Federal tax on earned wages raises valid constitutional questions

Politics
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Since federal tax time is here, I thought it would be interesting to explore some legal aspects of today’s federal tax on earned wages.

For the record, let us all acknowledge that the Sixteenth Amendment is part of our Constitution, and it declares:

”The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Now keep in mind the Sixteenth Amendment does not declare:

”The Congress shall have power to lay and collect direct taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Nor does the Sixteenth Amendment declare:

“The Congress shall have power to lay and collect taxes on earned wages, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Additionally, our Supreme Court has repeatedly confirmed, after the adoption of the Sixteenth Amendment, direct taxes laid by Congress are still required to be apportioned.

For example, if Congress, under the authority of the Sixteenth Amendment, asserts to be taxing incomes, but the tax, as it is applied, takes the form of a direct tax, and it is not being apportioned, the Supreme Court will strike the tax down as violating the constitutional protection requiring direct taxes to be apportioned, “notwithstanding the Sixteenth Amendment”, as stated in EISNER v. MACOMBER , 252 U.S. 189 (1920):

“Thus, from every point of view we are brought irresistibly to the conclusion that neither under the Sixteenth Amendment nor otherwise has Congress power to tax without apportionment a true stock dividend made lawfully and in good faith, or the accumulated profits behind it, as income of the stockholder. The Revenue Act of 1916, in so far as it imposes a tax upon the stockholder because of such dividend, contravenes the provisions of article 1, 2, cl. 3, and article 1, 9, cl. 4, of the Constitution, and to this extent is invalid, notwithstanding the Sixteenth Amendment.”
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It seems relatively obvious when considering the above stated FACTS, the contention made by some that today’s federal tax on a working person’s earned wages may very well violate our federal constitution and has great merit for the following reasons:

Today’s federal tax on earned wages is not in harmony with the original objective of adopting the Sixteenth Amendment which was to allow for a federal tax on “unearned” incomes [stocks, bonds, etc.] as can be contrasted from “earned” wages.

Today’s federal tax on a working person’s earned wages takes the form of a direct tax, is not being apportioned, and thus violates the constitutional protection requiring direct taxes to be apportioned.

Finally, and in respect of the Sixteenth Amendment and calculating today’s federal tax on earned wages “ . . . it becomes essential to distinguish between what is and what is not “income,” as the term is there used; and to apply the distinction, as cases arise, according to truth and substance, without regard to form. Congress cannot by any definition it may adopt conclude the matter, since it cannot by legislation alter the Constitution, from which alone it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised.” EISNER v. MACOMBER , 252 U.S. 189 (1920)

Today’s federal tax on earned wages does not follow the set rules laid out in EISNER V. MACOMBER to calculate and distinguish what portion, if any, of a working person’s earned wages falls within the definition of “incomes” as the term is used in the Sixteenth Amendment.

JWK

Why have a written constitution, approved by the people, if those who it is meant to control are free to make it mean whatever they wish it to mean?

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I thought it would be interesting to explore what is, and what is not, taxable income under the Sixteenth Amendment.

With regard to the meaning of taxable “income” as it appears in the Sixteenth Amendment, we find that meaning in Eisner v. Macomber 252 U.S. 189, 206 (1920):

“After examining dictionaries in common use (Bouv. L. D.; Standard Dict.; Webster’s Internat. Dict.; Century Dict.), we find little to add to the succinct definition adopted in two cases arising under the Corporation Tax Act of 1909 (Stratton’s Independence v. Howbert, 231 U.S. 399, 415 , 34 S. Sup. Ct. 136, 140 [58 L. Ed. 285]; Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185 , 38 S. Sup. Ct. 467, 469 [62 L. Ed. 1054]), ‘Income may be defined as the gain derived from capital, from labor, or from both combined,’ provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle Case, 247 U.S. 183, 185 , 38 S. Sup. Ct. 467, 469 (62 L. Ed. 1054). Brief as it is, it indicates the characteristic and distinguishing attribute of income essential for a correct solution of the present controversy. The Government, although basing its argument upon the definition as quoted, placed chief emphasis upon the word “gain,” which was extended to include a variety of meanings; while the significance of the next three words was either overlooked or misconceived. " Derived — from — capital;” — “the gain — derived — from — capital,” etc. Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being “derived,” that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; — that is income derived from property. Nothing else answers the description."

