The Goal (for the 99%) is to DISAMBIGUATE the Three Income Taxes, Not Abolish Them

The group that would benefit most from abolishing either of the three income taxes is the 1%, and if they have to pay any income tax, they’d prefer the currency-regulating income tax established in Springer v. U.S. (1880), which is the income tax most of us are dealing with today (though we tend not to recognize the Springer origins of the tax).


The 1% favor the “Springer income tax” because in recent decades they've succeeded in destroying the progressivity of the tax (which is now around 40% on the top income bracket, but used to be as high as 94%), substantially reduced the rates on capital gains (to about 15%-20%, below half the top bracket rate), and created key loopholes that entirely exempt some unearned income.


In this Doc, I’d like to experiment with labeling the 3 income taxes by the Supreme Court cases which Constitutionalized the tax. Hopefully, this will make the distinction between the three income taxes easier to understand, rather than trying to explain them from discussions about the 16th Amendment, which is always how the 1% want to frame the discussion, i.e., that the 16th Amendment is the cause of the problem and we’d all be better off without it.


As I often warn so-called tax protesters, abolishing the 16th Amendment would make matters much worse, and would do nothing except except exempt taxation of landlords, lenders, employers and speculators.



THE “SPRINGER INCOME TAX”


I often call this the “currency-regulating income tax” or the “legal tender privilege income tax,” but the tax is basically derived from England’s 1799 income tax, which was used by the Crown to support the Bank of England as it came off the coin standard.


The U.S. version was first levied 1862-1872. William Springer, an attorney, challenged the tax on his 1865 law practice earnings (along with some interest income) in Springer v. U.S. (1880), but lost. He rested his case on the argument that the income tax on his wages was a direct tax on his personal property, and needed to be apportioned under the Direct Tax Clauses (which meant Congress couldn't collect the tax; only levy it against the states).


The Supreme Court did not explain themselves very well, but essentially held that since the target of the tax was on Springer’s use of currencies not issued and controlled exclusively by the peoples’ Congress (the U.S. “sovereign”), the tax was ruled to be indirect on Springer’s wages.


In effect, because Springer received his wages in currencies not under Congress’s direct and exclusive control, his "wages as personal property" (which could only be levied under the Direct Tax Clauses) was converted into “wage income” (which could easily be levied under the Indirect Tax Clause).


The word “income” was not yet in the Constitution when Springer lost his case, but nevertheless the Court in 1880 considered the tax on Springer’s income to be an indirect “income duty” or “income excise tax” under Article 1, Section 8, Clause 1 (the Indirect or Uniformity Clause).

[link to en.wikipedia.org]



THE “POLLOCK INCOME TAX”


As I just mentioned, one of the problems with the Springer case was that in addition to “wage income” he also earned some interest income, so in addition to money "incoming" to Springer from national banks and their (legal tender) notes, money was also coming from Springer’s savings, his personal property.


Some pro-Georgist Congressmen accentuated the difference between the two income taxes in the 1894 income tax by adding a tax on landlord rental income, where land was the personal property of the landlord, from which the rental income was derived. The Supreme Court struck down this 1894 income tax in Pollock v. Farmers’ Loan (1895), and because of this, I will refer to taxes on income derived from property sources as “Pollock income taxes.”


I sometimes refer to this income tax as the “property income tax” or “tax on property income” or “tax on income derived from property,” but since Pollock is the case that really highlighted this kind of income tax, I think it’s most appropriate to use that case name.


Incidentally, as many of you know, it was the ruling in Pollock that led to the need for the 16th Amendment, though it's hard to tell by simply reading the Amendment.


Unfortunately, the 16th Amendment was worded in such a way that makes it appear to have authorized all income taxes in the U.S., when really all it did was eliminate the idea that rental or interest income might be a direct tax on land, labor or capital.


Another common misconception advanced about the 16th Amendment is that it simply blocks us from considering the source of the income, and that all income essentially comes from the same source.

[link to en.wikipedia.org]



THE “STONE TRACY INCOME TAX”


To further prove the point that the 16th Amendment was not the origin of all three U.S. income taxes, in 1909 Congress levied an income tax on corporate privilege, where the corporation’s net income was used to measure the benefit enjoyed while exercising the state-granted privilege.


In Flint v. Stone Tracy Co. (1911) the corporate officers, directors and shareholders challenged the tax and made the same argument that Springer tried to make, i.e., that any tax on the corporation was a direct tax on property, and therefore a violation of the Direct Tax Clauses, which required Congress to apportion such tax liability among the states.


I sometimes refer to this as the “corporate privilege income tax” or “tax on income derived from corporation privilege.”


The Supreme Court disagreed, and essentially used the same argument used by the Springer Court, which is that since the tax is targeting the privilege only, and using income only to measure the benefit under the privilege, the tax is indirect on property, not a direct tax on property ownership, like for example, taxing one’s house, car, bicycle, etc.

[link to en.wikipedia.org]



ONE FINAL DISTINCTION


The final point I’d like to make in this Doc is that there are only two classes of income taxes, (1) those derived from property sources, and (2) those not derived from property (i.e., government-granted privilege).


This is an important distinction to keep in mind because with "taxes on income not derived from property sources," the income is simply used to measure the benefit. In other words, the income is really not the prime target, but only used to give the government some reasonable way to fairly tax the (corporate or legal tender) privilege holder (or not tax the privilege holder if there was a loss).


Anyway, the Springer and Stone Tracy income taxes are in the class of income taxes that are NOT derived from the property sources of land, labor or capital, but the Pollock income tax IS in that class.



So, for example, even if a tax patriot were to totally avoid the corporate and legal tender privileges, income tax liability could still arise under the "Pollock income tax" if there was evidence that the individual was acting like a landlord, lender, employer or speculator. These human actors create, respectively, the following kinds of income: rental income, interest income, profits from hiring labor, capital or land gains.