Source: http://www.taxhistory.com/cor/ways.html
Timestamp: 2019-04-19 06:58:38+00:00

Document:
RE: Response to request for written statement concerning President Bush’s tax relief proposal dated February 6, 2001.
The following information in offered in response to the Committee’s request and we would like to have this information included in the record. We do not profess to represent anyone but ourselves, although we probably speak for a great number in voicing our concerns.
We do not protest the taxation of income, in fact we agree with its original purpose. We do however, question the intent of Congress in their application of the Income Tax to "personal living and family expenses". The reason we question their intent is evident by the statement of Judge Hull in his synopsis of the first income tax levied under the 16th Amendment. The synopsis is found in Volume 50, Part 6, of the Congressional Record dated October 16, 1913 and begins on page 5679. There are two major concerns addressed by this synopsis to which the Committee should be enlightened.
First: "The statutory exemption of $3,000 is allowed for personal living and family expenses; however, this and other gross income for which special deductions are allowed by the law must be embraced in the return of gross income…"
"The basis upon which such exemptions rest is that the general welfare requires that in taxing incomes, such exemptions should be made as will fairly cover the annual expenses of the average family, and thus prevent the members of the such families becoming a charge upon the public. The statute allows corporations, when making returns of their net profits or income, to deduct actual operating and business expenses. Upon like grounds, as I suppose, Congress exempted incomes under $4,000."
"The exemption of $4,000 is designed, undoubtedly, to cover the actual living expenses of a large majority of families, and the fact that it is not applied to corporations is explained by the fact that corporations have no corresponding expenses. The expenses of earning their profits are, of course, deducted in the same manner, as the corresponding expenses of a private individual are deductible from the earnings of his business. …"
"In the present case there is no lack of uniformity as between corporations and individuals. The exemption of $4,000 a year in the case of individuals or families, as will be shown, is intended as a compensation for the necessarily excessive burden of consumption taxes upon small and moderate incomes.
There is no such situation in the case of a business corporation. Every cent which it expends is allowed it. It is taxed only on its net profits, deducting the wages account; which corresponds to the living expenses of the individual."
Second: "The Treasury regulations soon to be prepared will make it clear to every taxpayer the requirements of the law and its application to income derived from the various kinds of business. To any person who keeps familiar with his business affairs during the year to the extent that at its end he known with reasonable accuracy the amount of his aggregate annual profits, the matter of executing his tax return would be both simple and convenient."
What type of a "business" is the labor for hire employee in, and what "profit" do they acquire from their annual wages? It is evident from the above quotes, and the historical information contained in the Statistical Abstract of the United States, that the average labor for hire employee was not subject to the Federal "Income Tax" until after 1940 (actually the "Individual Income Tax Bill of 1944" [H.R. 4646]). This is especially interesting when you realize that labor for hire employees were earning more than the "single personal exemption of $1,000" allowed as early as 1917. What changed the levy of the "income tax" on net income (business) to include the gross receipts (employee wages) of labor?
"The value of an affirmative decision by Congress on the question of Federal taxation of officers of States and their subdivisions lies in the fact that the tax would be supported by the presumption of constitutionality attaching to a law passed by Congress and passed by its deliberate judgement after debate."
"The Senator from Vermont for himself may certainly make that reservation; but there is no question, under the accepted practice here and in the courts, that the fact that we pass the bill will lend to it the presumption of constitutionality."
Just an observation: The Democratic majority was 2:1, with Roosevelt as President.
"The bill provided for a direct tax upon the State employee…"
Direct taxes levied upon employees are commonly referred to as "poll taxes", or "capitation" taxes requiring apportionment. At least they were in the opinion of the Judges in office prior to 1937. ("Taxing the Exercise of Natural Rights" by John MacArthur Maguire, Harvard Legal Essays 1934 pp. 273-322 [cited by Justice Cardozo in Steward Mach. Co. v. Davis 301 U.S. 548 @ 581]).
Final point: The Sixteenth Amendment provides for the taxation of incomes, from whatever source derived, without apportionment. It is clear from that Amendment that taxation of the source was not included or permitted without apportionment. So what is the meaning of the word source?
