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Date: Fri, 14 Nov 1997 06:07:46 -0800
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From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: Income - 1 (fwd)

>                        by Tony Bator
>The government's own official publication number 21, "Understanding Taxes", 
>issued by the Internal Revenue Service in 1982 states that "you must decide 
>whether the law requires you to file a return."
>That being the case, one should ask themselves, "why don't they tell me the 
>law -- or laws -- that require me to file a return?"  Well, if the 
>government ever did, it would become perfectly clear to a large segment of 
>the American people that they are not required to file pieces of paper with 
>the government.
>An individual that would like to know if they are required to file a piece 
>of paper (a return, if you will) with the government must educate himself 
>and become aware of the factors that determine whether they are an 
>individual required to file an income tax statement. This education process 
>must be found in the following factors:
>     A) Our dual system of government.
>     B) Sovereignty.
>     C) Citizenship.
>     D) Direct taxes.
>     E) Indirect taxes.
>     F) General power of concurrent taxation.
>     G) The Corporation Excise Tax Act of 1909.
>     H) The Sixteenth Amendment.
>     I) Intergovernmental Tax immunity.
>     J) Withholding.
>     K) The Internal Revenue Code of 1954 pertaining to:
>        1) Normal taxes.
>        2) Surtaxes.
>        3) Definition of income as contained in congressional reports 
>        dealing with the Internal Revenue Code of 1954.
>     L) The Declaration of Independence and Unalienable Rights.
>                      The Declaration of Independence 
>                          and Unalienable Rights.
>The Declaration of Independence is our country's first organic document. It 
>has bestowed upon us a non-taxable right to an occupation of common right. 
>The second paragraph of that document states as follows:
>     We hold these truths to be self-evident, that all men are created 
>     equal, that they are endowed by their Creator with certain unalienable 
>     Rights, that among these are Life, Liberty and the pursuit of 
>     Happiness.  That to secure these rights, Governments are instituted 
>     among Men, deriving their just powers from the consent of the governed 
>     ...
>An occupation of common right does not come within the sovereignty of a 
>State  or the sovereignty of the Government of the United  States. 
>Additionally, the Supreme Court of the United States has stated on several 
>occasions what these unalienable rights are as demonstrated by the following 
>      Butchers Union v. Crescent City Co., 111 US 746.
>     The right to follow any of the common occupations of life is an 
>     unalienable right. It was formulated as such under the phrase `pursuit 
>     of Happiness' in the Declaration of Independence which commenced with 
>     the fundamental proposition that `all men are created equal, that they 
>     are endowed by their Creator with certain Unalienable rights, that 
>     among these are Life, Liberty, and the pursuit of Happiness'.  This 
>     right is a large ingredient in the civil liberty of the citizen ... I 
>     hold the liberty of pursuit -- the right to follow any of the ordinary 
>     callings of life -- is one of the privileges of a citizen of the United 
>     States.
>What do these words and phrases such as unalienable and civil liberty mean?
>     Unalienable -- A word denoting the condition of those things the 
>     property in which cannot be lawfully transferred from one person to 
>     another.  Public highways and rivers are unalienable, there are also 
>     many rights which are unalienable, such as the rights of liberty or of 
>     free speech.
>     Civil liberty -- The great end of all human society and government is 
>     that state in which each individual has the power to pursue his own 
>     happiness according to his conscience, unrestrained, except by equal, 
>     just and impartial laws.
>And again the Supreme Court of the United States stated in the below cited 
>cases as follows:
>     Meyer v. Nebraska, 262 US 390, 399, 400.
>     While this court has not attempted to define with exactness the liberty 
>     thus guaranteed, the term has received much consideration and some of 
>     the included things have been definately stated without doubt, it 
>     denotes not merely freedom from bodily restraint but also the right of 
>     the individual to contract, to engage in any of the common occupations 
>     of life, to acquire useful knowledge, to marry, to establish a home and 
>     bring up children, to worship God according to the dictates of his own 
>     conscience, and generally to enjoy those privileges long recognized at 
>     common law as essential to the orderly pursuit of happiness by free men 
>     ... the established doctrine is that this liberty may not be interfered 
>     with, under the guise of protecting the public interest, by legislative 
>     action which is arbitrary or without reasonable relation to some 
>     purpose within the competence of the State to effect.
>     Lynch v. Household Finance Corp.
