from A SKETCH OF THE FINANCES OF THE UNITED STATES.

BY ALBERT GALLATIN

November 12, 1796.

 

A direct tax is laid upon property in proportion either to its capital value or to the revenue it affords. It is, therefore, necessary not only to collect the tax, but previously to assess it; in other words, to estimate the value of the property or of the income derived from it.

 

The collection of the tax itself is everywhere cheaper than that of any other tax, because the officers employed may always be temporary ones, there being no necessity, as in the case of indirect taxes, to keep a watch over the contributors. It costs less to collect in England and in France than any other species of tax. Even in Pennsylvania, where the system was complained of on account of its being expensive, the charges of collection were but five per cent.

 

But the assessment [of a direct tax] must necessarily increase to a certain degree the expense, and this will vary according to the species of property taxed.

 

Real property, being of a permanent nature, may be valued once in five or ten years without any great inequality resulting therefrom. The assessment of England, which, it is true, is now very unequal, has stood for near a century without variation.

 

[A direct tax on p]ersonal property [on the other hand], [which is] perpetually shifting, requires a [more expensive] yearly valuation.

 

But it is not only in the article of expenses in collecting that direct taxes upon real property possess a great comparative advantage [over direct taxes on personal property like (commonly-defined) income]. In order to assess, to estimate the capital or the [commonly-defined] income of an individual, that capital, that income, must be known. His real property is visible and can always be estimated with certainty. But the greatest part of his personal property may with propriety be denominated invisible. His capital employed in commerce, the debts which are due to him (from which must be deducted those he owes), his money, and even his stock in goods, must either be assessed according to his own declaration, or be estimated in an arbitrary manner. And when the tax is laid upon the revenue and not upon the capital of persons, when the profits of their industry are also to be calculated, it may truly be asserted that, was it not for the permanence of the vexations of excises [as distinguished from the direct taxes being spoken of], the most odious of these [excises] would be less oppressive, unequal, and unjust than a direct tax levied [upon the revenue of persons] in that manner.

 

Experience justifies those assertions. In England, where direct taxes fall almost exclusively upon lands and houses, they never have given cause to any just reason of complaint. In France, the taxes called personal, taille and capitation, which were laid with a regard to the conditions of persons, and assessed according to a conjectural proportion of fortunes, industry, and professions, were equally oppressive to the contributors and injurious to the nation.

 

Although there are some species of personal property which may be estimated and taxed in a more certain and less arbitrary manner than others, yet it may be laid down as a general rule, liable only to local exceptions, that lands and houses are the proper objects of direct taxation [that is, wiser choices than personal property, due to being taxable without great expense and oppression], [and] that almost every other species of property [if it is to be somehow a source of government revenue] must be reached indirectly by taxes on consumption.

What Albert Gallatin has just described-- a direct tax of the sort known as a "capitation"-- is what our unapportioned "income tax" cannot legally be.

This is why the "income tax" is actually just an excise on the exercise of privilege, however misleading it may be to have that exercise labeled "income". It cannot legally be applied as a tax on anyone's "revenue" or "the profits of their industry", calculated with regard to "His capital employed in commerce, the debts which are due to him (from which must be deducted those he owes), his money, and even his stock in goods" and/or "assessed according to a conjectural proportion of fortunes, industry, and professions".

Nor can the unapportioned "income tax" legally be twisted or manipulated or misconstrued by executive agencies or the courts into the functional equivalent of such a tax by some contrivance of substance over form, even though nominally otherwise. Were this to be attempted,

Here's the entry:

4. Contention: The only "employees" subject to federal income tax are employees of the federal government.

This contention asserts that the federal government can tax only employees of the federal government; therefore, employees in the private sector are immune from federal income tax liability. This argument is based on a misinterpretation of section 3401, which imposes responsibilities to withhold tax from "wages." That section establishes the general rule that "wages" include all remuneration for services performed by an employee for his employer. Section 3401(c) goes on to state that the term "employee" includes "an officer, employee, or elected official of the United States, a State, or any political subdivision thereof . . . ."

