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NO NEW TAX, REMOVE THE
FOOTNOTE

By Idaho State Rep., Phil
Hart
February 1, 2012

NewsWithViews.com

The
ignorance of today’s Americans regarding political matters is an expensive
luxury paid for by the blood and treasure of deceased American Patriots.
Although this ignorance is widespread, there is no area where there are
greater misconceptions than with regard to monetary policy and the income
tax. The two issues are like twin sisters. This was not so in 1775, the
year that gave birth to an armed struggle that resulted in the greatest
gains of liberty in the history of mankind.

In a
letter to King George, General Gage, the military governor of Boston,
complained that:

“I
have a nation of lawyers, they know your statutes better then you know
them yourself.”

These
patriots were not ignorant; they had studied the law for themselves. They
knew their rights. And they were therefore willing to fight and risk
everything to defend these rights. In 1775 more copies of Blackstone’s
Commentaries on the Laws of England were sold in the colonies then were
sold in England. This interest in law on the part of the average person
and their willingness to make personal sacrifices in order to fight for
what was right gave birth to the greatest nation on earth. Whereas today’s
deliberate ignorance and cowardice in the face of injustice on the part of
the progenery of these great patriots is causing the death of that once
great nation.

If you
were to pull the first volume of the United States Code off the shelf you
would find the Constitution in that book. Then if you were to look at
Article I, sections 2 and 9 of the Constitution where it provides that
direct taxes must be apportioned among the states according to population,
you would find a footnote. This footnote states that direct taxes, in the
form of an income tax, can now be levied without being apportioned. (An
income tax can be classified as either direct tax or an indirect tax,
depending on what or who is being taxed.)

Nothing
could be further from the truth. That footnote represents either a gross
misconception of the affect of the Sixteenth Amendment (the Income Tax
Amendment) or a deliberate lie meant to deceive.

The
United States Constitution divides up the entire universe of taxes into
two parts, direct taxes and indirect taxes. The father of these terms was
Adam Smith who wrote the economic bible of the time of the drafting of the
Constitution. Smith’s work entitled “Wealth of Nations,” is a popular work
even today. Summarizing Smith’s work, we can say that a direct tax taxes a
noun; and an indirect tax taxes a verb. A direct tax taxes something that
exists, like real estate, a slave, a person or a person’s time. An
indirect tax taxes a choice that a person makes, taxes a privileged
activity or taxes the happening of an event.

Adam
Smith was authoritatively quoted in the first taxation case (Hylton v.
United States, 3 U.S. (3 Dall.) 171 (1796)) that went up to the
United States Supreme Court after the ratification of our Constitution.
Smith's Wealth of Nations quote found in the Supreme Court’s
Hylton Opinion reads:

“The
impossibility of taxing people in proportion to their revenue, by any
capitation, seems to have given occasion to the invention of taxes upon
consumable commodities; the State, not knowing how to tax directly and
proportionally the revenue of its subjects, endeavors to tax it
indirectly by taxing their expense, which it is supposed, in most cases,
will be nearly in proportion to their revenue. Their expense is taxed by
taxing the consumable commodities upon which it is laid out.” Adam
Smith, Wealth of Nations, Book V, 541 (Prometheus Books,
Amherst, New York, 1991) (1776).

If we
back up just two paragraphs from the paragraph of Adam Smith’s Wealth
of Nations quoted authoritatively by the Supreme Court in the
Hylton Case, we read about Smith’s categorization regarding taxes
on wages:

“Capitation taxes, so far
as they are levied upon the lower ranks of people, are direct taxes upon
the wages of labor, and are attended with all the inconveniences of such
taxes.” id. At 540.

When
levying either type of tax, the Constitution has a regulating rule. The
framers of the Constitution did not give our limited government an
unlimited power to tax. The limiting rule when levying a direct tax is
that the tax be apportioned among the States in the same manner that
members of the House of Representatives are apportioned. But this rule
only applies in the 50 several States; the four federal states are exempt
from the apportionment limitation for direct taxes. (The four federal
states include Guam, Puerto Rico, the Mariana Islands and the U.S. Virgin
Islands. Additionally, any district or enclave would also be exempt from
the apportionment rule, like the District of Columbia.) In other words, a
direct tax can be levied without apportionment in the District of Columbia
as the District of Columbia is outside of the several States.

The
regulating rule for indirect taxes is that they be uniform throughout the
United States. And here the term “United States” includes any place where
our Congress exercises jurisdiction. That would be the 50 Several States,
plus the four federal states, plus districts, plus enclaves ceded to the
federal government by any of the state legislatures plus any chunk of real
estate anywhere in the world where Congress can get away with levying a
tax.