So, we now learn that all money that comes in is not “income” within the meaning of the 16th Amendment, but only that portion which represents a “profit” or “gain”. Keep in mind also that “profits“ or “gains, are calculated by deducting all necessary expenses and outlay from gross receipts …the remaining portion being “profit” and or “gain“!

It seems to be self-evident that a wage earner does in fact invest capital in pursuit of earning a wage, e.g., the cost of transportation to and from work; the cost of food which fuels the wage earners body during working hours; the costs involved with housing, medical needs, and even clothing are all expenses incurred by the wage earner and are necessary expenses and outlays which makes one’s labor possible. And this does not even take into account the “investment” of eight hours of life itself which the wage earner makes available to their employer, and that is in addition to the actual physical and mental labor invested by the wage earner, which is also made available to their employer.

So, the question to be answered here is, why is the capitalist allowed, and rightly so, to deduct their capital investments from money coming in, to arrive at their taxable income as per Eisner, while the wage earner is not?

Let us now note that the income from an illegal business was held subject to income tax in United States v. Sullivan, 274 U.S. 259. Nevertheless, it was necessary to determine what that income was, and the cost of an illegal purchase of liquor was subtracted from proceeds of the illegal sale of the liquor in order to arrive at the gain from the illegal transaction which were then subjected to income tax in that case .

And, in Sullenger vs. Commissioner the Court allowed the business owner [who made illegal purchases of meat] to deduct the cost of meat purchased at a higher price then set by the Office of Price Administration, which he then resold for profit. The “income” from those sales was being taxed and was at issue in the case. The Court went on to cite Sullivan and concluded: “No authority has been cited for denying to this taxpayer the cost of goods sold in computing his profit, which profit alone is gross income for income tax purposes.”

The point being, not only does todays capitalist get to deduct, and rightfully so, their necessary expenses and outlays to arrive at a “taxable income”, but even crooks engaged in illegal and criminal activities are allowed to make such deductions _ and with the Courts’ blessing _ when computing their taxable “profit” or “gain”. But today’s lowly wage earner who, although invests in a number of ways, and makes countless outlays to earn a wage, is told to follow a different set of rules which do not recognize the wage earners’ various investments and outlays when calculating a profit or gain from selling the property each has in their own labor.

JWK

The whole aim of construction, as applied to a provision of the Constitution, is to discover the meaning, to ascertain and give effect to the intent of its framers and the people who adopted it._____HOME BLDG. & LOAN ASSOCIATION v. BLAISDELL, 290 U.S. 398 (1934)

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Oh brother.
"Congress shall have power to lay and collect taxes on incomes, from whatever source derived, "
That would be wages, interest, dividends. if you have money coming in as an income, congress has the power to tax it.
“without apportionment among the several States, and without regard to any census or enumeration.”
And this part says it’s not subject to the previous direct tax based on the census. The tax on incomes is NOT to be apportioned among the states, and not subject to any count of the people.

4

Snow96,

Yes! That is exactly what appears in the Sixteenth Amendment. Now, keep in mind the Sixteenth Amendment does not read:

”The Congress shall have power to lay and collect direct taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Nor does the Sixteenth Amendment declare:

“The Congress shall have power to lay and collect taxes on earned wages, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

How do you arrive at the conclusion the Sixteenth Amendment is intended to reach “earned wages”, or repeals Article 1, Section 9, Clause 4, of our Constitution, especially since our Supreme Court has repeatedly confirmed direct taxes are still required to be apportioned “notwithstanding the Sixteenth Amendment”, as per EISNER v. MACOMBER , 252 U.S. 189 (1920)?

“The Revenue Act of 1916, in so far as it imposes a tax upon the stockholder because of such dividend, contravenes the provisions of Article I, § 2, cl. 3, and Article I, § 9, cl. 4, of the Constitution, and to this extent is invalid notwithstanding the Sixteenth Amendment.”

I am sincerely interested in how you have arrived at your conclusions.

JWK

“The Constitution is the act of the people, speaking in their original character, and defining the permanent conditions of the social alliance; and there can be no doubt on the point with us, that every act of the legislative power contrary to the true intent and meaning of the Constitution, is absolutely null and void.” ___ Chancellor James Kent, in his Commentaries on American Law , 1858.

5

Your interpreting the constituion as the DIRECT tax is unbreakable and unbendable.
That’s not the case
16th amendment is clear. Congress may tax incomes from WHATEVER source. Wages are a source of income.
16th amendment is clear. This income tax is not to be apportioned among the states (IE it can be levied on an individuals income), and is NOT depended upon what numbers come up in the cencus.

