The Big “Income” Con

The Big Con

A few words about the most rewarding lie ever told by a corrupt and well-connected cabal.

BY DESIGN, THE INCOME TAX IS AN EXCISE laid exclusively on the use of federal property or prerogatives (privileges) to make private profits. The tax compels a return to the public purse of a portion of those private benefits, with the amount of tax due measured by the dollar value of the profits produced.

“The income tax… …is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax; it is the basis for determining the amount of tax.”

Treasury Department legislative draftsman F. Morse Hubbard in testimony to Congress in 1943

The benign and enlightened principle of the income tax made it widely popular when it was widely understood. Indeed, the American people actually amended the federal Constitution in 1913 to allow the resumption of the tax after the Supreme Court erected a road-block to its administration in 1895.

That judicial road-block had been put in place at the urging of the public-resources profiteers by a court filled during a period in which much of the federal government was under the influence of corrupt national railroad interests and their bought members of Congress, all of whom were among the targets of the tax. (See background on that interesting story here.)

Those profiteers were faced with a populist Cleveland administration determined to check or mitigate the inherent corruption involved in their public-resource exploitation and balance the books, so to speak, by recapturing some of the pelf.

Obviously, the threatened diminishment of private profits was less than pleasing to those subject to the tax. But just as obviously, those well-enough connected with the halls of power to be using public stuff to make private benefits are also, by the same token, well-enough connected to influence public policy, and in 1895, the Supreme Court came to the profiteers’ rescue.

The people were not pleased, however, and the push toward overruling the court promptly got under way. In 1913, the adoption of the 16th Amendment deep-sixed the Supreme Court’s corrupt 1895 judicial dodge (in which the mechanism by which profits were realized– characterized as their “source”– was used to treat any associated tax as a property tax).

As a later Supreme Court put it in analyzing the purpose and effect of the amendment:

“[T]he provisions of the Sixteenth Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment by a consideration of the sources from which the income was derived — that is, by testing the tax not by what it was, a tax on income, but by a mistaken theory deduced from the origin or source of the income taxed.”

Stanton v. Baltic Mining Co., 240 U.S. 103 (1916)

Now the American people were pleased, but the well-connected profiteers were not. Plan A having been thwarted, the profiteers turned to Plan B, the Big Con.

HERE’S HOW IT WORKS: As the 16th Amendment and the resumption of the income tax approached, those anticipating once again becoming “taxpayers” (who understood that Congress meant to reduce tariffs and rely more heavily on the income tax for general revenue) launched a disinformation campaign. The plan was to mis-educate the American public into a belief that “income” in tax law simply means “what comes in”– that is, includes the gains enjoyed by anyone engaged in any economic activity, rather than only activities involving the use of public (specifically, federal) property and prerogatives.

The campaign worked hard to conceal the legal character of the tax as an excise (a fact which reveals the true nature of the “income” actually subject to the tax). Instead, it promoted the fiction that the 16th Amendment provided for a direct (non-excise) tax which was simply excused from the “apportionment” requirement imposed on such taxes by the Constitution.

The well-connected profiteers’ campaign sought to instill the belief that every American was subject to the tax in the same way as are the profiteers themselves. At the same time a corresponding bureaucratic structure to support this fiction was being created.

By establishing the myth that the tax applies to all economic activity– even that of the working-class majority– the well-connected profiteers knew they could count on downward pressure on the tax rates to which their privilege-produced profits would be subject. At the same time the distribution of the overall revenue-burden relied-upon from the tax over a much larger pool of “contributors” diminishes upward pressure on those rates while at the same time diminishing the intensity of collection efforts in the face of well-connected efforts to resist or evade.

And lo, and behold, the profiteers’ campaign worked swimmingly! By the mid-1940s, 90% of an American public which previously, throughout the entire 80 years of the tax’s existence had filed income tax returns at an annual average rate of less than 9%, was signing sworn statements on 1040s declaring their entirely unprivileged earnings to be “income” by which the tax was to be measured, and paying huge amounts to the United States and State and local treasuries.

The well-connected con artists weren’t quite as well off vis-a-vis the tax as they had been after their first exercise of influence in the 1895, but they were MUCH better off than they would be without the con.

SO, SINCE THE EARLY 1940s most Americans have been victims of the Big Con. The truth has been out there for anyone to find, but as the saying goes, “You don’t know what you don’t know”, and as a result, few have even thought to look.

The price for that ignorance, forgivable though it may be, is enormous.

The exploitation of federal privilege has been massive. The corruption inherent in efforts to protect the resulting gains as described above has become deeply-rooted.

At the same time, the federal and union state governments (which have been granted a piece of the federal “income” pie) have grown like Topsy and where once representing a combined burden on GDP of only around 10% of GDP combined now tip the scales at 50% or more. Both are attended with all the pathologies typical to such grotesque obesity.

The average American is forced into a state of permanent cognitive dissonance in regard to the plain words of the Constitution, the law, and all other authorities in regard to the income tax pre-Big Con-campaign, and representations made today in service to, and by victims of, the campaign.

And then, of course, there is all the money extracted from ignorant American men and women which is not actually owed as tax and which goes from serving their interests and purposes to serving the interests and purposes of the well-connected and their political cronies and clients… (Get a sense of what’s at stake in this regard by seeing what is recovered by those who learn the truth.)

The Big Con and all its effects is a scandal!

Well, really it’s not… (which is a scandal in itself).

But it should be, and if enough folks knew the truth, it would be.

Spread that truth. Share this little document robustly, with encouragement to all recipients to read it through, and to follow the links at the end.

We can sort this out– it will just take a little counter-campaign.

“The Tax Code represents the genius of legal fiction… The IRS has never really known why people pay the income tax… The IRS encourages voluntary compliance, through FEAR.”

-Jack Warren Wade Jr., former IRS officer in charge of the IRS Nationwide Revenue Officer Training Program, in his book ‘When You Owe The IRS’

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