This week former Libertarian Party presidential candidate
Gary Johnson said we should “abolish the IRS” and institute a consumption based
“FAIR TAX”. Well I like Gary Johnson but I am disappointed that he is proposing
such a collectivist solution. It would greatly expand the reach of the tax
collector, because the freedom benefit of a properly levied excise tax is that
it is laid on particular privileges and events that many people would not
engage in, thus avoiding the tax. At the same time the revenues provide feedback to legislatures as to how the people
are taking to their policies. But a broad based consumption tax would be hard
to avoid, and it would involve increased tax compliance by millions of small
A consumption tax is regressive, falling hardest on the poor
and fixed incomes. Not willing to appear cruel, Fair Tax proponents are forced to provide different
schemes to rebate part of the sales taxes to low income people thereby
involving the IRS, or something like it, to process income statements and send
refunds. What could possibly go wrong?
Naturally, the sales tax will be sold as revenue neutral, or even bring in more money to the Federal Behemoth. So
what have we gained? Very little, I would think. There would be a renaming of
what would be largely the same. We would have expanded a regressive excise tax.
Do you think progressives will fall in line to support this? I doubt it has much to appeal to them, except
for vague promises corporations might pay more tax.
Then another article in a major Lib webzine featured a
takedown of the need for a new progressive tax. It was well written, but the
fundamental take on the issue is incorrect. What if the income tax is being
incorrectly collected? What if it is a tax only on those who earned income from a federal privilege?
If it is understood that the vast majority of working people
earning a living in the harmless occupations of life are not taxed under the
constitution, and that only those engaged in federal privileges are, then why
not agree with the Progressive! Of course the tax should be Progressive, my friend, just so long as it is a tax on a federal privilege!
Isn’t this a Libertarian solution that has something in it
for all ?For Libertarians, it defends the
individual exercising his natural right to work to support himself and his
family. For Progressives, it shows you are open to some kind of progressive tax, and you are joining with them against the 1% who earn
their money from a federal privilege.
But you would have to forge new ground here. Libertarians
would actually say that we cannot be rightfully taxed on our natural right to
earn a living for ourselves and our family. That puts the power back to the
individual. The only difference would be that you would signal support for a
progressive tax on federal privileges. Demand we reform the IRS to have more due
process and transparency. The slogan is we cannot squeeze the workers to pay for the
mistakes of the crony corporate elite!
A Federalist Critique of the US Individual Income Tax
Does federalism preclude the Individual Income Tax as currently collected?
The federal government can tax the same objects and within the same jurisdiction as the states. "We
must remember, too, that the revenues of the United States must be
obtained in the same territory, from the same people, and excise taxes
must be collected from the same activities, as are also reached by the
States in order to support their local government.” Flint v. Stone Tracy Co., 220 US 107, 154 (1911)
2.Otto Skinner and other tax honesty writers
point out that the States party to the Constitution could only give
the newly created federal government powers of taxation they already
inherently possessed: (A) Directly tax people or property, but with a
significant restriction: a direct federal tax must be apportioned among
the several states by population. The States also gave the federal
government the power to tax indirectly through excises, imposts, and
3.The focus, then, is on the authority the several states have to tax income vs. the authority to tax a right.
a State does not have the power to declare a right taxable, then it
couldn’t have given that authority to the federal government, either.
if a State could tax a privilege, so could the federal government (see A above) tax the same privileges. This indeed may answer why States can
self-determine one’s taxable liability because the information return
declares that you were engaging in a privilege.
key question is this: Can a state tax labor and the enjoyment of the
fruit of that labor as a right or is it a privilege that can be taxed? The
Constitutional question is this: did the several States have the
authority to grant the federal government the authority to tax the right
to labor and the fruit of that labor?