The Law: Section 3401(c) defines "employee" and states that the term "includes an officer, employee or elected official of the United States . . . ." This language does not address how other employees’ wages are subject to withholding or taxation. Section 7701(c) states that the use of the word "includes" "shall not be deemed to exclude other things otherwise within the meaning of the term defined." Thus, the word "includes" as used in the definition of "employee" is a term of enlargement, not of limitation. It makes federal employees and officials a part of the definition of "employee," which generally includes private citizens. The IRS warned taxpayers of the consequences of making this frivolous argument. Rev. Rul. 2006-18, 2006-1 C.B. 743.

Relevant Case Law:

Montero v. Commissioner, 354 F. App’x 173 (5th Cir. 2009) – the court affirmed a $20,000 section 6673(a) penalty against the petitioner for advancing frivolous arguments that he is not an employee earning wages as defined by sections 3121 and 3401.

Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986) – the court imposed sanctions on the taxpayer for bringing a frivolous appeal and rejected his attempt to recover a civil penalty for filing a frivolous return, stating "to the extent [he] argues that he received no ‘wages’. . . because he was not an ‘employee’ within the meaning of 26 U.S.C. § 3401(c), that contention is meritless. . . . The statute does not purport to limit withholding to the persons listed therein."

United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985) – calling the instructions the taxpayer wanted given to the jury "inane," the court said, "[the] instruction which indicated that under 26 U.S.C. § 3401(c) the category of ‘employee’ does not include privately employed wage earners is a preposterous reading of the statute. It is obvious within the context of [the law] the word ‘includes’ is a term of enlargement not of limitation, and the reference to certain entities or categories is not intended to exclude all others."

United States v. Hendrickson, 100 A.F.T.R.2d (RIA) 2007-5395, 2007 WL 2385071 (E.D. Mich. May 2, 2007) – the court permanently barred Peter and Doreen Hendrickson, who filed tax returns on which they falsely reported their income as zero, from filing tax returns and forms based on frivolous claims in Hendrickson’s book, "Cracking the Code," that only federal, state, or local government workers are liable for federal income tax or subject to the withholding of federal taxes.

Other Cases:

Peth v. Breitzmann, 611 F. Supp. 50, 53 (E.D. Wis. 1985); Pabon v. Commissioner, T.C. Memo. 1994-476, 68 T.C.M. (CCH) 813, 816 (1994).

The effort at deception begins in the header. There, the entry appears to be talking about the tax treatment of one kind of employee versus another (and which is what those responsible for this thing hope will be all that is read).

But the very first line that follows gives up the game: "This contention asserts that the federal government can tax only employees of the federal government; therefore, employees in the private sector are immune from federal income tax liability." Although it attempts to appear otherwise, all this entry really disputes is the manifestly-frivolous contention that even if receiving federal benefits of some kind, or dividends from investments in federally-controlled corporations, the bartender at Joe's Bar and Grill-- who is certainly an employee, but not a federal employee-- is nonetheless somehow immune from federal income tax liability.

The real key in parsing-out this obfuscation is recognition of what is carefully omitted from its content and representations and what is outright misrepresented... but I'll leave the rest to you. I'll just provide a few links to help here and here.

The place to make your contributions to this de-bunk is on the National Forum, folks. If you're not already a member, click here to join.

I trust everyone will do a thorough job with this, and teach all the visitors to the forum how to properly deal with this kind of agency obfuscation. And I hope everyone has some fun, too.

“Once a lawyer was arguing a case before three lord justices in the court of appeal, dealing with an elementary point of law at inordinate length. Finally, the master of the rolls, who was presiding, intervened: ‘Really,’ he protested, ‘do give this court credit for some intelligence.’ Quick as a flash came the reply: ‘That is the mistake I made in the court below, my lord.’"
‑Anonymous, reported in A Lifetime with the Law, 1961, by Archibald Edgar Bowker.