Lawful Income Tax Avoidance for the Qualified Wages and Salaries of Natural Persons

By American Association for Lockean Liberty Inc.

This book is a wake-up call to the American legal community, and an insistence that it answer to the silent distress of millions of financially overburdened working people. Because of the unique structure of our legal system, American lawyers have a moral and legal duty to enforce certain tax constraints on government that would favor workers, and lawyers are failing miserably.

Support my nonprofit to help lawyers everywhere recognize our Constitutions two classes of taxation, so they and their clients can eventually know the difference between taxes: (1) on property under the Direct Tax Clauses, (2) on income derived from property sources under the Sixteenth Amendment, and (3) on income derived from non-property sources under the Uniformity (or Indirect Tax) Clause.

By analyzing the history of Supreme Court tax cases, starting with Hylton (1796) and ending with Lopez (1995), and dividing the cases into three eras, this book will help you understand why the American tax system is the most unique and revolutionary in history.

• Language: English
• Publisher: Xlibris US
• Release date: Sep 16, 2010
• ISBN: 9781453570203

American Association for Lockean Liberty Inc.

Richard DiMare is a licensed non-practicing Massachusetts attorney and founder of the American Association for Lockean Liberty, Inc., a 501(c)(3) nonprofit whose mission is “to bridge the gap between psychology and law that prevents U.S. tax attorneys from recognizing a property right in the mental and physical labor of natural persons.” He has been focused on this unusual area of law since learning about various tax reform movements in the late 1970s, and his position is that unless U.S. tax attorneys begin to recognize a property right in human labor under the Constitution’s two Direct Tax Clauses--and not assume that wages are always income under the Uniformity Clause--our civil rights will continue to erode and future generations will increasingly be at the mercy of dysfunctional parents, religious leaders, labor unions, and corporations.

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Copyright © 2010 by American Association for Lockean Liberty, Inc.

Library of Congress Control Number:       2010913025

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Contents

Introductory Legal Notes

Introduction

Part One

Part Two

Part Three

Appendix A

Appendix B

Introductory Legal Notes

This book is published under the First Amendment to the U.S. Constitution.

Disclaimer: Legal information is not legal advice

The legal information provided in the following pages is based on our view that the U.S. Constitution supports an implied property right in human labor through its tax clauses and is not to be acted upon unless you can first enlist the support of the right kinds of attorneys for your unique legal circumstances.

IRS Circular 230

To ensure compliance with requirements imposed by the IRS, we inform you that anything contained in these pages, or online, including any e-mails, attachments, or other communications we may have with you, that may be construed by you or your attorney to be U.S. tax advice, is not intended or written to be used and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter discussed.

Introduction

I’d like to say that this book makes the history of U.S. tax law easily understood, but given how long it’s taken me to understand, and given how few attorneys even attempt an understanding of this area of law, I can say that whatever you learn from this book is at least very likely to be more than most attorneys know.

I can also say I believe if you’re really interested in the evolution of American tax law, you will eventually be rewarded, if only to be better equipped to discuss these issues with your attorney(s). As with any negotiation, the more you know the more power you have.

In fact, the great majority of attorneys don’t see any relationship whatsoever between taxation powers and money-creation powers. So, if you can let them know you’re interested in this relationship, your interest should give them an incentive to look into it.

I’ve divided the history of Supreme Court tax cases into three distinct eras.

Era One is entitled The Irreconcilable Differences Era, and starts with the very first tax case, Hylton v. United States (1796), and ends with a decision that gave the federal government economic power over pro-slavery state banks, but which would require a Civil War to make possible: Veazie Bank v. Fenno (1869).

Era Two is entitled the Post-Civil War Era, during which numerous Constitutional amendments are grappled with by the Supreme Court, all of which were made possible by the Civil War victory, and which would provide an historic opportunity for women’s rights. This era ends during the Great Depression in the mid-1930s and was marked by a distinct focus on gaining federal power over big businesses and wealthy individuals.

Era Three is the Commerce Clause Era, which roughly began with the revolution of 1937, when the Supreme Court is concerned with the causes and remedies of the Great Depression. We are still living in this era, but there are signs that a new era or attitude is both possible and necessary.

My view is that the best approach to raising awareness among both lawyers and non-lawyers about the sensitive subject-matter of this compilation is to (1) let the real Supreme Court’s tax cases speak for themselves as much as possible, (2) present the most relevant cases in the correct chronological order to get a sense for tax law evolution, and (3) put emphasis where necessary to counterbalance decades of neglect of the Constitution’s two DIRECT TAX CLAUSES. (We’ll explain direct taxes later, but in a nutshell this entire book is about understanding direct vs. indirect taxation in the United States.)

To that end, after providing an abbreviated, highlighted, easy-to-read version of the Constitution in chapter 1, all succeeding chapters will be presented in a simple format that shows (1) an organizational chart to visually show how the tax case affected the Constitution’s tax and monetary clauses; (2) brief notes about major points made in each case and pointing to our view that the United States, since its inception, has been moving toward a fully Treasury-Direct monetary system; and (3) a condensed, easy-to-read version of the actual case, in the words of the Supreme Court.