What the
renegade footnote to the direct taxation clause found in today’s written
Constitution implies is that the Sixteenth Amendment created a third
category of taxes sanctioned by the Constitution. This third category
would be a direct tax in the form of an income tax that was not subject to
the apportionment rule yet could be levied in the several
States.

Today we
are not in a position to determine if the footnote is correct or
incorrect. We can only discover its correctness or incorrectness. We can
only discover the facts, because it was those who drafted, debated and
approved the Income Tax Amendment to the Constitution who have already
made that determination. We can call them “The Framers of the Sixteenth
Amendment.”

In our
search to discover the truth, we start with the Congressional Record. Here
we find that Congress considered three versions of the Income Tax
Amendment. These include Senate Joint Resolution #25, Senate Joint
Resolution #39 and Senate Joint Resolution #40. It was S.J.R. #40 that
ultimately became the Sixteenth Amendment. But the language of the first
two proposals tells us everything we need to know about the intent of
Congress.

The
first draft of the Income Tax Amendment, Senate Joint Resolution #25,
reads: “The Congress shall have power to lay and collect taxes on incomes
and inheritances.” 44 Cong. Rec. 1568 (1909). This proposed amendment was
offered by Senator Brown from Nebraska. The very next statement made after
the introduction of S.J.R. #25 was from Senator Rayner of Maryland who
raised the issue of harmony with the direct taxation clauses of the
Constitution. Senator Rayner stated:

“I
will call the Senator’s attention to the fact that unless you change the
clause of the Constitution which provides for apportionment [of direct
taxes] the joint resolution would not repeal that clause. The two
clauses would stand in pari materia together and you would
still have an apportionment.” 44 Cong. Rec. 1568-9
(1909).

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The main
objection to the proposal was that S.J.R. #25 was going to create an
exception to the apportionment rule for the direct taxation clauses of the
Constitution. As a result, S.J.R. #25 fizzled on the Senate floor. Then
came the next proposal, S.J.R. #39 which read:

“The
Congress shall have power to lay and collect direct
[emphasis mine] taxes on incomes without apportionment among the several
States according to population.” 44 Cong. Rec. 3377 (1909).

The
immediate response to S.J.R. #39 was criticism from Senator McLaurin who
stated:

“I
think if the Senator from Nebraska will change his amendment to the
Constitution so as to strike out the words ‘and direct taxes’ in clause
3, section 2, of the Constitution, and also to strike out the words ‘or
other direct’ in clause 4 of section 9 of the Constitution, he will
accomplish all that his amendment proposes to accomplish and not make a
constitutional amendment for the enacting of a single act of
legislation.” id. at 3377.

Not only
did S.J.R. #39 also fizzle on the Senate floor during debate, but it was
resurrected on July 5, 1909 to be voted on just before the vote on what
ultimately became the Sixteenth Amendment. On that morning S.J.R. #39
failed by a voice vote.

The
desired effect of S.J. R. #25 and #39 were the same, that being the
creation of an exception to the apportionment rule for any income tax that
meets the criteria of a direct tax. Congress rejected this option. At this
point we would do well to remind ourselves what Article I section 1of the
Constitution says, “All legislative Powers herein granted shall be vested
in a Congress of the United States….” Only Congress is vested with the
power to write the laws. The courts don’t have that power, nor does any
executive agency. So we are stuck with the actions of Congress.

The
Sixteenth Amendment was said to have been ratified in February of 1913. In
the fall of that year, Congress imposed an income tax making it
retroactive to March 1, 1913. Very quickly this new income tax was
challenged in court and the first cases were decided by the Supreme Court
in 1916. Initially there were five cases bundled together with the lead
case being the Brushaber v. Union Pacific Railroad Case (240 U.S.
1 (1916). Three of these cases had the same New York attorney, a Mr.
Davies of the firm Davies, Tolles, Glenn and Schurick. In his three cases
(including Tyee Realty Co. v. Anderson, 240 U.S. 115 (1916) and
Thorne v. Anderson, October term 1915, No. 394 (24,613)) Mr.
Davies argued that the income tax was a direct tax and that the Sixteenth
Amendment created an exception to the apportionment rule so that a direct
income tax could be levied without apportionment. Even the government
argued this position in an amicus brief to the Burshaber
Case.

So, the
very issue addressed by our renegade footnote was presented directly to
the Supreme Court. And the Supreme Court ruled that the income tax in
Brushaber was inherently an indirect tax and that the Sixteenth
Amendment forever prevents any court (as was done in the 1895 Pollock
Case) from “taking an excise [tax] out of the class [of indirect taxes] to
which it belongs and transferring it to a class [of direct taxes] in which
it cannot be placed consistently within the requirements of the
Constitution.” Brushaber v. Union Pacific Railroad Case (240 U.S.
1, 19 (1916). Furthermore, the Supreme Court ruled that neither Brushaber
nor the government could be right without destroying the harmony of the
Constitution. In an overly wordy opinion, the Supreme Court said they were
all wrong, because there was no exception to the apportionment rule
created by the Sixteenth Amendment.

