The Legality of Federal Income Taxation

“A hand from Washington will be stretched out and placed upon every man’s business; the eye of the federal inspector will be in every man’s counting house… The law will of necessity have Indus[tr]ial features, it will provide penalties, it will create complicated machinery. Under it, men will be hauled into courts distant from their homes. Heavy fines imposed by distant and unfamiliar tribunals will constantly menace the taxpayer. An army of federal inspectors, spies, and detectives will descend upon the state.”

—Virginia House Speaker Richard E. Byrd, 1910, predicting what would happen if a federal income tax became law

Article 1, Section 8, Clause 1 of the US Constitution says, “No Capitation, or other direct tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.” For the layman, that means each state must raise its fair share of funds for the federal government. So if the government wants to raise $1 billion and Florida has 10 percent of the nation’s population, then Florida will be responsible for $100 million.

This clause is crucial for many reasons. First, it makes sure that certain people or states are not forced to pay disproportionate amounts of the federal budget. Second, it ensures that the federal government will not have an unlimited budget, and it restricts the government’s ability to raise and waste money because it is dependent on the finances of the poorest state. Third, it effectively prohibits the federal government from enacting laws such as a progressive federal income tax because there is no way it could be equally apportioned based on the census. That clause is a key limitation on the federal government’s ability to tax indiscriminately.

The first income tax was suggested during the War of 1812, but the war was over by the time it was ready to be enacted, so it was never imposed. Then the Tax Act of 1861 was passed to raise money for the Civil War; it was later repealed. The Wilson-Gorman Act of 1894 was the first peacetime federal income tax. It was challenged several times in the Supreme Court and eventually declared unconstitutional in Pollock v. Farmer’s Loan and Trust Company because it represented direct taxation on the citizenry, which had to be apportioned according to Article 1, Section 8, Clause 1. In order to circumvent the Constitution and the Supreme Court ruling, the federal government had to pass a new amendment to the Constitution.

The proposed Sixteenth Amendment read: “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.” Not only is the amendment directly contrary to the wording and the principles of the Constitution and exactly what the War of Independence was fought over (unfair and excessive taxation), but Bill Benson’s findings, published in The Law That Never Was, makes a convincing case that the Sixteenth Amendment was not legally ratified. In 1909, it was passed by Congress and then sent to each of the forty-eight states; thirty-six of them had to approve it for the amendment to be ratified officially. Forty-two responded positively, and the amendment was ratified in 1913.

According to Benson, however, it never should have been. First, lame-duck Secretary of State Knox, who was responsible for tallying the states’ votes, later admitted that four states—Utah, Connecticut, Rhode Island, and New Hampshire—had actually rejected the proposal. Further, two other states—Kentucky and Oklahoma—changed the wording of the amendment they were sent, thus invalidating their “yes” votes. In fact, once Kentucky learned the true language of the document—the version their legislature had seen omitted the words “income tax,” believe it or not—they withdrew their approval.

So that left the tally at thirty-six for, six against. Or, if you were Philander Knox, thirty-eight for, because he didn’t think Kentucky and Oklahoma’s mistakes were a big deal, and he left their “yes” votes just as they were. But if we’re looking at it realistically, we were just at the threshold of ratification; if one more state had disapproved of the amendment—or if it could have been proven that just one more state’s vote had been invalid—the amendment never would have been ratified at all.

Tennessee law prohibited the state legislature from voting on a proposed federal amendment until the next election of state legislators passed. They wanted to include the amendment in the elections and thus allow their people a vote on the matter. Oddly enough, Tennessee did not, in the case of the Sixteenth Amendment, abide by its own law; the amendment was illegally voted upon straightaway, without waiting for the election cycle to pass. That was a violation of the state’s constitution, which made Tennessee’s approval of the amendment null and void.

Score: thirty-five to seven. The Sixteenth Amendment could not be passed.

But that wasn’t the end of it. Another twelve states—Mississippi, Ohio, Arkansas, Minnesota, New Mexico, West Virginia, Indiana, Nevada, North Carolina, North Dakota, Colorado, and Illinois—violated their constitutions by failing to read the bill on three different days before voting on it (which happened in Tennessee as well, making that state a double loser). This requirement created a buffer between receipt of the proposal and the time to vote on it, allowing any hotheads (or trend followers who might have skewed the vote) time to gain some perspective. It also gave the voters time to read the amendment. Believe it or not, they didn’t always read what they were voting on.