7.Here is the issue:
Case law that firmly declares that working for a living is a right that cannot be taxed as a privilege is found at the state level. Here is one case: “The
individual, unlike the corporation, cannot be taxed for the mere
privilege of existing. The corporation is an artificial entity which
owes its existence and charter powers to the state; but the individual's
right to live and own property are natural rights for the enjoyment of
which an excise cannot be imposed: 26 R.C.L., Taxation, § 209, p. 236;
Cooley, Taxation, (4th Ed.), § 1676; Opinion of the Justices, 195 Mass.
607 (84 N.E. 499).” Redfield v. Fisher, 135 Or. 180, 197-198 (1931)
8. Some state constitutions forbid an income tax, or have other provisions that prohibit taxing labor, or protect the right to the fruits of your labor. If it was commonly understood at the founding that states could not tax the right to earn a living that would be a powerful argument against the federal income tax as it is commonly understood today, as an excise tax but under the color of an unapportioned direct tax on everyone who earns a paycheck.
If you can find sources for that proposition, such as common law principles in American Jurisprudence or other sources, please leave a cite in the comments below.
John Benson passed away recently. He was the partner of Glen Ambort, and they collaborated on the Taxation by Misrepresentation e-book that details how the 1040 Form is a modern day Statute of the Staple Recognizance that limits your 7th Amendment right to trial by jury because it is an assumed contract based on an old English voluntary pledge of property and freedom signed by foreign merchants who wanted to do business in medieval England.
John and Glen did several years in prison together where they collaborated in this research. John emerged from federal prison legally blind and very ill. Many of us passed the hat to help get him an apartment where he could continue his research. I only talked with him on the phone a couple of times and never met him. Because of John's health Glenn was the spokesperson of the duo. He is eulagized as a very saintly and peaceful human being. We are saddened by his passing.
I was Tea Party before there was Tea Party. c 2004
This is my 66th Fourth of July.I see the patriotic shows on the major
networks, complete with a lot of grilling tips mixed in the usual mostly bad
news. A strange father may be a murderer, the ISIS are coming for your daughters, Putin
is evil, and America is being invaded by foreign children. But if I go to cable
I see a speech by Glenn Greenwald telling us about Edward Snowden. Most remarkably, I can
participate in a Denver convention break out session with
entrepreneurs and yes, government officials, discussing the current state of
legal marijuana in Colorado and Washington State. There is some progress
towards liberty despite the setbacks.
This Saturday one man will be having some people over for a
bar-b-que. He is an unremarkable looking man. But he is a man who firmly
believes he has the answer for those who dislike the IRS. The people who
visit him in Michigan will be talking a lot of politics and a lot about the IRS
This man is Pete Hendrickson who has written several books
and publishes a website. His most famous book is “Cracking the Code”, which
code is Title 26, the income tax code. He and his “warriors” file what I call
an alternative 1040 tax form each year. His followers claim they receive complete refunds of federal and state income tax (and some payroll taxes) every year. I have discussed his
methodology in prior posts. Alas, there are also many reports of those who follow
his methodology getting put on a “frivolous filing” tract and facing numerous
$5000 penalties as well.
Although Hendrickson has not found a broadly welcome
reception in the liberty movement, it is encouraging that Libertarian Party and other activists will be at
his home this weekend. When Republicans
talk about the income tax, it’s to protect their flank, the unfairly targeted Tea
Party political groups they need to win elections. Or else to talk about a
corporation friendly “flat tax” or a populist “Fair Tax”. Neither of these are
the ultimate answer. The real answer is freedom of choice, which holds the state
accountable for improperly and deceitfully taking property from unwilling working
Keep in mind that we are facing a complex, ingrained
government institution that feeds Washington 30% of its revenues. The tax provides all kinds of social engineering opportunities to politicians
who are only too happy to take advantage of them to promote their own factional
interests. This behemoth relies on the coerced cooperation of millions of “taxpayers”
who file hoping to get some form of refund from what was “withheld” from their pay
that could help them over the winter hump. Every major corporation, and nearly every small business, gives
its workers a W-4 Form to fill out when they hire them, and sends them a W-2 to
use in computing just what their tax refund will be every year. If you understand
that nearly all private corporations are in fact not authorized to withhold taxes in the law but do so, it means that
you believe the emperor has no clothes while those around you still see him in his phoney finery.