Also, in this book I strictly follow U.S. Supreme Court tax cases and generally don’t put much weight on the actual year in which a tax law was ratified by Congress. I did this because the Supreme Court’s views are most authoritative, its central role is to pronounce constitutional intent, it is not obligated to take cases unless believed necessary, and the Court usually makes sure it has had a chance to see how a particular tax law plays out in the field.

For example, the Sixteenth Amendment was ratified in 1913, but in the book, our organization charts don’t recognize the authority of that law until the Supreme Court comments on it in the 1916 Brushaber case. Or, as another example, in the 1880 Springer case, the Supreme Court recognizes taxes on two kinds of income, one of which was subsequently ruled unconstitutional in the 1895 Pollock case, so we also view taxes on both kinds of income as constitutional until 1895, etc.

For hyperlinks to full versions of any Supreme Court case mentioned in this compilation, please visit the nonprofit’s website at www.lockeanliberty.org and click on Supreme Court Timeline at the top, then scroll to the appropriate year.

Finally, words that are capitalized may require that you check the glossary in Appendix A. Many words and phrases in my glossary may not be found in law dictionaries because I believe finer distinctions were necessary to help both lawyers and nonlawyers better understand the American legal term of art called income.

Part One

The Irreconcilable Differences Era (1787-1869)

In this part of the book, I show how the (Lockean) philosophical foundation of the U.S. Constitution cannot reconcile with the existence of slavery, or with the banknotes coming from state banking corporations, which are maintaining the status quo and competing with Congress’s monetary powers.

The main focus of this era is to expand the federal government’s power over the monetary system, because when all is said and done, the power to create money is the power to declare who and what gets property rights. And, frankly the federal government simply cannot survive under the Constitutional ideals laid out for it by the framers if each state has an independent co-equal or superior right to declare who gets property rights through the issuance of money.

Also, since the Constitution is silent on the concept of income, in this era there are doubts about whether Congress can tax it, which translates into doubts about whether a legal distinction can be made between the slave’s labor and the slaveholder’s profits.

This era ends after the Civil War and the Supreme Court declares the constitutionality of a death tax on the issuance of state banknotes in the 1869 Veazie Bank case.

So, since the Constitution did not originally define income, there is little discussion about the income tax in this era, although there are some hints about other species of taxes in the 1796 Hylton case. But otherwise the precedent set down in Hylton—that only real estate is protected by the DIRECT TAX CLAUSES—holds stable throughout this period.

This will change soon after the federal government wins the Civil War, and we will discuss these changes later in Part Two.

1 The Constitutional Foundation

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This chapter contains a condensed version of the U.S. Constitution. Please don’t be intimidated by it and keep it bookmarked. You will need to refer to it often so you can gradually get a feel for how income tax laws have evolved since the Constitution was ratified in 1787. Remember, you are trying to learn a new language with this book so that one day you can clearly explain to lawyers and government employees what you want from them.

Notes

1. The chart shows how the Constitution’s tax and monetary powers stood directly after ratification in 1787. As we will see, the Constitution is a marvelous document (or specially-constructed set of bylaws for the new federal government), but it does need some future adjustments to effect its unique form of liberty.

2. There is no federal power to issue paper money. States are prohibited from issuing both coinage and paper money, but are allowed to charter private banking corporations that can issue their own notes.

3. The APPORTIONMENT CLAUSE of the DIRECT TAX CLAUSES is an action upon the states designed to fairly apportion tax liability for DIRECT TAXES. After the Civil War, the three fifths rule—the Constitution’s reluctant compromise with slave holding states which gave them representation in Congress based on slaves as 3/5ths of a person—was nullified and the manner in which representatives were chosen was modified, but the APPORTIONMENT CLAUSE was otherwise unaffected.

4. The PROPORTIONMENT CLAUSE of the DIRECT TAX CLAUSES is an across-the-board prohibition of disproportional direct taxes on natural persons and on property because of ownership when no corporate privileges are being exercised and when there are no taxable transfer issues present in the circumstances, such as where the government is targeting the incoming receipts of a business.

5. The INDIRECT TAX CLAUSE allows the much less restrictive requirement that taxes be uniform throughout the states when INDIRECT TAXES are being levied. Duties and imposts normally refer to taxes on imported and exported goods and services. Excise taxes are levied on government-granted privileges to deal in certain trades or commodities, transfers, or receipts of property, or to conduct business in a corporate capacity, or other privileged way; and are not levied directly on property because of ownership. They are imposed without assessments, and usually the tax liability is measured by the amount of business done or the amount of success achieved while exercising the privilege.

6. Income taxes are not mentioned in the original Constitution but were historically considered to be a form of direct taxation under British tax law.

7. Other important constitutional phrases you should become familiar with, and which are explained further in the Glossary, are the SUPREMACY CLAUSE, the NECESSARY AND PROPER CLAUSE, and the OATH OR AFFIRMATION CLAUSE.

