The Fascinating Truth About The 16th Amendment

The income tax is just an excise; capitations still require apportionment; and you’ve been taken to the cleaners

Sep 13, 2023

by Peter E. Hendrickson
{edits & comments by Dawn French, original is here}

First published in 2013

Introduction

AS THE FIRST AMERICAN IN HISTORY to secure a complete refund of all federal income taxes withheld-- including Social Security and Medicare taxes-- and the author of several books that have led to many tens of thousands of other American men and women getting all THEIR money back year after year since 2003, I imagine I'm the last person from whom you'd expect to hear praises of the income tax. But that's what you're hearing.

The fact is, the income tax is not only a Constitutional tax, it is also a very desirable tax. Applied in strict adherence to its statutory design, the income tax is benignly-limited in scope. It is also a fit mechanism by which those who make money from the exploitation of public resources return to the common purse a portion of their private profits.

In this short paper, I am going to show you what the income tax really is and on what it really falls. I'm also going to show you how the tax has come to be widely misunderstood and how, since FDR's third term as president, that misunderstanding has been systematically cultivated and exploited by an insatiable state which is increasingly impatient with any level of restraint {emphasis added}.

TO PUT IN A NUTSHELL what you are about to learn, the "income" tax is and always has been an EXCISE on gains from certain federally-connected activities in which most Americans do not engage in meaningful (taxable) amounts, if at all {emphasis added}. The law says this plainly, if only in places not commonly seen by most people.

Unfortunately, most Americans have been successfully conditioned over the last 75 years to believe the tax applies to all economic activity. Concurrently, most Americans have been induced to report payments of all kinds to government tax agencies using forms such as W-2s and 1099s which are actually prescribed-- again, in places most people don't know to look-- exclusively for the reporting of federally-connected tax-relevant payments.

These reporting-form allegations {reported on a W-2 or 1099} are taken as true if unrebutted, and it is on that basis that the income tax is ultimately applied, both to those who have engaged in taxable activities and those who have not, but aren't aware of the need to rebut the erroneous reporting-form allegations to the contrary. Because of the way this has all been designed, put in place and maintained, for most folks the "income tax" could be better called the "ignorance tax".

I realize that what I've just described sounds as unlikely as the proposition that everyone's emails and phone calls were being systematically vacuumed-up by the government without warrants would have sounded a few years ago. Please suppress your skepticism for the moment and indulge your curiosity.

Just read what follows. You'll end up recognizing the truth.

PLEASE READ CAREFULLY AND THOROUGHLY! In particular, click on links in the text such as those for "apportionment", "excise" and "capitation". Even if you are a legal specialist, I assure you that the legal meanings of these Constitutional terms are not what you think, just as the Constitutional term "income" doesn't mean what you think it does. You'll find something very worthwhile, and often very important, at every other link within the text, as well.

Enjoy.

The Fascinating Truth Versus The Comforting Myth

"The great enemy of the truth is very often not the lie-- deliberate, contrived and dishonest-- but the myth, persistent, persuasive and unrealistic. Belief in myths allows the comfort of opinion without the discomfort of thought."
-John F. Kennedy
"All governments are run by liars and nothing they say should be believed."
-I. F. Stone

MY FRIEND, ALL YOUR LIFE YOU’VE BEEN TOLD THAT THE 16TH AMENDMENT was a transformational event in the history of the United States Constitution by which an unapportioned direct federal tax on "all that comes in" was authorized. You’ve been told that the amendment reversed the preceding 137-year-old Constitutional tax structure prohibiting such taxes-- under which the American people had grown to be the freest, most prosperous, and most optimistic people in the history of the world-- in favor of a radically-different structure under which the scandal-ridden and deeply-distrusted denizens of Washington, DC were granted carte blanche to reach directly into every wallet, be it that of a Wall Street tycoon or that of the average working stiff.

Explanations as to why the rich and happy Americans of the early 20th Century would do such a thing to themselves have always been vague-- they typically amount to something about a populist or progressive impulse that swept the country in favor of sticking it to the “Robber Barons”. Missing is any reason why such an impulse would embrace a universal tax reaching not just the robber barons, but their alleged victims in the working class, as well (along with every little shopkeeper, every mid-level success-story working out the American dream, and everyone else, too).