We then had twenty-one states failing to ratify Amendment Sixteen—fifteen less than was legally required.

That was not all, though. Several states did not return their amendment responses to Secretary Knox in certified, signed, and sealed packages, as was required, thus invalidating their votes. Knox warned them to get their affairs in order, and some did, but some did not; like Ohio, California, Arkansas, Mississippi, and Minnesota, they didn’t respond at all.

Out of that group, all but California had already invalidated their ratifications due to the above-mentioned issues, so we get to subtract only one from the head count. That brings the total of positive votes down to just twenty. And still, this amendment was pushed through.

In presenting all this evidence, Benson lays out a good case for fraud on the part of Secretary Knox, who had to have known that, at the very least, those states that didn’t respond, as well as Kentucky and Oklahoma, should not have been counted, and thus the Sixteenth Amendment could not have been legally ratified.

To add more fuel to the fire, federal income-tax returns blatantly violate the Fifth Amendment right against self-incrimination because the government, under criminal and civil penalties, forces citizens to file documents that could incriminate them and lead to their prosecution. Federal tax codes also violate Americans’ right to be innocent until proven guilty because the IRS can assess a citizen a certain tax liability, and federal law makes it the citizen’s responsibility to prove that the IRS is incorrect in its assessment. As one would expect, there are a plethora of arguments against federal progressive income taxation because it violates the principles of limited government, freedom, and individual responsibility that are so clearly delineated in the Constitution.

Americans are now liable for so many taxes that it’s hard to keep track of them all. There are taxes on goods, payroll taxes, transfer taxes, excise taxes, property taxes, city and county taxes, sales taxes, customs duties, and federal and state income taxes, which, when combined, can claim more than 50 percent of a citizen’s income. There are estate taxes—the most egregious, as people can work and pay disproportionate shares of the tax burden their entire lives just to leave something to their kids and then be taxed on that bequest as well.

Further, the United States is only one of two countries in the entire world that taxes its citizens no matter where they live. That means that a person can be a legal resident or even a dual citizen living in another country for years, using no services whatsoever in the United States, and still be forced to pay US taxes. This is one of the reasons why rich Americans and rich American residents are renouncing their US citizenships and giving up their green cards in record numbers and fleeing for tax havens such as Monaco and Panama.

Sadly, as Speaker Byrd predicted, the IRS has become coercive, all-powerful, and an unnecessary government agency. It purposely makes citizens’ lives far more difficult than they have to be. It makes criminals out of men who would otherwise commit no offense. It levies cruel fines and penalties against citizens in an effort to destroy them and their businesses. Albert Einstein once said, “The hardest thing in the world to understand is the income tax,” and it’s obvious he was right.

The progressive nature of our federal income-tax scheme is unethical, unconstitutional, and inefficient. If it is fairly determined that money must be raised by the federal government in order to pay for infrastructure or defense, then those costs should be evenly distributed. That is clearly the principle and the exact language used in the Constitution. At a minimum, America can strive for a modicum of equity by adopting a flat tax supplemented by consumption taxes. But even this is less than equitable because the wealthy use more privatized services than public services. Thus, even with a flat tax in the form of a percentage of income, the rich would pay more yet use less.

So taxes should be based on use. That is the only truly fair taxation system. If someone has children who attend public school, he should be taxed for that. If a citizen has no children, he should not have to pay. If someone has five houses in five different towns or states, he should pay more taxes for police and fire protection because he will be using the services of five different departments. Today, in the age of the Internet, this should be very easy to track. But instead of using modern technology to find equitable taxation solutions, our government uses it to spy on law-abiding Americans.

If there were a truly fair tax, it would pay for itself because people would no longer go to such great lengths to dodge it, and governments wouldn’t have to pay exorbitant sums to track down tax evaders. Without unrestricted taxation and the ability to print or borrow money freely, governments lose much of their ability to manipulate their citizens and other countries. Huge budgets and the ability to borrow at will allow governments to waste money and meddle in the affairs of other nations and their own citizens.