>     ... the dichotomy between personal liberty and property rights is a 
>     false one.  The right to enjoy property without unlawful deprivation, 
>     no less than the right to speak or the right to travel, is in truth a 
>     `personal' right, whether the `property' in question is a welfare 
>     check,  a home, or a savings account.  In fact, a fundamental 
>     interdependence exists between the person's right to liberty and the 
>     personal right to property.  Neither could have meaning without the 
>     other.  The rights in property as basic civil rights has long been 
>     recognized.  J. Lock, of Civil Government 82-85 (1924); J. Adams, A 
>     Defense of the Constitutions of Government of the United States of 
>     America, in F. Coker, Democracy, Liberty and Property 121-132 (1942); 1 
>     W. Blackstone, Commentaries 138-140.
>     Miranda v. Arizona, 384 US 491.
>     Where rights secured by the Constitution are involved, there can be no 
>     rule making or legislation which would abrogate them.
>A wonderful example of how your civil liberty is being affected by unequal, 
>unjust and partial laws can be obtained by reading the decision made in 
>Amidon v. Kane, 279 A.2d 53. In this case the Supreme Court of the State of 
>Pennsylvania declared the Pennsylvania Personal Income Tax, which was a 
>replica of the Federal Income Tax System, unconstitutional.  The comments 
>and illustrations by the Pennsylvania Supreme Court are excellent examples 
>that show how your civil liberty, unalienable, constitutional, and civil 
>rights are being violated.
>                     The Internal Revenue Code of 1954
>The table of contents of the Internal Revenue Code of 1954, under Subtitle A 
>-- Income Taxes, has listed as Chapter 1, Normal Taxes and Surtaxes.
>In the U.S. Code, Legislative History of the Internal Revenue Code of 1954, 
>Volume 3, Page 4028, under Item III, Tax on Individuals and Corporations, we 
>find the following:
>     A. Combination of Normal Tax and Surtax (Sec.1) Under present law the 
>     individual income tax rate structure consists of a 3 percent normal tax 
>     and a graduated surtax.
>     Since the definition of income subject to the normal tax and the surtax 
>     is the same for the vast majority of taxpayers, your committee believes 
>     that the retention of the separate normal tax and surtax represents an 
>     unnecessary complication.
>     Accordingly, the normal tax and the surtax rates have been combined 
>     into a single rate schedule.  This simplification is made possible by 
>     providing a credit against tax (in a subsequent provision) equal to 
>     three percent of the interest received on Federal Government bonds, 
>     exempt from normal tax but subject to the surtax.
>What this states is that there still exists a Normal Tax and a Surtax both 
>being subject to the same tax rate schedule.  And that income associated 
>with both types of tax are defined in the same way.
>Nowhere in the definitions associated with the Internal Revenue Code of 1954 
>is there a definition or information as to whom or what a Normal Tax applies 
>Additionally -- nowhere in the IRC of 1954 is there a definition of the word 
>income as stated in the legislative history of that code, however, in the 
>committee reports of both the Senate Finance Committee and the House Ways 
>and Means Committee, we find the definition of income referred to in the 
>Legislative History of the Internal Revenue Code of 1954.  Here are the 
>appropriate portions of those committee reports:
>                  Senate Finance Committee Report No. 1622
>                 of the 83rd Congress 2d Session, Page 168.
>               Subchapter B -- Computation of Taxable Income
>                           Part 1 -- Definitions
>     Section 61(a) provides that gross income includes "all income from 
>     whatever source derived,"  This definition is based on the 16th 
>     Amendment and the word "income" is used in section 22(a) in its 
>     constitutional sense.  It is not intended to change the concept of 
>     income that obtains under section 22(a).
>     House Report No 1337 of the 83rd Congress 2d Session, Page a18.
>               Subchapter B -- Computation of Taxable Income
>                           Part 1 -- Definitions
>     Section 61A provides that gross income includes "all income from 
>     whatever source derived."  This definition is based on the 16th 
>     Amendment and the word "income" is used in its constitutional sense.
>Now it must be obvious that we have a situation wherein a statute -- the IRC 
>of 1954 -- does not supply the meaning of a Normal Tax, and who or what it 
>applies to, and additionally states that the word "income" is to be used in 
>its constitutional sense.  This indicates that the definition of the term 
>has to be determined by the courts.  The courts have provided for just this 
>type of situation when they stated as follows:
>     United States v. Collier, Fed,Cas.No. 14833.
>     In the construction of a statute, the court will look out of it to 
>     other statutes in pari materia, or of a similar purport, especially in 
>     respect to revenue laws, which, although made up of independent 
>     enactments, are regarded as one system, in which the construction of 
>     any separate act may be aided by the examination of other provisions 
>     which compose the system.