Now throw in a servile Judiciary, some unsavory “Un- Tax”
schemes, some wrongheaded or even crazy objections raised against the tax, some
high profile imprisonments and even, yes some blood shed along the last 40 odd
years of the Tax Honesty movement and there is reason to wonder: why get
involved? Then again, when one sees a man like Edward Snowden who could have
walked away from his individual knowledge and duty but instead chose to fight I
wonder why we can’t come together about a strategy to overcome the most
oppressive and regular interaction 99% of Americans have with the federal
Is it because anarcho
capitalists cannot bring themselves to admit there exists a relatively benign
tax? The income tax, legally and historically understood, is an excise tax on
privilege, mostly government granted privilege. As most libertarians and
conservatives understand basic economics, they know when you tax something you
get less of it. So when you tax government bestowed privilege, you will, also,
get marginally less of it. Banks, for example, become national banks because
they are large enough to take advantage of national banking privileges that
enhance their bottom line. Their profits are subject to a net tax but it is
not, as commonly understood, a tax on the profits themselves. Rather, it is a
tax on the privilege of being a national bank, of which the income is only a
way to measure the amount of the privilege. Think of a fruit tree. An income
tax would not be on the tree itself, but only on the tangible fruit, that came
from the tree. A bank taxed for its national bank privilege would have to
compete against state banks and other financial entities who, constitutionally,
are not taxed by the federal government for that privilege. Might that
marginally prevent some banks from becoming national banks? Wouldn’t that open
the markets to new competition? Yes, the state is the ultimate enemy of
liberty, and we must look to ways to empower individuals at the expense of the
state until some day it peacefully withers away. But in the meantime can’t we
look to a classical liberal solution?
The income tax on public
offices goes way back in history. Imagine a king who conquers territory. He
needs trusted administrators. So he makes some new nobles, grants land and
titles, names tax collectors, and so on. He invests them with the privilege of
his sovereign power. Nearly always these new nobles and administrators have to
pay him annual tribute and file reports for the privilege he bestowed on them.
As I showed in an earlier post, the 1040 form itself is a modern version of a medieval
pledge for surety of goods that are privileged to be sold by foreign merchants in
Anglo Saxon England. The English law scholar Blackstone has described the
income tax as originally a tax on public offices, although later it became a
tax on ordinary workers as well. But America has one thing that England does
not, a written constitution that forbids a direct tax on property without
apportionment of the tax over the States of the Union.
sidetracked for a while by a largely irrelevant challenge to the 16th Amendment over the numerous procedural errors during the ratification process, the tax honesty movement has maintained that
the 16th Amendment does not authorize the forced collection of an income
tax on working Americans. The Supreme
Court has always held that the income tax is an excise tax, and nothing
more. An excise tax is a tax on a privilege or event that only can include
occupations if the occupation is based on that privilege. Otherwise, earning a
living is an “occupation of common right” which cannot be taxed unless the
individual voluntarily pays it out of fear or the hope of some benefit. The
great taxing clauses of the Constitution still exist unscathed. It only authorizes direct taxes apportioned by the states and uniform excise taxes, and there is no third way,
no un-apportioned direct taxes.The Sixteenth Amendment by its phrase "from whatever source derived" is referring specifically to rents and dividends derived from real estate and bonds or stocks that were declared by the Pollack decisions as subject to apportionment as a direct tax "on the source". It did not and still does not refer to the earnings of the vast majority of workers, i.e those who are engaged in earning a living for themselves and their families that is not tied to a government privilege taxed by Congress for revenue purposes. The only category of workers who may be liable for the Individual Income Tax in Title 26 are "non-resident aliens". Coming to the US to work part of the year under the laws of nations is considered a privilege, not a right.
