(originally launched onto cyberspace on 05/05/2007)
I started to write up a response to a letter I received, and
realized I might as well answer it here instead. As most of you
know, the older income tax regulations said, quite plainly, that
neither income exempted by the statutes of the tax code, NOR income
excluded because of "fundamental law," are to be included in the
computation of one's taxable income (e.g., 26 CFR 39.21-1 (1956)).
As many of us have learned first hand, if you ask an attorney or
CPA what that is talking about, you're unlikely to get much more
than a blank stare. (Occasionally one will at least make a guess,
usually involving municipal bonds or the income of state
governments, but those have always been exempted by STATUTE, so
that's not what those regulations were talking about.) Most of the
time, the supposed "experts" DON'T KNOW the regulations ever said
that, so they have no explanation for it, and don't take it into
account when determining what (if anything) people owe.
I like tormenting self-proclaimed "experts" with evidence which
reveals their ignorance, but now I'll give my answer to the
question (since someone just sent me a letter asking me to).
First of all, "fundamental law" means the Constitution. Though we
common folk don't usually hear the term, it's well known to refer
to the foundation upon which all legislative laws are based: the
Constitution. In fact, the older regulations, in addition to
mentioning "fundamental law," in another place explained that some
income is exempt from tax because it is, "under the Constitution,
not taxable by the Federal government" (26 CFR 39.22(b)-1 (1956)).
But WHAT income does the Constitution render non-taxable? It gives
rules about HOW "direct" and "indirect" taxes must be administered,
but as far as saying WHAT can be taxed, the only specific
prohibition has to do with state exports. The Supreme Court has
ruled (in Peck v. Lowe), however, that just because the income tax
might happen to be applied to income from state exports, that
doesn't make it an export tax per se. So state exports is NOT what
those regulations are talking about.
But if that's not it, what else could it be? There's nothing in the
Constitution which identifies anything else as being untaxable by
the federal government. Answering the question requires an
understanding of how the Constitution works.
The Constitution, except for the first ten amendments, is not a
list of what Congress CAN'T do. In fact, the anti-federalists were
right to complain about the proposed Bill of Rights (the first ten
amendments), because listing certain things the government CANNOT
do could be construed as meaning they CAN do anything not
specifically prohibited. (So the Ninth Amendment was included to
dispute such a notion.)
In short, the federal government is legally authorized to do
ABSOLUTELY NOTHING, except for carrying out the specific,
"enumerated powers" which the Constitution lists (mainly in Article
I, Section 8). So looking for the Constitution to spell out LIMITS
on the feds' power is looking at it backwards. The feds are to be
assume to have NO POWER AT ALL, unless the Constitution
specifically gives them that power.
Imagine you hired a plumber to fix your leaky sink, and then found
him eating stuff out of your refrigerator. If he said, "Well, you
didn't say I couldn't," would that be a good excuse? If he
complained that nothing in his contract specifically forbad him
from eating your food, would you accept that? Of course not. If you
hired him to do a SPECIFIC JOB, that doesn't give him the right to
do whatever he wants with your property.
The same is true of the federal government. It's a mistake to start
with the assumption that the feds are authorized to do anything
they please unless the Constitution forbids it. That's the exact
OPPOSITE of how it works. You should assume they have the power to
do NOTHING, unless the Constitution specifically AUTHORIZES it.
This principle affects the taxing power as well. The Supreme Court
has explained that there are "virtual limitations" upon the taxing
power, not from any specific prohibition in the Constitution, but
from the limits of what the Constitution says Congress IS allowed
to do. The way the Court put it, for Congress to “resort to the
taxing power to effectuate an end which is not legitimate, not
within the scope of the Constitution, is obviously inadmissible”
(United States v. Butler, 297 U.S. 1).
For example, Congress once tried to combat “child labor” in the
states (which is NOT a federal issue under the Constitution) by
trying to TAX it out of existence. The Supreme Court threw out the
tax, explaining it this way:
“Grant the validity of this law, and all that Congress would need
to do hereafter, in seeking to take over to its control any one of
the great number of subjects of public interest, jurisdiction of
which the states have never parted with, and which are reserved to
them by the 10th Amendment, would be to enact a detailed measure of
complete regulation of the subject and enforce it by a socalled tax
upon departures from it. To give such magic to the word ‘tax’ would
be to break down all constitutional limitation of the powers of
Congress and completely wipe out the sovereignty of the states”
(Child Labor Tax Cases, 259 U.S. 20).
In other words, Congress cannot circumvents the limits of the
Constitution just by passing a regulation in the form of a "tax,"
to control something NOT under their Constitution jurisdiction.
So how might that apply to limits upon an "income tax"? Well, the
Supreme Court has ruled that because Congress has the general
taxing power, AND specific power to "regulate commerce with foreign
nations," they can therefore "undoubtedly" apply an income tax to
income which American companies derive from INTERNATIONAL commerce
(Peck v. Lowe, 247 U.S. 165).
Now ask yourself, why is the tax code tens of thousands of pages
long? What on earth could all those pages be about? Almost all of
it is about BEHAVIORAL CONTROLS, rewarding this and punishing that.
Via tax credits, deductions, exemptions, incentives, tax
deferments, and so on, the tax code in effect REGULATES all sorts
of behaviors and economic choices relating to investment,
retirement planning, borrowing money, giving to charities, dealing
with insurance, and so on.
However, only those with TAXABLE income are subject to all of those
controls. If someone is engaged in "commerce with foreign nations,"
for example, the Constitution DOES allow Congress to regulate such
matters. And if they want to do it by way of a "tax," that's just
fine too, since “The power of taxation, which is expressly granted,
may, of course, be adopted as a means to carry into operation
ANOTHER power also expressly granted." On the other hand, “If, in
lieu of compulsory regulation of subjects within the states’
reserved jurisdiction, which is prohibited, the Congress could
invoke the taxing and spending power as a means to accomplish the
same end, clause 1, Section 8 of Article I [of the U.S.
Constitution] would become the instrument for total subversion of
the governmental powers reserved to the individual states” (United
States v. Butler, 299, U.S. 1).
It would absurd for anyone to deny that the tax code is an attempt
to CONTROL THE BEHAVIOR of those who receive taxable income. It
would also be absurd for anyone to claim that Congress has the
Constitutional power to regulate all such matters as they relate to
Americans living and working just in the 50 states. If the domestic
income of all Americans were taxable, how could those be
reconciled? They couldn't. But if only INTERNATIONAL trade is taxed-
- -as the law itself shows--then all the rewards and punishments
apply only to those engaged in "commerce with foreign nations,"
which the Constitution DOES authorize Congress to regulate.
In conclusion, when looking for the limits on the taxing power due
to "fundamental law," don't just look for what the Constitution
specifically prohibits; look for what it authorizes, and know that
EVERYTHING ELSE is assumed to be prohibited. Since the Tenth
Amendment says just that, if you want one particular thing in the
Constitution which exempts the income of the average American from
being subject to the federal income tax, that would be it.
Larken Rosewww.larkenrose.com [ June 21, 2007, 05:19 PM: Message edited by: 3rdEar ]