Chapter 1: The Brushaber Decision

Historically, defensive federal officials have argued that the 16th Amendment is constitutional because the Supreme Court of the United States has said so. In the year 1916, the high court issued a pivotal decision which is identified in the case law as Brushaber vs. Union Pacific Railroad Company, 240 U.S. 1. It is important to realize that the evidence impugning the ratification of the 16th Amendment was not published until the year 1985. This evidence was simply not available to plaintiff Frank R. Brushaber when he filed his first complaint on March 13, 1914 in the District Court of the United States for the Southern District of New York. His complaint challenged the constitutionality of the income tax statute which Congress had passed immediately after the 16th Amendment was declared ratified. Specifically, he challenged the constitutionality of the income tax as it applied to a corporation of which he was a shareholder, i.e., the Union Pacific Railroad Company. His challenge went all the way to the Supreme Court, and he lost.

Ever since then, attorneys, judges and other officials of the federal government have been quick to cite the Brushaber case, and others which followed, as undeniable proof that the 16th Amendment is constitutional. With its constitutionality settled by the Brushaber ruling, former Commissioner of Internal Revenue Donald C. Alexander felt free, almost 60 years later, to cite the 16th Amendment as the constitutional authority for the government to tax the income of individuals and corporations. Consider the following statement of his which was published in the official Federal Register of March 29, 1974, in the section entitled 'Department of the Treasury, Internal Revenue Service, Organization and Functions'. His statement reads in part:

             (2)   Since 1862, the Internal Revenue Service has undergone 
             a period  of  steady  growth  as  the  means  for  financing 
             Government operations  shifted from  the levying  of  import 
             duties  to   internal  taxation.    Its  expansion  received 
             considerable impetus  in 1913  with the  ratification of the 
             Sixteenth Amendment to the Constitution under which Congress 
             received constitutional  authority  to  levy  taxes  on  the 
             income of individuals and corporations. 
                                            [Vol. 39, No. 62, page 11572] 
What is not widely known about the Brushaber decision is the essence of the ruling. Contrary to widespread legal opinion which has persisted even until now, the Supreme Court ruled that taxation on income is an indirect tax, not a direct tax. The Supreme Court also ruled that the 16th Amendment did not change or repeal any part of the Constitution, nor did it authorize any direct tax without apportionment. To illustrate the persistence of wrong opinions, on a recent vacation to Montana, I had occasion to visit the federal building in the city of Missoula. On the wall outside the Federal District Court, Room 263, a printed copy of the U.S. Constitution is displayed in text which annotates the 16th Amendment with the following statement:
             This amendment modifies Paragraph 3, Section 2, of Article I 
             and Paragraph 4, Section 9, of Article I. 
In light of the Brushaber decision, this statement is plainly wrong and totally misleading. The text of the 16th Amendment contains absolutely no references to other sections of the Constitution (unlike the repeal of Prohibition). In his excellent book entitled The Best Kept Secret, author Otto Skinner reviews a number of common misunderstandings like this about the 16th Amendment, and provides ample support in subsequent case law for the clarifications he provides. Interested readers are encouraged to order Otto Skinner's work by referring to the Bibliography (Appendix N).

The U.S. Constitution still requires that federal direct taxes must be apportioned among the 50 States of the Union. Thus, if California has 10 percent of the nation's population, then California's 'portion' would be 10 percent of any direct federal tax. In the Brushaber decision, the Supreme Court concluded that income taxes are excises which fall into the category of indirect taxes, not direct taxes. From the beginning, the U.S. Constitution has made an explicit distinction between the two types of taxation authorized to the Congress, with separate limitations for each type: indirect taxes must be uniform across the States; direct taxes must be apportioned. Writing for the majority in one of his clearer passages, Chief Justice Edward Douglass White explained it this way:

             [T]he conclusion  reached in the Pollock Case did not in any 
             degree involve  holding that  income taxes  generically  and 
             necessarily  came  within  the  class  of  direct  taxes  on 
             property, but  on the  contrary  recognized  the  fact  that 
             taxation on  income was  in its nature an excise entitled to 
             be enforced as such .... 
             [Brushaber vs Union Pacific Railroad Co., 240 U.S. 1 (1916)] 
Unfortunately for Justice White, most of the language he chose to write the majority's opinion, and the resulting logic contained therein, are tortuously convoluted and almost totally unintelligible, even to college-educated English majors. In his wonderful tour de force entitled Tax Scam, author Alan Stang quips that Justice White:
... turned himself into a pretzel trying to justify the new tax without totally junking the Constitution.
Stang's book is a must, if only because his extraordinary wit is totally rare among the tax books listed in the Bibliography (Appendix N). Other legal scholars and experienced constitutional lawyers have published books which take serious aim at one or more elements of White's ruling. Jeffrey Dickstein's Judicial Tyranny and Your Income Tax and Vern Holland's The Law That Always Was are two excellent works of this kind. Both authors focus on the constitutional distinctions between direct and indirect taxes, and between the apportionment and uniformity rules.