“[t]he contention that the
Amendment treats a tax on income as a direct tax, although it is
relieved from apportionment and is necessarily therefore not subject to
the rule of uniformity as such rule only applies to taxes which are not
direct, thus destroying the two great classifications which have been
recognized and enforced from the beginning, is also wholly without
foundation....” Brushaber v. Union Pacific Railroad Case (240
U.S. 1, 18 (1916).

The
position of the Supreme Court, that direct taxes levied without
apportionment are not sanctioned by the Sixteenth Amendment, was affirmed
by the Supreme Court in Tyee Realty Co. v. Anderson and
Thorne v. Anderson. Tyee Realty Co.'s Counsel of Davies, Tolles,
Glenn and Schurick, argued: “The Sixteenth Amendment authorizes a direct
tax without apportionment only in so far as that tax is on income.” Brief
for Appellant at 12, Tyee Realty Co. v. Anderson, supra. In the
Thorne v. Anderson Case, the same law firm claimed: “...one of
the great limitations upon the power of Congress to levy direct taxes has
been abrogated by the Sixteenth Amendment.” Brief for Plaintiff at 38,
Thorne v. Anderson, supra. Of this contention, this Court ruled:
“But we need not now enter into an original consideration of the merits of
these contentions, because each and all of them were considered and
adversely disposed in the Brushaber v. Union Pacific R.R. Co.
Case.” Tyee Realty Co. v. Anderson, supra at 117. In other
words, there is no Sixteenth Amendment exemption to the direct taxation
clauses of the original Constitution.

Our
evidence that the renegade footnote is wrong gets piled higher and deeper.
In the next income tax case to get to the Supreme Court (Stanton), the
same arguments were made, that the income tax was a direct tax and that
the Sixteenth Amendment allowed for an exception to the apportionment rule
such that a direct income tax could be levied without apportionment.

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A review
of this Court's Transcript of Record for the Stanton v. Baltic Mining
Co. Case (240 U.S. 103 (1916)) shows that Stanton 12 times claimed
the Sixteenth Amendment provided this “apportionment rule exception” for
direct taxes in the nature of an income tax. Then another 10 times,
Stanton alluded to this perceived exception. In addition, so did a Mr.
John R. Van Derlip, who filed an amicus curiae brief in the
Stanton Case. The “exception to apportionment” argument was a
central argument in both these briefs. The government and Mr. Van Derlip
made the same claim 15 times. A sampling of Stanton's assertions is as
follows:

“The Sixteenth
Amendment authorizes direct taxes upon ‘incomes,’ but not upon capital
or property. Income taxes may now be imposed without regard to
apportionment among the States, according to their
population.

All forms of
direct taxation other than taxes on ‘incomes,’ clearly remain subject to
the same constitutional limits as formerly.” Brief for Appellant at 24,
Stanton v. Baltic Mining Co., 240 U.S. 103 (1916).

“This is a direct tax on
‘net income,’ and nothing else can constitutionally be taxed directly,
without apportionment.” id. at 36.

“The Sixteenth
Amendment only authorizes direct taxes on ‘incomes.’” id. at
60.

“All forms of
direct taxation of real and personal property, other than income taxes,
still require apportionment; otherwise they are unconstitutional.” id.
at 139.

In Mr.
Van Derlip's amicus curiae brief, he claimed:

“By
the [Sixteenth] Amendment, sec. 2 of Article I of the Constitution had
been modified as respects the persons to be included in any enumeration
which should be the basis for the laying of a direct tax. This same
section has now been modified for a second time by the Sixteenth
Amendment with the result that the first sentence of the section, in
effect, now stands as if enacted in the following words:
‘Representatives and direct taxes shall be apportioned among the several
states [sic] which may be included within this Union, according to their
respective numbers, counting the whole number of persons in each state,
excluding Indians not taxed; provided, however, that the Congress shall
have power to lay and collect direct taxes upon incomes, from whatever
source derived, without apportionment among the several states, and
without regard to any census or enumeration.’” Amicus Curiae
Brief by Van Derlip at 24-25. Stanton v. Baltic Mining Co.,
supra.

