources can be found in the Code of Federal Regulations. Section 1.8618(a) states "The rules contained in this section apply in determining taxable income of the taxpayer from
specific sources and activities under other sections of the Code referred to in this section as operative
sections. See paragraph (f)(1) of this section for a list and description of operative sections." This means
that only certain specific sources are liable for taxes and that these sources are listed in paragraph (f)(1).
However, all of the sources listed under paragraph (f)(1) refer to such foreign related sources as foreign
mineral income, income derived from Guam, foreign base company income, and so on. None of the
sources listed are applicable to a US citizen who lives and works in the fifty states. The reason is that
Congress could not constitutionally lay a tax on income of US citizens, so they laid the taxes on those that
they could, people who have foreign income and people who live in US insular territories. Therefore, the
"whatever sources" referred to in the 16th Amendment apply only to taxable foreign sources.
Court cases also support the fact that the 16th Amendment did not authorize a direct tax on income. In
the 1916 case of Brushaber vs. Union Pacific R.R., the Supreme Court decided that "the propositions and
the contentions under (the 16th Amendment) would cause one provision of the Constitution to destroy
another." This is because if the 16th Amendment did in fact grant unlimited taxing power, like many
thought it did, then Article 1, Sections 8 and 9 would have to have been repealed. Obviously, though, they
were not. Furthermore, the 1916 decision of Stanton vs. Baltic Mining stated that "by the previous ruling
(Brushaber vs. Union Pacific) it was settled that the provisions of the Sixteenth Amendment conferred no
new power of taxation but simply prohibited 'power of income taxation' from being taken out of the
category of indirect taxation to which it inherently belonged" (qtd. in Robbins). The Brushaber decision
reasserted that government was not granted infinite taxing authority and that an income tax is indirect and
thus inapplicable to individuals who do not engage in the specified taxable activities.
Now that it has been established that an income tax is by nature indirect and that the 16th Amendment is
not applicable to citizens working and living in the United States, it must be determined why people have
been paying a direct tax on their income. In order to do this, we must define the income tax and
determine who is liable for it.
The income tax is an indirect excise tax imposed upon certain privileged sources. In order to find if one is
liable for such tax, one would refer to Title 26 of the United States Code entitled the Internal Revenue
Code, where tax liabilities are listed for all parties and activities. Subtitle A covers the income tax, but an
extensive search of it will produce no liability of an individual who lives and works in the 50 states to pay
the income tax (Robbins). In fact, the only section in the code that imposes a tax on individual income is
section 1461, which states "Every person required to deduct and withhold any tax under this chapter is
hereby liable for such tax." This establishes a liability on anyone who is required to withhold for taxes, or a
withholding agent. In order to determine the definition of "withholding agent," we turn to section 7701
(a)(16), which states "The term 'withholding agent' means any person required to deduct and withhold any
tax under the provisions of section 1441, 1442, 1443, or 1461." So now, in order to see who exactly is
required to withhold, we now turn to section 1441, 1442, and 1443. The titles of these sections,
respectively, are "Withholding of tax on nonresident aliens," "Withholding of tax on foreign corporations,"
and "Foreign tax-exempt organizations." Again, we see that whereas Congress cannot impose an income
tax liability on citizens in the US, they imposed it on people who they could, nonresident aliens and
various types of foreign corporations and organizations.
It is important to reassert here that the federal income tax is an indirect tax, though it is treated by the IRS
and most people as a direct tax, in which case it would be unconstitutional. However, the tax is
constitutional as it is defined because it levies a tax on the income derived from very specific sources.
These sources must be privileged activities to fit the meaning of an indirect tax. Since earning a living
within the fifty states is a right and not a privilege, the only sources of income that can be taxed are
foreign-related.
As further proof that the income tax is inapplicable to citizens living and working in the states, we can turn
to the Office of Management and Budget. The OMB was authorized under the Paperwork Reduction Act
of 1980 to require approval of any government form used to collect information from the public. Upon
approval, an OMB number is issued to the form, which the form must display or be voided. According to
the OMB the appropriate form to fill out for an individual tax return is not the 1040 that most people fill out
but is instead Form 2555, entitled "Foreign Earned Income." Form 1040 is actually a supplemental form to
2555, which states on the top to "attach to the front of Form 1040" (Huff). We see once again that income
taxes are only applicable to foreign income.
