(originally launched into cyberspace on 03/27/2007)
In my prior message I cited the cases most frequently cited by the
"Wages Aren't Income" Advocates (WAIA), even though none of them
actually support such a notion, and all of them directly contradict
it. Many lower court rulings are also cited by the WAIA, and also
misunderstood. One popular one states that "One does not derive
income by rendering services and charging for them" (Edwards v.
Keith). Sounds compelling, until you read the case and learn that
the person BILLED for work one year, but didn't receive PAYMENT
that year. The court said it was not income (for that year)
because, though the person had done work and billed for it, he had
not been PAID. (I don't know why exactly it required a court ruling
to state the bleeding obvious.) Once again, the case, read in
context, contradicts rather than supports the claims of the WAIA.
Another case says that "Congress has taxed income, not
compensation" (Connor v. United States), which again sounds
interesting until you see the context: the case was about whether
compensation for harm done (not for performing services) was
"income," or was just repairing a loss (breaking even).
Other "quotations" I've seen were just plain made up; the cases
contained nothing even close to what they were "quoted" to have
said (like Lucas v. Earl, mentioned in my earlier message). On the
other hand, countless lower courts have stated, as plainly as it
could be stated, that "wages are income." The point is, on closer
inspection, all the supposed support for the claim that wages are
not "income" evaporates. There's nothing there, except a series of
(I find it very telling that when I QUOTE some of the things above,
showing how cases are being misrepresented and misunderstood, I get
two very distinct types of reactions: 1) Some look into it, confirm
what I said, and rethink matters; 2) Others act as if I never
showed it to them. I find that more people in the "movement" do the
latter, which is not exactly encouraging.)
Much of the arguments from the WAIA (including those found in
"Cracking the Code") consists of arguments about "gain," and
whether trading labor for payment constitutes "gain." But again,
the courts' discussions about "gain" were NOT in the context of
earning a paycheck, but in dealings with capital.
There are scenarios in which getting money is NOT "income." If you
loan me $10 for lunch, and I pay it back, neither transaction was
"income" for either of us. If you borrow my car, and then bring it
back, neither of us "gained" a car. On the other hand, the
situation for the wage-earner is pretty simple: You didn't have the
money, then you did. That's called a gain. And you got the money
because you performed a service. That's a gain derived from labor,
which is part of the definition of "income" the Supreme Court has
consistently used for about a century.
Various logical problems do arise with a tax on any and all
"income" (which in reality is NOT what the income tax is). If
someone trades currency for a chair, for example, the currency is
considered "income" and the chair isn't. Why? What if people trade
two things, and no currency is involved? Is there any income? Some
argue that exchanging labor for currency is an equal "trade," with
no "gain" involved, and therefore no "income." Trouble is, ALL
trade could fit that description. If you buy a $100 radio for $100,
the value of what you gave and of what you got could be called an
equal trade. Is that not "income" to the store, nonetheless?
(To be fair, there is also something fundamentally bogus about
allowing corporations to deduct as expenses everything that goes
into making the business run, while not allowing the wage-earner to
deduct all the expenses that go into making him able to work (food,
clothing, shelter, travel, etc.), but that's just about the
fairness of the allowable deductions, not the meaning of "income.")
Regardless of such nitpicking, in common usage--which is what the
Supreme Court said it defers to--who do you know who has a regular
job, gets a regular paycheck, but says he has no "income"? Unless
we're trying to make a legal argument, EVERYONE calls that
"income." We don't say "I had no income, I just traded my labor for
More importantly, if we're trying to "Crack the Code" (meaning the
tax code), we ought to be paying more attention to what it actually
says. Does it address "getting paid for doing work," or not? Over
the years, the tax statutes and regulations have used just about
every wording for that concept that I can think of, when listing
the common types of income.
Among the list of items of income in the current statute is
"Compensation for services, including fees, commissions, fringe
benefits, and similar items" (26 USC 61(a)(1)). The related
(current) regulations expand on the definition, saying that "WAGES,
salaries, commissions paid salesmen, compensation for services on
the basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses (including Christmas bonuses)... are INCOME
to the recipients unless excluded by law" (26 CFR 1.61-2).
Older statutes and regulations talked about income from "trades"
and "vocations," using terms like "compensation," "salaries,"
"fees," "commissions," and yes, "WAGES." Older regulations defined
"income" to mean "all wealth which flows in, except as a mere
return of capital" (e.g., 26 CFR 39.21-1 (1956)). Frankly, I'm
wondering what other language they could possibly have used to make
it any more clear that "getting paid for doing work" constitutes
Mind you, whether something is "income," and whether it is TAXABLE
income, are not the same question. The determination of one's
TAXABLE income is what the 861 evidence is all about, but the claim
that what most of us get paid isn't even "income" is just plain
wrong, regardless of its current popularity, and regardless of
which route one followed to arrive at that incorrect conclusion.
(Oddly, one of the few things "Cracking the Code" DOES quote from
the regulations contradicts its own conclusion. The book cites the
older regulations talking about some income being excluded by
"fundamental law" (the Constitution), because such income is,
"under the Constitution, not taxable by the federal government." (I
often cite that myself.) However, the entire premise of the WAIA is
that the meaning of "income" ITSELF is severely limited in order to
keep the tax Constitutional. If that were the case, why would any
"INCOME" be non-taxable due to the Constitution, as the quoted
regulations clearly state? Wouldn't they instead say that some
money received is exempt from being "income"?)
Now comes the belief-versus-understanding test: However attached
you are to the "wages aren't income" claim, can you cite any actual
EVIDENCE now supporting the claim that the wages of the average
working dude are not "income"? Do you see, for example, ANY
reference in the income tax statutes or regulations even hinting
that only federal payments constitute "income"? I don't. (As an
aside, Subtitle C employment taxes and Subtitle A income taxes are
NOT the same thing, and the definitions of "wages," "employee,"
etc., found in Subtitle C do NOT apply to Subtitle A, which is why
they all start with "For purposes of this chapter...") I don't care
about assertions, credentials, or how many people believe
something; I care what the EVIDENCE shows. And when you strip away
the misunderstandings and other mistakes of the WAIA, what evidence
is left to support their claim? I see none.
There are many points the WAIA make which I agree with. For
example, an all-encompassing tax on everyone's income WOULD be a
"direct" tax, and would be unconstitutional if not apportioned. In
addition, "earning a living" is not, per se, the proper subject of
an excise tax. (That makes as much sense as imposing an "excise"
tax on breathing air, and pretending it's not a direct tax.)
But we don't HAVE an all-encompassing tax on everyone's income, and
receiving income is NOT the subject of the "income tax." And it is
the LAW which demonstrates that. To oversimplify a bit, the so-
called federal "income tax" is an indirect excise tax upon engaging
in "commerce with foreign nations"--something the feds have
Constitutional power to regulate AND tax. It is perfectly
Constitutional, and matches many DECADES of statutes, regulations,
and Supreme Court rulings.
Before you complain about what the law "can't" do, make sure you
know what it does. Curiously, some of the "wages aren't income"
crowd are trying to dissuade others from doing exactly that, by
trying to scare them away from looking at the part of the law where
the truth can be found. In an upcoming message I'll respond to
Peter Hendrickson's supposed rebuttal of the 861 evidence.