Every
quote just cited from the Stanton Case’s Transcript of Record was
rejected by the Supreme Court. In every way, shape, and form, the claim
was made that the Sixteenth Amendment provided an exception to the
apportionment rule. If true, this would have been the “new rule" spoken of
in the Stanton Opinion and would have created a “new tax”. All
this was rejected by the Supreme Court, which stated in their Stanton
Opinion:

“But
aside from the obvious error of the proposition intrinsically
considered, it manifestly disregards the fact that by the previous
ruling [Brushaber] it was settled that the provisions of the Sixteenth
Amendment conferred no new power of taxation but simply prohibited the
previously complete and plenary power of income taxation possessed by
Congress from the beginning from being taken out of the category of
indirect taxation to which it inherently belonged and being placed in
the category of direct taxation subject to apportionment by a
consideration of the sources from which the income derived.” Stanton v.
Baltic Mining Co., supra.

We are
further buttressed by what the New York Times reported on the
Brushaber Case. On January 25, 1916, the New York Times
wrote of the Brushaber Case:

“The basic error
of those who attacked the constitutionality of the tax, Chief Justice
White holds... was in regarding the Sixteenth Amendment as empowering
the United States to levy a direct tax without apportionment among the
States according to population. In substance, the court holds that the
Sixteenth Amendment did not empower the Federal Government to levy a new
tax....

“We are of the
opinion, however, that the confusion is not inherent, but rather arises
from the conclusion that the Sixteenth Amendment provides for a hitherto
unknown power of taxation: that is, a power to levy an income tax which,
although direct should not be subject to the regulation of apportionment
applicable to all other direct taxes.”” Income Tax Upheld In Broad
Decision, New York Times, p. 5, January 25, 1916.

Also
writing about the Brushaber Case, Harvard Law Review had this to
say:

“In
Brushaber v. Union Pac. R.R. Co., Mr. Chief Justice White,
upholding the income tax imposed by the Tariff Act of 1913, construed
the Amendment as a declaration that an income tax is ‘indirect,’ rather
than as making an exception to the rule that direct taxes must be
apportioned.” The Income Tax and the Sixteenth Amendment, 29 Harvard Law
Review 536 (1915-6).

See also
The Federal Income Tax Law of 1913: Construction of the Sixteenth
Amendment, 1 Cornell Law Quarterly 298, 299 and 301 (1916),
Constitutional Law: Income Tax: Sixteenth Amendment, 4
California Law Review 333, 335-6 (1915-6), and Washington
Notes, The Income Tax Decision, 24 The Journal of Political
Economy 299, 300 (1916).

In the
early income tax cases of Brushaber, Stanton, Tyee, Dodge, and
Thorne, the Supreme Court ruled correctly. The Court had to as
the legislative record, the historical record and the will of the American
People were clear and necessarily relied upon as the foundation for the
Supreme Court’s position on the question.

There is
no exception to the apportionment rule for any direct tax, including an
income tax on wages and salaries. The footnote in the United States Code
is wrong. And the implications of this are huge. What this means is that
any income tax that conforms to Adam Smith’s criteria of what constitutes
a direct tax must be apportioned among the states just like members of the
House of Representatives are apportioned. And any income tax that meets
Adam Smith’s criteria for what constitutes in indirect tax must be
uniformly levied throughout the United States. The practical effect of
this is to disallow how the income tax on wages and salaries is currently
being collected within the 50 several States.

[Note,
in determining whether a tax is a direct tax or an indirect tax is
dependent on how a specific tax meets the criteria for each of the two
types of taxes as defined by Adam Smith. For example, and income tax on
wages and salaries is a direct tax; whereas an income tax on interest
income or investment income is an indirect tax.]

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But
don’t expect this misplaced footnote to disappear easily, as such a long
entrenched bad habit on the part of tax collectors will be hard to change.
Change will come only when millions of Americans begin to believe and act
like our ancestors did who in 1775 “knew your [King George’s] statutes
better then you know them yourself.”

If this
article has stimulated an interest in you for this issue, you can read a
more in-depth analysis in my book, Constitutional Income. If you don’t have time to read a
450 page book, you can read my 30 page Petition to the United States
Supreme Court. Both publications are available at http://www.constitutionalincome.com/

© 2012 Phil Hart - All Rights
Reserved

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Phil
received a bachelor's degree in Civil Engineering from the University of
Utah and a master's degree in Business Administration from the Wharton
School at the University of Pennsylvania.

In
2004, Phil Hart was elected by the Citizens of North Idaho to represent
District 3 in the Idaho Legislature. District 3 encompasses the northern
part of Kootenai County. Phil Hart is actively seeking re-election for the
2008 legislative term.

Phil
has dedicated a significant amount of personal time for the past ten years
in trying to resolve the constitutionality Income Tax. His efforts have
resulted in the publication of his book Constitutional
Income, which is in its third edition. His book has been steadily
covering ground across the United States. He also litigated the issue with
the IRS and petitioned the Supreme Court.

Website:

E-mail: [email-masked]

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There is no exception to the
apportionment rule for any direct tax, including an income tax on wages
and salaries. The footnote in the United States Code is wrong.