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Snow96

I’m still waiting for you explain how you arrived at your conclusion that the Sixteenth Amendment grants power to Congress to lay and collect a tax on “earned wages” when the Amendment mentions “incomes,” and not “earned wages”.

Your conclusion is certainly not supported by the members in Congress, during which time the amendment was framed and debated, and then sent to the States for ratification.

So, Snow96, the question remains, how did you arrive at the conclusion the amendment is intended to allow Congress to lay and collect a tax on earned wages?

JWK

The whole aim of construction, as applied to a provision of the Constitution, is to discover the meaning, to ascertain and give effect to the intent of its framers and the people who adopted it._____HOME BLDG. & LOAN ASSOCIATION v. BLAISDELL, 290 U.S. 398 (1934)

7

How many angels are you going to try to keep dancing on the head of the pin this time?

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8

How many times are you going to post adolescent comments?

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9

I have no idea what you mean by that. Please rephrase for clarity.

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Snow96

Assuming for a moment that a tax on earned wages does not violate the intentions under which the Sixteenth Amendment was adopted, nor violates the command that direct taxes are required to be apportioned, how do you calculate the taxable “income” from a working person’s earned wages?

JWK

11

Yes, Snow96, the Sixteenth Amendment is crystal clear and it states:

”The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The Sixteenth Amendment does not declare:

”The Congress shall have power to lay and collect direct taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

And, the Sixteenth Amendment does not say:

“The Congress shall have power to lay and collect taxes on earned wages, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Now, with the above stated FACTS in mind, a number of obvious and legitimate questions present themselves which, to the best of my knowledge, have not been adequately addressed by our Supreme Court, and since our very own Supreme Court has stated “The whole aim of construction, as applied to a provision of the Constitution, is to discover the meaning, to ascertain and give effect to the intent of its framers and the people who adopted it.”. HOME BLDG. & LOAN ASSOCIATION v. BLAISDELL, 290 U.S. 398 (1934), should the following questions not be resolved?

What was the meaning of “income”, within the amendment, as understood by those in Congress who framed and debated the proposed amendment?

Was the meaning of income to include a working person’s earned wage, or was there a specific identifiable group and their unique type of earners the intended targeted of the amendment, who are distinguishable from a laboring class person and their earned wage?

Does a federal tax on a working person’s earned wage, as distinguished from a tax on incomes realized under a government created corporate charter, take the form of a “direct tax”, and as such, requires the protection of Article 1, Section 9, Clause 4 to be applied, since it has not been repealed, while a tax on “incomes” realized under a corporate charter would be indirect and taxable under the Sixteenth amendment?

Since Congress may lay and collect taxes “incomes” without apportionment, and there is no repeal of Article 1, Section 9, Clause 4, is it not the Courts’ duty to harmonize Congressional legislation in such a manner that effect is given to each provision of our Constitution?

JWK

12

To be a bit more accurate, the fact is, if Congress, under the authority of the Sixteenth Amendment, asserts to be taxing incomes, but the tax, as it is applied, takes the form of a direct tax, and it was not apportioned, the Supreme Court has struck the tax down as violating the constitutional protection requiring direct taxes to be apportioned, “notwithstanding the Sixteenth Amendment”, as stated in EISNER v. MACOMBER , 252 U.S. 189 (1920):

“Thus, from every point of view we are brought irresistibly to the conclusion that neither under the Sixteenth Amendment nor otherwise has Congress power to tax without apportionment a true stock dividend made lawfully and in good faith, or the accumulated profits behind it, as income of the stockholder. The Revenue Act of 1916, in so far as it imposes a tax upon the stockholder because of such dividend, contravenes the provisions of article 1, 2, cl. 3, and article 1, 9, cl. 4, of the Constitution, and to this extent is invalid, notwithstanding the Sixteenth Amendment.”

Snow86,

Are you suggesting that a federal tax on the earned wage a working person receives when selling the property each has in their own labor is not a direct tax?

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The amendment specifically points out that it’s not to be apportioned. Amendments can not violate other parts of the constitution and can supersede them.

That’s what the tax law on incomes determines. Congress passes laws that tell how to tax incomes. The laws also determine if it’s an income.
But YOU should know this.

14

This old chestnut again?