So I will continue to ask that we stop talking about three
kinds of taxes, direct, indirect and income.That we stop saying that if we
want to end the income tax we have to start by repealing the 16th
Amendment. What we have to do is start talking about the right to earn a living
in the harmless, innocent occupations of life and that we do not wish to be
taxed for it as a mere privilege. This revolution will not come from Washington D.C. Like all social change, it has to come organically from the grassroots. If it doesn't, we risk the permanent loss of an important right, the right to earn a living and keep the fruits of your labor. It is dormant for 75 years, since the Victory Tax of 1942. We cannot let it just die.
In the second half of 2013 a figure appeared on the tax honesty
scenewith an interesting legal strategy
that really should have been obvious, but somehow no one had thought of it. The
man in question billed himself as "The 70 year old Mr Smith" and he
is marketing two somewhat pricey e-books for over $200 apiece explaining his strategy.
Even if you have the law on your side, in federal income tax matters
you will lose if you argue the law. As late tax honesty author Otto Skinner has
pointed out, if you say the law is white, the judge will say the law is black.
If you argue it is black, the judge will say it is white.The income tax laws in Title 26 are written
by very sharp attorneys, under the direction of very high Treasury Department officials. Some tax provisions hinge very much on
crucial definitions, but the definitions are themselves statutes sometimes subject to
statist wiggle room. Once you get past arguments about statutes, then the next minefield is
the whole area of administrative laws, regulations and procedures.
The Free Enterprise Society has an excellent video of the late
Louisiana attorney Tommy Crier who won a not guilty verdict in a Willful
Failure to File trial and it explains the issues at law being raised by the Tax
Honesty people in wonderful detail. But you could never, ever go into court and
argue these points in front of a judge in a civil dispute. When you are in
court, believe it or not, you are in the judge's house and he has immunity in
his ministerial actions. The judges will never admit they have erred in
interpretation or covered up the nature of the income tax. Nor, it can be said,
will they ever cut off by judicial decree a major income stream that has been
flowing for decades to the US Treasury ,
which, it must be observed, is the signatory to their checks and pensions.
The real victories will come, if ever, if people learn the tax laws
and how they are being ripped off, and understand that the solution is to give
people choices that conform to the spirit of the Constitution. The Tax Honesty
movement does not advocate ending the income tax, but confining it to what it
honestly is supposed to do tax privileges as an excise tax.( Outside of the anarcho capitalist voluntarist
solution of no state or taxes, which Larken Rose and Mark Stevens
advocate.)If the American people decide
they want to be empowered rather than victimized and cowered, they must pressure
the government politically. It will not happen by judicial decree.
What can happen is administrative forbearance,
and possibly a way through administrative and judicial rulings that concede
that individuals can opt out of the system. Since a tax honesty person cannot win
by arguing the law, he must win by arguing facts, procedures and evidence. Mr
Smith has made a major contribution. He did it by pointing out something that
was right in front of everyone's legal nose, and so people are a bit red faced
to acknowledge his contribution.
What the 70 year old Mr Smith advocates is to always, always object to
IRS computer records being admitted into administrative and judicial
proceedings on the basis of foundation and chain of control. As simple as that,
but it could conceivably throw a monkey wrench into the entire IRS collection
system. The Tax Relief Team has posted a radio interview with Mr Smith on their
website, under "GAO Annual Reports and impeaching IRS Computer Records"
Everything the IRS does against a non compliant person who is either a
non filer or an alternative filer is based on their computer records.
Everything the IRS depends on is stored on main frame computers in Martinsburg
West Virginia and accessed in the field office computers. In particular, as discussed previously, it is the Individual
Master File, technically known as Treasury/IRS 24.030, which is the backbone data
source for all their records. Virtually everything the IRS will do to you is
recorded as an entry in that data base, and it is from that source that they
generate almost all documents that they use against you.