That may sound like a silly question, but think about it. Immediately after the ratification of the Amendment the Court took up the question of what the term "income" meant. No one considered that a silly question, although the answer was universally known. They, however, defined it in light of the 16 Amendment as; "the gain derived from capital, from labor or from both combined". How many "sources" did they list, only two. Why? Because, "income" belongs to the person owning the capital or providing the labor and has nothing to do with "who" paid for it. This all changed in 1939 with the "Public Salary Tax Act" and the Court’s decision in the Graves v. New York Case [306 U.S. 466].
"We are asked to decide whether the imposition by the State of New York of an income tax on the salary of an employee of the Home Owners’ Loan Corporation places an unconstitutional burden upon the federal government."
"The present tax is a nondiscriminatory tax on income applied to salaries at a specific rate. It is not in form or substance a tax upon the Home Owners’ Loan Corporation or its property or income, nor is it paid by the corporation or the government from their funds. It is measured by income which becomes the property of the taxpayer when received as compensation for his services; and the tax laid upon the privilege of receiving it is paid from his private funds and not from the funds of the government, either directly or indirectly. The theory, which once won a qualified approval, that a tax on income is legally or economically a tax on its source, is no longer tenable."
What about the employee’s labor, isn’t that the real "source" of the employee’s income (salary or wage), and if that happens to be his only income, is that not a tax upon the "source" unless compensated for by the allowance of the personal exemption?
What is meant by "nondiscriminatory"? The tax levied upon corporations is levied only upon their "net-profits". The tax levied upon business, professions and the dealings in real and personal property is levied only upon net income, the gain derived from such things. The employee, however, is required to pay the "income" tax on the basis of their annual gross receipts. Yet, all three are classified as "persons", subject to the tax law?
"Can there be any doubt that the right to purchase, lease, and cultivate lands, or to perform honest labor for wages with which to support himself and family, is among these rights thus declared to be "inherent and inalienable"?
"That the rights to lease lands and to accept employment as a laborer for hire are fundamental rights, inherent in every free citizen, is indisputable;"
Is it possible to have the inalienable right to labor for others and yet the receipt of wages earned by that labor be taxable as a "privilege"?
We do not object to a reasonable income tax, so long as the basis of that tax allows for a reasonable standard of living. It is well known that the higher one’s income is, the less impact the "income tax" has upon living expenses. The question then is what "standard" of living is reasonable? Isn’t the attainment of a basic standard of living the driving force behind labor, and are not the wages earned by hired labor in direct relation to the cost of providing that basic standard of living? Raising the "Personal Exemption" is fair to all, it treats everyone the same whether rich or poor. Why should you take the basic necessities away from the poor and not take the luxuries away from the wealthy, yet that is what our current system does. The current "personal" exemption is less than $3,000 a year, hardly enough to buy groceries let alone pay rent and utilities.
Raising the "Personal Exemption" is also the fastest way of putting money back into the economy, it simply lowers the amount withheld from wages and reduces the quarterly tax payments. Other than that, there are no other changes required in the Tax Law. The money thus injected into the lower brackets ultimately will end up in the higher brackets through increased consumer spending. A side benefit will be the decrease in the number of tax returns filed, thereby reducing the cost of processing those returns.
C.R.S. Report for Congress #92-303A (1992) "Frequently Asked Questions"
Hughes V. C.I.R.	38 F 2d 755 (1930)	Tax on "business occupation"
Washburn V. C.I.R.	51 F 2d 949 (1931)	Tax on "business occupation"
Dupont V. Deputy	308 US 499 (1939)	Tax on "business occupation"
Folker V. C.I.R.	230 F 2d 906 (1956)	Tax on officer of Corp.
Billings v. U. S.	232 U.S. 261 (1914) "Use"
Karnuth v United States	279 U.S. 231 (1929)	"Immigrant"
State of Ohio v. Helvering	292 U.S. 360 (1934) Meaning of "person"
I.R.C.	Vol. 1 1996 U.S. Code Cong.
Jefferson County v. Acker	98-10 Decided June 21, 1999 "occupation tax"

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