Since most people live and work in the states, they have not ever been liable for the federal income tax
until they make themselves liable by agreeing to have their earnings withheld. Another tax that people
unknowingly make themselves liable for is the employment tax. People see the money for this tax
removed from their paychecks every week in the form of FICA and Social Security contributions. The
employment tax is covered under Subtitle C of the Internal Revenue Code but is applicable to withholding
agents only. As was discussed before, the only withholding agents required to make returns are those
involved in foreign income. However, American citizens can volunteer, if they wish, to have their earnings
withheld, thereby making themselves liable for the employment tax. A person would want their earnings
withheld to ensure that they contribute the proper amount to the government programs that they are
participating in. Anyone who wants to be involved in Social Security would have their earnings withheld,
and section 3402 (p) describes voluntary withholding agreements. "The Secretary is authorized by
regulations to provide for withholding if the employer and employee, or the person making and the person
receiving such other type of payment, agree to such withholding." This agreement of withholding is done
through the W-4 agreement that most people sign upon entering a job. The W-4 is entitled "Employee's
Withholding Allowance Certificate," and is just that, a voluntary agreement for the employer to withhold
the earnings, which are now referred to as wages, of the employee. Now taxes must be taken out of the
withheld wages, as dictated by the IRS, for such programs as Social Security and FICA. Despite the
voluntary nature of withholding one's earnings, most businesses believe it is mandatory and require it of
employees.
Participation in Social Security is also voluntary, as the fact that withholding is voluntary would seem to
imply. The Social Security Administration, in its standard form letter, states "The Social Security Act does
not require an individual to have a Social Security Number (SSN) to live and work in the United States,
nor does it require an individual to have a SSN simply for the purpose of having one" (qtd. in Robbins).
Title 42 of the United States Code, Section 405 (2)(B)(i) states that Social Security numbers are assigned
"to aliens at the time of their lawful admission to the United States" and "to any individual who is an
applicant for or recipient of benefits." In other words, people who wish to participate in the Social Security
program are welcome to, but it is not mandatory or requisite to obtain a job, though most companies are
led to believe otherwise.
By voluntarily filling out W-4 and 1040 forms, people make themselves liable for taxes that they otherwise
are not required to pay. However, the government and IRS need to keep this fact well-guarded lest
people would stop giving their earnings to the government and drop out of the unstable Social Security
program. The 16th Amendment was worded in such a way as to appear that it granted Congress
unlimited taxing power, and the government has constructed an illusion of authority around it.
Unfortunately, people do not question this authority and unknowingly make themselves liable for taxes.
The methods that the IRS uses to hide the truth of what "voluntary compliance" means is evident in their
standard reply electronic mail to questions regarding the legality of the federal income tax and authority of
the IRS. This letter states "the mission of the Internal Revenue Service is to encourage voluntary
compliance with Federal Internal Revenue Laws and Regulations" and that "we say our system is a
'voluntary compliance' system because as citizens we voluntarily comply with the laws of the land and
choose to obey it voluntarily without force." However, "voluntary compliance" with regard to laws only
seems to be invoked by the IRS, as no one ever hears of murder or burglary laws referred to in this
manner. However, despite the IRS claiming that voluntary really means mandatory, people who educate
themselves on the subject realize that the tax is in fact truly voluntary. In response to the question of
whether people are required to file income tax returns and pay tax, the IRS states "Sections 6011 and
6012 of the IRC require the filing of an income tax." These sections merely state that people who are
liable for taxes must file returns. While this is true, the IRS makes no mention of who exactly is liable for
the income tax. As was discussed earlier, only nonresident aliens and people involved with foreign
income are made liable for the income tax by the Internal Revenue Code.
Laws should be clear enough for the average American to comprehend and follow. Unfortunately, the
Internal Revenue Code is a challenging book to extract relevant information from. However, a larger
culprit than the tax code itself is the administrators of the tax code. The IRS and the government take
advantage of the difficulty in understanding the code to implement their own plans and to convince the
public that they need to give their money to the government. As a result, people make themselves liable
for the income tax and the employment tax, though neither are mandatory. The first step that must be
taken is to expose the truth regarding taxes and foster education on the subject. People must demand
that the IRS discontinue their techniques of deception and instead work with the public toward
determining who is liable for what taxes. Finally, the tax code must be rewritten so that ordinary people
can understand it and determine for themselves what they are liable for. However, since in most cases it
is nothing, the government will continue to keep the true nature hidden until the people demand
otherwise.
The Constitution of the United States of America. Reprinted in The Federalist Papers. New York: Penguin
Books USA Inc., 1961.
The United States Code, Titles 26 and 42. St. Paul: West Publishing Co., 1997.
Huff, William. "Now You See it Now You Don't!" Reasonable Action #232, newsletter of the Save A Patriot
Foundation. Copyright at Common Law.
Robbins, Jay. "The Truth about the Income Tax." Copyright at Common Law.
Electronic mail letter received from [email protected]. Subject: IRS Email Tax Law Assistance. October 1998.