>So, as permitted by law, looking out of the Internal Revenue Code of 1954, 
>and referring back to Title 26 -- Internal Revenue of 1926, we can determine 
>what a Normal Tax is and who or what it applies to.  We see in section 951, 
>the following:
>     Section 951.  Normal Tax Rates:  alien residents of contiguous 
>     countries.  (a) There shall be levied, collected and paid for each 
>     taxable year upon the net income of every individual (except as 
>     provided in subdivision [b] of this section) a normal tax of 6 per 
>     centum of the amount of the net income in excess of the credits 
>     provided in section 957 of this title, except that in the case of a 
>     citizen or resident of the United States the rate upon the first $4,000 
>     of such excess amount shall be 2 per centum, and upon the next $4,000 
>     of such excess amount shall be 4 per centum.
>Now it is obvious from the above section of Title 26 - Internal Revenue of 
>1926, that the Normal Tax applies to the following people:
>     A) Aliens.
>     B) Residents of contiguous countries working in the United States while 
>     still living in their native country.
>     C) Citizens of the United States.
>It is also obvious that this is a direct tax and therefore requires an 
>understanding of who is a citizen of the United States, what direct taxes 
>are, how they are to be applied to the citizens of the United States and to 
>Citizens of the States, and to what income it taxes.
>First, aliens and citizens of contiguous countries come within the purview 
>of Congress and therefore are subject to the sovereignty of Congress and 
>therefore can be taxed on their wages and salaries along with income from 
>real and personal property by a direct tax.
>Second, with respect to citizenship, the following court cases should make 
>quite clear an adequate understanding as to how this applies with respect to 
>     Prentiss v. Brennan, Fed.Cas.No. 11358.
>     A person may be a citizen of the United States and not a citizen of any 
>     particular State.  This is the condition of citizens residing in the 
>     District of Columbia and in the territories of the United States and a 
>     citizen of a State, but his rights of citizenship under one of those 
>     governments will be different from those he has under the other.
>There is one additional citation that is of some importance with regards to 
>the legislative power of Congress and this cited below as follows:
>     American Insurance Co. v. 356 Bales of Cotton, 26 US 511.
>     In legislating for territories Congress exercises the combined powers 
>     of the general and of a State Government.
>Now when Congress lays a direct tax on the citizens of the United States as 
>distinguished from the citizens of the States, it has been determined by the 
>Supreme Court of the United States that the rule of apportionment does not 
>apply. This is found in the following:
>     Loughborough v. Blake, 12 Pet 733.
>     Congress has authority to impose a direct tax on the District of 
>     Columbia, in proportion to the census directed to be taken by the 
>     Constitution.
>     If an enumeration be taken of the population in the district and 
>     territories, on the same principles on which enumeration of the 
>     respective States is made, then the information is acquired by which a 
>     direct tax may be imposed on the district and territories, `in 
>     proportion to the census or enumeration' which the Constitution directs 
>     to be taken.
>Now, it then becomes necessary to know what ii to be taxed when a direct tax 
>is levied. This has been determined by the Supreme Court:
>     Pollock v. Farmers Loan & Trust, 158 US 601, 637.
>     Our conclusions therefore, may be summed up as follows:
>     First.  We adhere to the opinion already announced that, taxes on real 
>     estate being indisputably direct taxes, taxes on the rents or incomes 
>     of real estate are equally direct taxes.
>     Second.  We are of the opinion that taxes on personal property or the 
>     income of personal property, are likewise direct taxes.
>     Third.  The tax imposed by sections twenty-seven to thirty-seven 
>     inclusive of the Act of 1894, so far as falls on the income of real 
>     estate and personal property, being a direct tax within the meaning of 
>     the Constitution and therefore unconstitutional and void because not 
>     apportioned according to representation, all those sectionsconstituting 
>     one representation, all those sections constituting oneentire scheme of 
>     taxation, are necessarily invalid.
>Now we know what is to be taxed as a direct tax, and that the citizens of 
>the United States as distinguished from the citizens of the States, can be 
>taxed by Congress directly and Constitutionally without the rule of 
>apportionment being applied. However, the citizens of the States, if they 
>are to be taxed on their real and personal property or the income from both, 
>Congress must do so by the rule of apportionment or the tax is invalid. This 
>is proven in the following:
>     Pollock v. Farmers Loan & Trust, 157 US 429, 556.
>     The Constitution provides that representation and direct taxes shall be 
>     apportioned among the several States according to the numbers and no 
>     direct tax shall be laid except according to enumerations provided for; 
>     and also that all duties, imposts and excises shall be uniform 
>     throughout the United States.
