The Power to Tax - A REAL Lesson About Our Tax Laws

The Power to Tax is part of a pdf report written by Larken Rose. You may or may not have heard of him.

Rose has been a diligent and fearless warrior for freedom and free speech for 25 years.

Article I, Section 8 of the Constitution lists the powers that the federal government is authorized to exercise within the states.

The list begins by saying that Congress was to have the power “to lay and collect taxes.” Which of course was needed to provide the funding necessary for the federal government to carry out its other duties.

It was not long, however, before disputes arose about the extent of the taxing powers of the state and federal governments.

Some argued that “the power to tax is the power to destroy.” Thereby concluding that if a government was not at liberty to regulate or forbid something, it also should not be allowed to tax it.

“[N]o state has the right to lay a tax on interstate commerce in any form [because] such taxation is a burden on that commerce, and amounts to a regulation of it. Which belongs solely to congress. This is the result of so many recent cases that citation is hardly necessary.”
[Leloup v. Port of Mobile, 127 U.S. 640 (1888)]

This raises the question; If Congress can regulate only certain matters inside the states, might it be able to tax only these matters as well?

The U.S. Constitution does not spell out exactly what Congress can tax, but provides two sets of rules for two basic types of taxes, into which all federal taxes can be categorized: “direct” taxes and “indirect” taxes.

2 Direct Taxes:

So-called “direct” taxes included per capita taxes and property taxes. Under the Constitution all such “direct” taxes are required to be divided up (“apportioned”) among the different states. This would be in proportion to the population of each state.

So, for example, if Pennsylvania had twice the population of North Carolina, it would pay twice as big a portion of the overall national tax.

Such “direct” taxes have been used only a very few times by the federal government, and never in the last century.

Indirect Taxes:

The other category of taxes, called “indirect” taxes, includes import/export taxes as well as “excise” taxes.

“Customs and excise duties imposed on importation, consumption, manufacture, and sale of certain commodities, privileges, particular business transactions, vocations, occupations, and the like.”[1]*
The Supreme Court

Instead of being apportioned, “indirect” taxes need only be geographically uniform. Meaning they are applied the same throughout the entire country.

Numerous “excise” taxes have been imposed by the federal government over the years. On everything from oleomargarine to wagering and from distilling whiskey to manufacturing machine guns.

In fact, all current federal taxes are “indirect” taxes.

Where Does an Income Tax Fit?

At this point an astute observer might notice that a general, all-inclusive income tax does not fit well within either category.

It is not a tax on property ownership per se, nor is it a tax on certain commodities or activities.

So where does such a tax fit in the Constitutional design?

The first federal income taxes were imposed in the 1860s, and it was not long before the “direct” versus “indirect” question made it to the Supreme Court.

This eventually led to the ruling in Pollock v. Farmers Loan & Trust, (157 U.S. 429 (1895)), in which the Supreme Court threw out the federal income tax as being unconstitutional.

The court concluded that a tax on income, which comes from owning property (e.g., interest and dividends) is in essence a tax on the property itself. Which would belong in the category of “direct” taxes.

And because the income tax was not apportioned, as all direct taxes must be, it was deemed invalid.

*Of note, the Court explained that its reasoning would not apply to income from things other than property ownership. For example, wages. However, it still threw out the entire tax. It said it was not at liberty to divide a law into pieces and then throw out only some of them.*

Unfortunately, the conclusive answer to the “direct” versus “indirect” debate, which came in the form of the 16th Amendment (in 1913), caused more confusion than clarity.

That 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.”
[16th Amendment, U.S. Constitution]

The wording of that amendment quickly convinced a lot of people of two things:

1) Though the income tax is a “direct” tax, it does not need to be apportioned.

2) Congress had acquired the power to tax any income it wanted to. [l] Flint v. Stone Tracy, 220 U.S. 107 (1911) *

All underline emphasis in this report has been added.

3) While both of those conclusions are somewhat understandable based upon the wording of the amendment, both also happen to be dead wrong. The amendment did not authorize an unapportioned “direct” tax, and it did not allow Congress to tax all income from anywhere.

The Supreme Court, multiple times, has made it clear that the 16th Amendment, only confirms that the federal income tax “inherently belongs” in the category of “indirect” taxes. It is not an authorized unapportioned “direct” tax. This must apply uniformly throughout the country, but which do not need to be apportioned[2].

In reality, therefore, the 16th was more of a clarification than an amendment, as it did not actually alter Congress’ taxing powers.

For more information on Larken Rose’s excellent work you can read the pdf here…