In an administrative or judicial proceeding for the collection of
taxes, there is the question of the assessment. The IRS produces form 4340,
which purports to show the assessment. The tax honesty movement has never liked
this form, and always asks to see a Form 23C instead. The assessment is
supposed to record the individual tax and the individual taxpayer, signed by an
assessment officer who is testifying to the veracity of the assessment. The
form 4340, in contrast, is signed by an IRS employee who is verifying only that
the information was correctly copied from -you guessed it- the computer
In the past, tax honesty litigants have disputed the 4340 , but the
courts have generally accepted it as "prima facie" true and correct.
In other words, it is valid evidence unless there is countervailing evidence
that it is incorrect.
Tax honesty litigants have tried, only sometimes successfully, to
argue that the 4340 form is hearsay, unreliable, and that the statute calls for
a more personalized verification by someone with first hand knowledge of the
litigant's tax records. After all, the tax honesty litigant has sworn by his first hand knowledge that he had no statutory income. The government needs to rebut with sworn testimony. Instead, they merely assert that they correctly copied the data from their computer records.
Instead of,or along with, arguments that your sworn self assessment of no taxable income deserves a sworn countervailing testimony from the IRS, Mr Smith first proposes that you challenge the computer records themselves, and not just the Form 4340. Mr Smith argues that the proper way
to fight the form 4340 and other IRS forms used in evidence is to attack the
IRS system of records in their ENTIRETY.
Mr Smith uses the authority of another federal agency, The Government Accountability Office (GAO). The GAO has for decades been
issuing consistently negative reports about the IRS computer records. Every
year they publish a negative report and every year the Commissioner of the IRS
signs off on these reports. Every single report lists serious errors with the
IRS computer record keeping systems. Every year they evaluate the progress made
regarding their previous criticisms, and every year they report the same thing:
some problems were solved, but many were not. And some new problems have arisen
as well. Like Sisyphus, the IRS keeps rolling that stone up the hill, and
it keeps falling backto the beginning
Severe IRS critic Dan Pilla, while not a tax honesty figure, has also been
criticizing the IRS computer records for years. He calls their computer
modernization efforts a complete failure.
These are not mere data amounts or technical errors. The GAO has
consistently evaluated the IRS computer records as unreliable in maintaining
correct assessments. In this latest report filed just this April, the GAO identified serious security lapses regarding access and manipulation of the records.The agency, a competent government agency, questions the ability of the IRS maintain the integrity of their records.
Doesn't that ring a bell? This blog has been saying that there are
serious concerns about improper access to the computer records of non compliant
tax honesty resisters. We've talked about how the NON MASTER FILE may be used
to access the Individual Master File records through a backdoor portal, and
make changes that do not leave a proper digital trail. Business codes are input
into individual’s non business files in an underhanded way. It appears that
some records are entered into the file even before the operation is finished,
that certain freeze codes are bypassed to enter data that should not be
entered, and other inconsistencies appear that could amount to fraud.
Mr Smith has provided a new tool for the tax honesty movement. Always consult your competent attorney, if you can find one, about an objection to the IRS computer records. If you also have done a serious
examination of your INDIVIDUAL MASTER FILE, then ask your CPA if he would file an
audit reconsideration request. Consider a Title 5 suit to correct
Congress has ruled that the IRS computer records are valid because
government records kept in the normal course of business are presumed to be
valid. But what if another competent government agency, the GAO, says they are
unreliable? The rules of Hearsay have an exception for business records kept in
the ordinary course of business but records can be challenged and shown to be
untrustworthy. If successfully challenged, the government would be forced to
present competent fact witnesses to swear to the facts alleged. This they will
not do in tax honesty cases. Since the IRS Commissioner signs off on these GAO reports every
year,you can argue that the IRS knows how unreliable their system of records
It may not be a magic bullet, but it could at least be the string of garlic
that keeps the vampire IRS from entering your room.