Dickstein does a masterful job of tracing a century of federal court decisions, with an emphasis on the bias and conflict among federal court definitions of the key word 'income'. He exercises rigorous logic to demonstrate how the Brushaber ruling stands in stark contrast to the important Supreme Court precedents that came before and after it in time. For example, after a meticulous comparison of Pollock with Brushaber, Dickstein is forced to conclude that:

             Justice White's  indirect attempt  to  overturn  Pollock  is 
             wholly  unpersuasive;     he   clearly  failed  to  state  a 
             historical, factual or legal basis for his conclusion that a 
             tax on  income is an indirect, excise tax.  It is clear that 
             Mr.  Brushaber   and  his  attorneys  correctly  stated  the 
             proposition  to   the  Supreme   Court  that  the  Sixteenth 
             Amendment relieved  the income  tax, which was a direct tax, 
             from  the   requirement  of   apportionment,  and  that  the 
             Brushaber Court failed miserably in attempting to refute Mr. 
             Brushaber's legal position. 
                          [Judicial Tyranny and Your Income Tax, page 60] 
Dickstein also proves that an irreconcilable conflict exists between the Brushaber decision and a subsequent key decision of the Supreme Court, Eisner vs Macomber, 252 U.S. 189:
             There is  an irreconcilable  conflict between  the Brushaber 
             case, which  holds the  income tax  is an  indirect tax  not 
             requiring apportionment,  and the  Eisner case,  which holds 
             the income tax is a direct tax relieved from apportionment. 
                                   [Judicial Tyranny and Your Income Tax] 
                                                   [footnote on page 141] 
Going back even further in American history, Holland argues persuasively that 'income' taxes have always been direct taxes which must be apportioned even today, Brushaber notwithstanding:
             It results, therefore: ... 
             4.   That  the   Sixteenth  Amendment   did  not  amend  the 
             Constitution.   The United States Supreme Court by unanimous 
             decisions determined  that the  amendment did  not grant any 
             new powers  of taxation;    that  a  direct  tax  cannot  be 
             relieved from  the constitutional  mandate of apportionment; 
             and the  only effect  of the  amendment was  to overturn the 
             theory advanced in the Pollock case which held that a tax on 
             income, was  in legal  effect, a  tax on  the sources of the 
             income. ... 
             6.   [T]hat a  General Tax  on Income levied upon one of the 
             Citizens of the several States, has always been a direct tax 
             and must be apportioned. 
                                      [The Law That Always Was, page 220] 
There are, however, two additional lessons from the Brushaber decision which have been entirely lost on most, if not all of the authors who have published any analysis of this important ruling. These are the dual issues of status and jurisdiction, issues which it is my intention to elevate to the level of importance which they have always deserved. An understanding of status and jurisdiction places the Brushaber ruling in a new and different light, and solves a number of persistent mysteries and misunderstandings which have grown up around an income tax law which now includes some 2,000 pages of statute and 6,000 pages of regulations. More precisely, the published rules of statutory construction require us to say that the income tax law now includes only 2,000 pages of statute and 6,000 pages of regulations.

Obviously, without a comprehensive paradigm with which to navigate such a vast quantity of legalese, particularly when this legalese is only slightly more intelligible than White's verbal pretzels, it is easy to understand why professors, lawyers, CPA's, judges, prosecutors, defendants and juries consistently fail to fathom its meaning. In the Republic envisioned by the Framers of the Constitution, a sophisticated paradigm should not be necessary for the ordinary layman to understand any law. In and of itself, the need for a sophisticated paradigm is a sufficient ground to nullify the law for being vague and too difficult to understand in the first place. Nevertheless, the remainder of this book will show that status and jurisdiction together provide a comprehensive paradigm with sufficient explanatory power not only to solve the persistent mysteries, but also to provide vast numbers of Americans with the tax relief they so desperately need and deserve.

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