>     Pollock v. Farmers Loan & Trust, 157 US 429, 581.
>     If it be true that by varying form the substance may be changed, it is 
>     not easy to see anything would remain of the limitations of the 
>     Constitution, or of the rule of taxation and representation, so 
>     carefully recognized and guarded in favor of the citizens of each 
>     State.  But Constitutional provisions cannot thus be evaded.  It is 
>     substance and not the form which controls as have been established by 
>     repeated decisions of the court.
>     Pollock v. Farmers Loan & Trust, 157 US 429, 583.
>     But acceptance of the rule of apportionment was one of the compromises 
>     which made adoption of the Constitution possible and secured the 
>     creation of that dual form of government so elastic and strong, which 
>     has thus far survived in unabashed vigor. If by calling a tax indirect 
>     when it is essentially direct, the rules of protection could be 
>     frittered away, one of the great landmarks defining the boundary 
>     between nation and the States of which it is composed, would have 
>     disappeared and with it one of the bulwarks of private rights and 
>     private property.
>     Pollock v. Farmers Loan & Trust, 157 US 429, 596.
>     It was hoped and believed that the great amendments to the Constitution 
>     which followed the late Civil War had rendered such legislation 
>     impossible for all future time.  But the objectionable legislation 
>     reappears in the act under consideration.  It is the same in essential 
>     character as that of the English Income Statute of 1692, which taxed 
>     Protestants at a certain rate, Catholics as a class at double the rate 
>     of Protestants, and Jews at another and separate rate.
>In view of the fact that Congress can only tax the real and personal 
>property or the income from both by the rule of apportionment as determined 
>by representation, it is vital to understand that the District of Columbia 
>and the territories have no representatives in Congress and the number is 
>determined by the census taken each 10 year period.  The rule of 
>apportionment means that each State will be taxed a given percentage of the 
>total amount, the percentage to be determined by the portion of its 
>representation in Congress with respect to the total existing at the time.
>As a quick example, say there are at present 435 members in the House of 
>Representatives and California has 43 members in the House.  California, 
>therefore, would be apportioned approximately 10 percent as its share of the 
>amount to be collected by a direct tax.
>Our founding fathers never intended that the borrowing power granted to 
>Congress would ever result in the percent deficits. It was thought that the 
>Indirect class of taxes (duties, imposts and excises) would supply all the 
>revenue needed by the National Government, however, should emergencies 
>arise, which they were wise enough to state they were unable to see at that 
>time, they granted to Congress the additional power of direct taxes which 
>could be used to cancel any debts acquired through the use of the borrowing 
>power during emergencies. (It is not the intent here to go into the subject 
>of honest money and the Federal Reserve System, but simply note that there 
>is a link between the borrowing power, direct taxes and emergencies.)
>                      Income in a Constitutional Sense
>                         as a Result of Sovereignty
>The phrase, "limitations of the Constitution", as used by the Supreme Court 
>of the United States in the Pollock case previously mentioned, indicates 
>that the government of each State and the National government are limited by 
>the Constitution as to the powers they may exercise. The sovereignty of the 
>States along with the sovereignty of the National Government in both its 
>national and local legislative powers were limited.  Sovereignty is equated 
>with taxing power, and this limited sovereignty has been defined by the 
>Supreme Court of the United States as shown in the following:
>     McCulloch v. The State of Maryland, 4 Wheat 316, 429.
>     The sovereignty of a State extends to everything which exists by its 
>own authority, or is introduced by its permission.
>Thus the taxing authority of a State is Constitutionally limited as 
>sovereignty and taxation are synonymous.  Remember: the individual does not 
>exist by the authority of a State, nor is the individual introduced by its 
>permission. The individual is born with certain unalienable rights and that 
>governments are instituted to secure these rights.
>Now  the taxing authority of Congress with respect to its national 
>legislative powers is contained in the Constitution, however, the local 
>legislative powers of Congress have been defined by the Supreme Court of the 
>United States in the following case:
>     Capital Traction Co. v. Hoff, 171 US 1.
>     The Congress of the United States, being empowered by the Constitution 
>     `to exercise legislation in all cases whatsoever' over the seat of the 
>     National Government has the entire control over the District of 
>     Columbia for every purpose of government, national or local.  It may 
>     exercise  within the district all legislative powers  that  the 
>     legislature of a State might exercise within the State.
>So it is obvious that the taxing authority of Congress when dealing with 
>local legislative powers has been limited to that of a State as expressed by 
>the court in the McCulloch case previously mentioned.