8. Do not underestimate the power of constitutional provisions, no matter how brief or benign the wording may seem. Everything the federal government does must have a constitutional basis!

For reference purposes, a condensed easy-to-read version of the Constitution follows. Unless retained to maintain structure, sections irrelevant to our discussion about tax and monetary powers have been deleted, with relevant Constitutional clauses highlighted in yellow. For a full version of the Constitution, visit the U.S. National Archives and Records Administration at www.archives.gov.

The Constitution of the United States (abbreviated)

_______________________________________

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

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ARTICLE 1

Section 1

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

Section 2

1. The House of Representatives shall be composed of Members chosen every second Year by the People of the several States, and the Electors in each State shall have the Qualifications requisite for Electors of the most numerous Branch of the State Legislature.

2. No Person shall be a Representative who shall not have attained to the Age of twenty five Years, and been seven Years a Citizen of the United States, and who shall not, when elected, be an Inhabitant of that State in which he shall be chosen.

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 . . . .

(Note: This is the APPORTIONMENT CLAUSE, part one of the DIRECT TAX CLAUSES. The three-fifths rule was in force in 1787 and was not nullified until after the Civil War in 1865.)

Section 3

1. The Senate of the United States shall be composed of two Senators from each State, chosen by the Legislature thereof for six Years; and each Senator shall have one Vote . . . .

Section 4

1. The Times, Places and Manner of holding Elections for Senators and Representatives, shall be prescribed in each State by the Legislature thereof; but the Congress may at any time by Law make or alter such Regulations, except as to the Places of choosing Senators . . . .

Section 5

1. Each House shall be the Judge of the Elections, Returns and Qualifications of its own Members, and a Majority of each shall constitute a Quorum to do Business; but a smaller Number may adjourn from day to day, and may be authorized to compel the Attendance of absent Members, in such Manner, and under such Penalties as each House may provide . . . .

Section 6

1. The Senators and Representatives shall receive a Compensation for their Services, to be ascertained by Law, and paid out of the Treasury of the United States. They shall in all Cases, except Treason, Felony and Breach of the Peace, be privileged from Arrest during their Attendance at the Session of their respective Houses, and in going to and returning from the same; and for any Speech or Debate in either House, they shall not be questioned in any other Place . . . .

Section 7

1. All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills . . . .

Section 8

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;

(Note: This is the INDIRECT TAX CLAUSE, also known as the Uniformity Clause by some authorities.)

2. To borrow Money on the credit of the United States;

(Note: This is the BORROWED MONEY CLAUSE.)

3. To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

(Note: This is the COMMERCE CLAUSE. It is unlikely the framers could have foreseen how small the world would become after the Civil War, and that this clause would dominate after the industrial and technological revolutions.)

4. To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

5. To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

(Note: This is the COINED MONEY CLAUSE.)

6. To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

7. To establish Post Offices and post Roads;

8. To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

(Note: This is the INTELLECTUAL PROPERTY CLAUSE, occasionally referred to as the IP Clause.)

9. To constitute Tribunals inferior to the supreme Court;

10. To define and punish Piracies and Felonies committed on the high Seas, and Offences against the Law of Nations;

11. To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

12. To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;

13. To provide and maintain a Navy;

14. To make Rules for the Government and Regulation of the land and naval Forces;

15. To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

16. To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

17. To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings;—And

18. To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

(Note: This is the NECESSARY AND PROPER CLAUSE.)

Section 9

1. The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a Tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.

(Note: The above strike-through/deletion is relevant only after the Civil War.)

2. The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.

3. No Bill of Attainder or ex post facto Law shall be passed.

4. No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.

(Note: This is the PROPORTIONMENT CLAUSE, the second part of the DIRECT TAX CLAUSES. When income is derived from property sources, taxes on it are not subject to this clause after ratification of the 16th Amendment in 1913.)

5. No Tax or Duty shall be laid on Articles exported from any State.

6. No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another; nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another.

7. No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

8. No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.

Section 10

1. No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

2. No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it’s inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress.

3. No State shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.

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ARTICLE 2

Section 1

The executive Power shall be vested in a President of the United States of America. He shall hold his Office during the Term of four Years, and, together with the Vice President, chosen for the same Term, be elected, as follows: . . .

Section 2

The President shall be Commander in Chief of the Army and Navy of the United States, and of the Militia of the several States, when called into the actual Service of the United States; he may require the Opinion, in writing, of the principal Officer in each of the executive Departments, upon any Subject relating to the Duties of their respective Offices, and he shall have Power to grant Reprieves and Pardons for Offences against the United States, except in Cases of Impeachment . . . .

Section 3

He shall from time to time give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient; he may, on extraordinary Occasions, convene both Houses, or either of them, and in Case of Disagreement between them, with Respect to the Time of Adjournment, he may adjourn them to such Time as he shall think proper; he shall receive Ambassadors and other public Ministers; he shall take Care that the Laws be faithfully executed, and shall Commission all the Officers of the United States . . . .

Section 4

The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.

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ARTICLE 3

Section 1

The judicial Power of the United States shall be vested in