Doing cartwheels as opposed to the plain reading of the 16th Amendment?

16th Amendment was introduced specifically to make the collection of income taxes, whether direct or not, free from apportionment.

In fact the ruling in Pollock was one of the main reasons why the amendment was passed in the first place.

All subsequent cases have been in regards to arguments over whether something was income or not…NOT an argument about direct v indirect taxes.

If something was declared income, then it could be taxed without apportionment…period.

In McComber, the stock dividend was declared not to be income because the shareholder’s stake in the company didn’t change.

These arguments are so ridiculous, but I expect they will be brought up again in April 2024…and 2025…and so on and so on…

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The Sixteenth Amendment does not authorize a direct tax which is not apportioned.

Nor does the Sixteenth Amendment declare:

“The Congress shall have power to lay and collect taxes on earned wages, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

And in Eisner v. Macomber 252 U.S. 189, 206 (1920) the Court confirms if Congress, under the authority of the Sixteenth Amendment, asserts to be taxing “incomes”, but the tax, as it is applied, takes the form of a direct tax, and is not apportioned, the tax violates the constitutional protection requiring direct taxes to be apportioned. The Court concluded:

“Thus, from every point of view we are brought irresistibly to the conclusion that neither under the Sixteenth Amendment nor otherwise has Congress power to tax without apportionment a true stock dividend made lawfully and in good faith, or the accumulated profits behind it, as income of the stockholder. The Revenue Act of 1916, in so far as it imposes a tax upon the stockholder because of such dividend, contravenes the provisions of article 1, 2, cl. 3, and article 1, 9, cl. 4, of the Constitution, and to this extent is invalid, notwithstanding the Sixteenth Amendment.”

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The truth is, our Supreme Court in EISNER provided the rules by which to calculate a profit or gain, collectively referred to in the Sixteenth Amendment as “income”.

Is it not a fact, that If a profit or gain cannot be calculated from a laboring class citizen’s earned wage, then there is no “income” within the meaning of the Sixteenth Amendment?

I have tried endlessly to calculate a profit and/or gain a laboring class person may realize when selling the property each has in their own labor, when following the rules laid out in EISNER and It seems to me to not be possible.

It is not self-evident that a wage earner does in fact invest capital in pursuit of earning a wage, e.g., the cost of transportation to and from work; the cost of food which fuels the wage earners body during working hours; the costs involved with housing, medical needs, and even clothing are all expenses incurred by the wage earner and are necessary expenses and outlays which makes one’s labor possible. And this does not even take into account the “investment” of eight hours of life itself which the wage earner makes available to their employer, and that is in addition to the actual physical and mental labor invested by the wage earner, which is also made available to their employer.

In accordance with the rules set out in EISNER, and as tersely stated by the Court in Sullenger vs. Commissioner “No authority has been cited for denying to this taxpayer the cost of goods sold in computing his profit, which profit alone is gross income for income tax purposes.”

So, please provide the worksheet calculating a profit and/or gain of the laboring class person mentioned above. Or is it your opinion the rules set by the S.C. are only applicable to capitalists who have money working, as opposed to those who work for their money?

JWK

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And in your “plain reading of the 16th Amendment” what is the definition of “income”?

In Eisner v. Mcomber the Court answers the question, “Income may be defined as the gain derived from capital, from labor, or from both combined.”

And as emphasized in U.S. v. Ballard: “Understanding the term in this natural and obvious sense, it cannot be said that a conversion of capital assets invariably produces income.” Is that not also applicable to a working person who converts the property one has in their own labor into an “earned wage”?

In order for there to be taxable income under the Sixteenth Amendment an actual gain or profit must be realized by the wage earner, “severed from the capital however invested or employed.”

Seems to me from what the Court states in United States v. Ballard and Eisner v. Macomber, in order to arrive at taxable income under the Sixteenth Amendment, a calculation must be performed to separate capital invested from money coming in to arrive at a taxable gain or profit, collectively called “incomes” in the Sixteenth Amendment.

So, how do we apply these rules to a wage earner who sells the property each has in their own labor?

JWK
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That’s precisely how it works.

Congress lets capital investors deduct all those expenses, but doesn’t let wage earners do so.

Are you claiming Congress should do that?

How progressive of you!

19

If wages are income then please tell me where I can pay the Lord to get more life (make a profit with what I invested to get those wages) and how much it will cost per hour?

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What are you implying by your comment, “How progressive of you!”