>With this understanding of limited sovereignty and its effect on the 
>authority to tax, Section 954 of Title 26 - Internal Revenue of 1926 gives 
>added insight as to what may be also income in a constitutional sense.
>     Section 954.  Gross income; what included, what not included.  For 
>     purposes of this chapter, except as otherwise provided in section 985.
>     (a) The term "gross income" includes gains, profits and income derived 
>     from salaries, wages or compensation for personal services (including 
>     in the case of the President of the United States, the judges of the 
>     Supreme and inferior courts of the United States, and all other 
>     officers and employees, whether elected or appointed, of the United 
>     States, Alaska, Hawaii or any political subdivision thereof, or the 
>     District of Columbia, the compensation received as such) of whatever 
>     kind and whatever form paid, or professions, etc., etc.
>Now remember that Congress has both general and local legislative power; 
>section 954 contains both these powers, but does not explicitly so state. It 
>can be understood only by an understanding of our dual system of government  
>and  the  court decisions concerning limitations  of  the Constitution with 
>respect to sovereignty.
>First, it shows "gains and profits" which is the character of income that 
>comes within the scope of the 16th Amendment.
>Second, income derived from salaries, wages or compensation for personal 
>service and within the brackets specifies the local legislative authority of 
>Congress as determined by the previously mentioned court decision.
>Congress has exceeded its local legislative authority by taxing the 
>President of the United States and the judges of the Supreme and inferior 
>courts as the Constitution expressly provides that their salaries shall not 
>be diminished. The Court has determined that this also means not to be 
>diminished by taxation.  When a president discloses his tax return that he 
>voluntarily files, he does so in an attempt to convince everyone that they 
>are required to file also, which, of course, is not necessarily true.
>It should also be pointed out that section 954 taxes employees who are 
>citizens of States living within the political jurisdiction of a State. 
>Remember: the sovereignty of Congress in its local authority "extends to all 
>that exist as a result of its own authority"; the Treasury of the United 
>States exists as a result of the authority of Congress and all funds paid 
>out of that Treasury (Federal Funds) are subject to taxation by Congress.
>As a result of its local legislative powers, which have been defined by the 
>Supreme Court as part of the limitations of the Constitution, Congress can 
>tax all that exists as a result of its own authority. Occupations of common 
>right are not those created as a result of the formation of the government. 
>It was not until 1939, with the passage of the Public Salary Tax Act of 
>1939, that Congress exceeded its local legislative authority and, by use of 
>the General Power of Concurrent Taxation, proceeded to tax the Officers and 
>Employees of the States.
>                 The General Power of Concurrent Taxation.
>The general power of concurrent taxation was granted by the States to the 
>National Government upon adoption of the Constitution.  This concurrent 
>power was to be exercised only in the area of excise taxes -- that is, if 
>the State levied an excise tax on a given thing then the National Government 
>had been granted power to also exercise an excise tax upon the same thing.
>As a result of the National Government's attempt to use this power to tax 
>the Officers of State Government, as shown by the Buffington v. Day case (11 
>Wall [US] 113), the Supreme Court developed what became to be known as The 
>Concept of Intergovernmental Tax Immunity.
>In the Buffington v. Day case, it was the position of the National 
>government, which is stated in the case that "Taxation of the incomes of 
>state officers derived from their salaries, is exactly what the Stare does 
>do; therefore, the right to do the same for certain objects was granted to 
>the United States, under the general power of concurrent taxation."
>It ii important to note that in the 1860's it was generally accepted by all 
>that the only thing subject to a direct tax was real estate.  Everything 
>else was just an excise tax.  It was not until 1895 that Chief Justice 
>Fuller and the Supreme Court in the Pollock case had determined that real 
>estate and personal property and the income from both were to be taxed 
>Constitutionally by direct taxation as determined by representation and the 
>rule of apportionment when taxing the citizens of the States.
>Had this correct interpretation of the Constitutional Taxing Power been 
>available in the 1860's, I do not think that the National Government would 
>have ever tried to tax the salary of a judge of a probate court in the State 
>of Massachusetts.
>When Chief Justice Fuller and the U.S. Supreme Court correctly determined 
>the proper meaning of the taxing power with respect to direct taxation, they 
>essentially reversed many of the previous decisions of the courts concerning 
>taxation pertaining to individuals.
>[Reprinted from `Freedom League Newsletter', Apr/May 1986]

Paul Andrew Mitchell, Sui Juris      : Counselor at Law, federal witness 01
B.A.: Political Science, UCLA;   M.S.: Public Administration, U.C.Irvine 02
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