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What Exactly Did The 16th Amendment Do?

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Edward Douglass White, Chief Justice of the U.S. Supreme Court from 1912-1921. He was the grandson of James White who served as representative for the Territory South of the River Ohio before Tennessee statehood

“In dealing with the scope of the taxing power, the question has sometimes been framed in terms of whether something can be taxed as income under the Sixteenth Amendment. This is an inaccurate formulation of the question and has led to much loose thinking on the subject. The source of the taxing power is not the Sixteenth Amendment; it is Article I, section 8 of the Constitution. It is important that these provisions be clearly understood; what is required is an understanding of fundamental principles. The familiar statement that at this time we need education in the obvious more than investigation into the obscure (Holmes, Collective Legal Papers, pp. 292-293), although made in a different context, is peculiarly applicable here.”
Penn Mutual Indemnity Co. v. Commissioner of Internal Revenue, 32 T.C. 653 at 5659 (1959)

What does Article 1, Section 8 say? With regard to the taxing power, it says in Clause 1:

The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

The court explains what duties and imposts and excises are: “Duties and imposts are terms commonly applied to levies made by governments on the importation or exportation of commodities. Excises are ‘taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.’ Cooley, Const. Lim. 7th ed. 680.” Flint v. Stone Tracy Co., 220 U.S. 107 (1911)

The other taxing clauses are as follows:

Article 1, Section 2, Clause 3: Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers, which shall be determined by adding to the whole number of free persons, including those bound to service for a term of years, (and excluding Indians not taxed, three fifths of all other Persons-changed by Sec 2 of 14th amendment).

Article 1, Section 9, Clause 4: 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, Clause 5: No Tax or Duty shall be laid on Articles exported from any State.

Did the Supreme Court actually rule on whether the “income” tax was a direct or indirect tax BEFORE it was authorized by the 16th amendment? Yes!

In Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601 (1895), the court ruled that:

First. We adhere to the opinion already announced, that, taxes on real estate being indisputably direct taxes, taxes on the rents or income of real estate are equally direct taxes.

Second. We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes.

Third. The tax imposed by sections 27 to 37, inclusive, of the act of 1894, so far as it falls on the income of real estate, and of personal property, being a direct tax, within the meaning of the constitution, and therefore unconstitutional and void, because not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.

Since these sections of the act levied a direct tax without regard to apportionment, the court threw out the whole act and all the revenue collected under the act had to be refunded. This is what brought about the 16th amendment, which stated that Congress could collect taxes on incomes without apportionment. The Sixteenth Amendment did not define the taxes on income as direct or indirect. So it appeared that the constitution was in conflict with itself. It allowed for a tax on income, but the clause requiring direct taxes to be apportioned was not repealed. The United States Supreme Court in Brushaber v. Union Pacific R.R., 240 U.S. 1 (1916) settled the issue when it said “Moreover, in addition, the conclusion reached in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class of direct taxes on property, but, on the contrary, recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such…”

The Sixteenth Amendment reads as follows: 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.

It is the without apportionment language and without regard to census or enumeration that restricts taxation on incomes to the class of excises. Did the 16th amendment authorize a new kind of tax called the ‘income’ tax? No it did not. “This result, instead of simplifying the situation and making clear the limitations on the taxing power, which obviously the Amendment must have been intended to accomplish, would create radical and destructive changes in our constitutional system and multiply confusion.” The court went on to say “It is clear on the face of this text that it does not purport to confer power to levy income taxes in a generic sense, an authority already possessed and never questioned,…” [240 U.S. 1, 18] Chief Justice Edward Douglass White delivered the opinion in both cases.

The 3rd Circuit Court of Appeals clarifies: “It did not take a constitutional amendment to entitle the United States to impose an income tax. Pollock v. Farmers’ Loan & Trust Co.(citations omitted) only held that a tax on the income derived from real or personal property was so close to a tax on that property that it could not be imposed without apportionment. The Sixteenth Amendment removed that barrier. Indeed, the requirement for apportionment is pretty strictly limited to taxes on real and personal property and capitation taxes.” Penn Mutual Indemnity Co. v. C.I.R., 277 F.2d 16 (1960)

The court also said “It is not necessary to uphold the validity of the tax imposed by the United States that the tax itself bear an accurate label.” Congress is free to name the tax whatever it desires. The question still remains: Is it a direct tax? Capitation? Or is it a duty, impost, or excise?

The barrier refers to the consideration of the source of income. The United States Supreme Court in the Brushaber case said “Indeed, from another point of view, the Amendment demonstrates that no such purpose was intended, and on the contrary shows that it was drawn with the object of maintaining the limitations of the Constitution and harmonizing their operation.” What was the problem? Was an amendment really necessary to make clear the taxing power that Congress always had?

There are three things to look for: The Rule, the Ruling and the Principle. The Rule applied relates to the rule of apportionment to all direct taxes before and after the Sixteenth Amendment.

The Ruling relates to the court’s decision in Pollock that taxes on real estate and personal property and the rents and incomes derived from real and personal property are direct taxes.

The principle relates to the duty of the courts to disregard the form (name of tax) and consider the substance (subject of the tax). The 16th Amendment was to prevent the courts from treating the so-called ‘income’ tax as anything other than an excise tax. The courts can no longer void a statute in regard to income taxation because it was not imposed by the rule of apportionment like it had done in the Pollock case. The courts can’t legally enforce the income tax as if it were a direct tax. The income tax can only be enforced as a tax on certain activities, privileges, events, etc… In my copy of “Frequently Asked Questions Concerning the Federal Income Tax” updated May 7, 2001, John R. Luckey, Legislative Attorney for the American Law Division writes on page four that “[T]he Court found that the Sixteenth Amendment sought to restrain the Court from viewing an income tax, because of its close effect on the underlying property as a direct tax.”

It is true that various personnel in the Office of the Commissioner of Internal Revenue claim that the Sixteenth Amendment gave Congress some new power of taxation. But the courts have settled the issue as to what the Sixteenth Amendment did and didn’t do. The problem is not the Sixteenth Amendment; it is the disinformation regarding it.

Written by chrisforliberty

June 27, 2010 at 12:54 am

Posted in Politics

One Response

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  1. […] Those who were supporting the implementation of the 16th Amendment knew that a direct tax without ap… […]


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