“Sticking It to the Rich” backfired on Americans
The current tax code is now four million words long, more than four times longer than the collected works of Shakespeare, and six to seven times longer than the Bible. It requires 25 volumes to contain and takes up nine feet of shelf space.
According to Forbes, it takes Americans over six billion hours to comply with its filing requirements. That’s the equivalent of 8,758 lifetimes. In people years, not dog years.
This monstrosity is based entirely on the 16th Amendment, which authorizes Congress “to lay and collect taxes on incomes, from whatever source derived.”
Now the 16th Amendment had to be ratified by the American people. How in the world did the framers of this misbegotten gargantuan convince the American people to do this to themselves?
Easy. They lied to us.
They told us “income” meant one thing when they convinced us to vote for it, then they changed its definition when it went into effect and nailed us all to the wall.
The American people were led to believe that the “income” that would be taxed under this amendment was what we today call “unearned income,” that is, profit from investments, dividends, interest, capital gains, and net income from business and corporate earnings.
The term “income” did not apply to wages and salaries. That was considered “earned income,” income received from labor, and not “unearned income,” the money fat cats made from investments and their corporations. What we call “unearned income” was the target of the 16th Amendment.
The American people were told that the income tax provision would apply only to the top one percent of wage earners, and would sock them with a one percent tax on income. The rest of America - you know, the ones that had to vote for this thing - were told we would be left alone. None of this would apply to us.
Government funding before personal income tax
Prior to the passage of the 16th Amendment, virtually the sole source of income to the federal government came from tariffs collected on imported goods. That itself was a profound limitation on the size and reach of the federal government. In 1910, for instance, the budget for the entire federal government was $1.042 billion dollars. You read that right. The entire federal budget in 1910 was one billion dollars.
Now ordinary Americans complained that tariffs burdened them but gave a built-in profit margin to American manufacturers. Let’s assume for the sake of argument that production costs for manufactured items were the same in the U.S. as, let’s say, Europe. If importers had to pay, for example, a five percent tariff on everything it wanted to sell in the United States, then U.S. manufacturers could raise their prices four percent - pure, unadulterated profit for them - and still undercut international competition.
Since the increased cost for these goods fell upon ordinary, hard-working Americans while at the same time padding the already heavy wallets of the Vanderbilts and the Mellons and the Carnegies and the Rockefellers, working Americans began to feel that they were being taken advantage of, that they were in effect bearing all the cost of funding the federal government, and that the tariff system was essentially a perpetual, taxpayer-subsidized bailout for American tycoons.
So the 16th Amendment was proposed as the solution. It was sold to the American public as a way to make the rich pay their “fair share.” No longer would the federal budget be balanced on the backs of the working poor, no sir. The free ride for the corporate fat cats was over. We were going to sock it to ‘em, by golly. It was billed as a “soak the rich” scheme.
Changing the definition to charge Americans
The meaning of the word “income” was clearly understood at the time. For instance, the authoritative Black’s Dictionary of Law, in its 1891 edition (reiterated verbatim in 1910), defined “income tax” this way: “A tax on the yearly profits arising from property, professions, trades, and offices.” (Emphasis mine throughout.)
West Publishing Co. produced a widely used Judicial and Statutory Definition of Words and Phrases in 1904. It defined “income tax” as a “tax which relates to the product or income from property or from business pursuits...[it] includes a tax on the gross receipts of a corporation or business.”
You will notice absolutely no mention, anywhere, of the wages or salaries of the average citizen in the definition of “income.” The 16th Amendment was proposed and passed as a way of collecting indirect taxes on unearned incomes and annual profits.
As Sen. Heflin said during the congressional debate, “An income tax seeks to reach the unearned wealth of the country and to make it pay its share.”
Roger Foster wrote “A Treatise on the Federal Income Tax Under the Act of 1913” in 1914. In it he writes, “[I]t is evidently the intention, as a general rule, to tax only the profit of the taxpayer, not his whole revenue.” So wages and salaries were exempt from taxation under the 16th Amendment; investment and dividend income and profits from business were not.
According to Investopedia, “unearned income” is “Any income that comes from investments and other sources unrelated to employment services.”
As Phil Hart says in his book, “Constitutional Income: Do You Have Any?”:
“It is the annuity check you get in the mail from your investments, it’s your passive income. It is not the money you worked for. It is the net income, the profit left over from your ‘income property’ after you have paid all your expenses and taxes on the property. It is the interest income that accrues to your savings account even while you sleep” (p. 236).
Hart adds, “[T]he target of the income tax amendment was income from unincorporated businesses and from investments” (p. 243). He concludes, “The people of America simply did not think the 16th Amendment was ever going to tax the wages or salary of a working man” (p. 313).
Greedy government grabs
But it wasn’t long before the federal government, insatiably greedy for our money, changed the definition of “income” from the one we had voted for – investment and dividend income and corporate profits – to include wages and salaries. And so the march to a 3.8 million-word Leviathan began. It wasn’t long before ordinary working stiffs like you and me got completely hosed. A law intended to soak the rich instead now threatens to drown us.
Most folks, including me, will pay their taxes for the simple reason that they don’t want to go to jail. But the bottom line is this: if we are to be guided, as we should be, by the original intent of the framers of the Constitution and the intent of the American people when they voted for the 16th Amendment, then there is absolutely no constitutional authority for your wages or salaries to be taxed by Uncle Sam. None, nada, zilch, zip.