Also missing from these stories is any explanation of why the several states would ratify such a tax, under which they would inevitably lose power and significance in favor of their federal competitor. Further, these stories leave out the fact that there already WAS an income tax on the books and still in force at the time of the 16th Amendment, which had been successfully deployed over the preceding 52 years without Constitutional problem {emphasis added}, save for a single instance in which the US Supreme Court had taken issue with its application to merely two single varieties of realized income.

These stories don’t mention that, in fact, huge portions of our modern body of income tax law pre-date the 16th Amendment, even though this is plainly stated in the preamble to the 1939 Internal Revenue Code, and even though Congress publishes a comprehensive derivation table explicitly identifying the pre-16th-origins of these still-current statutes. (See a little video presentation on this subject here.)

The fact is, an awful lot is left out of these stories purporting to explain the seemingly inexplicable decision of the prosperous American people of the early 20th Century to chuck a system that had served them so well for so long-- because they’re just stories. They’re fiction, so they don’t have to make sense.

Those telling these stories want you to believe otherwise for reasons of their own, but the truth is, the 16th Amendment did nothing these story-tellers want you to imagine it did. Instead, the amendment merely overruled a Supreme Court decision that had briefly interrupted the application of the already-long-standing tax (the twice-heard case of Pollock v. Farmer’s Loan & Trust, 157 U.S. 429, and 158 U.S. 601, (both 1895)), while making no changes to its pre-amendment nature.

The Income Tax Was Established As An Excise On Privilege

From its inception the “income tax” has been an excise that applies only to gains from the profitable exercise of federal privileges (and therefore needn’t be apportioned), as the Pollock court itself noted (here in Justice Field’s separate concurring opinion):

"...in Springer v. U. S., 102 U.S. 586 , it was held that a tax upon gains, profits, and income was an excise or duty, and not a direct tax, within the meaning of the constitution, and that its imposition was not, therefore, unconstitutional."
Pollock v. Farmer's Loan & Trust, 157 U.S. 429 (1895)

Nonetheless, in its Pollock ruling, the court embraced an argument that when applied to excisable gains realized in the form of dividends and rent, the "income" tax was transformed into a property tax on the personal property sources (stock and real estate) from which the gains were derived. The tax on these fruits, said the court, amounted to a tax on the trees (even though the analogy is less than perfect, since the thing really being taxed is neither the fruit nor the tree, but rather the privileged activity that produced the “fruit”, which might be described as “using government fertilizer to make one’s orchard flourish”).

It's important to note that the Pollock court ONLY applied its tree/fruit/property-tax-not income-tax reasoning to the application of the tax to rent and dividends {emphasis added}. As the court put it in its final ruling (with emphasis added):

"The tax imposed by sections 27 to 37, inclusive, of the act of 1894, so far as it falls on the income of real estate, and of personal property [dividends], being a direct tax, within the meaning of the constitution, and therefore unconstitutional and void, because not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.”

Everything else taxed as "income" is and always has been properly taxed without apportionment, because other than as to those two exceptions, the tax is and always has been unambiguously of the character of an excise, both in how it operates and on what it falls.

The 16th Amendment Merely Says That Privileged Gains Can’t Escape The Tax By Resorting To Pollock’s “Source” Argument

The 16th Amendment says the Pollock court's conclusion was wrong (or, in any event, is overruled). The amendment provides that Congress can continue to apply the income tax to gains that qualify as "incomes" (that is, the subclass of receipts that had always been subject to the “income” excise due to being the product of an exercise of privilege {emphasis added}) without being made to treat the tax as direct and needing apportionment when applied to dividends and rent {emphasis added} by virtue of judicial consideration of the source:

"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 amendment doesn't transform the "income tax" into a direct tax, nor modify, repeal, revoke or affect the apportionment requirement for capitations and other direct taxes. It simply prohibits the courts from using the overruled reasoning of the Pollock decision to shield otherwise excisable dividends and rents {emphasis added} from the tax. As Treasury Department legislative draftsman F. Morse Hubbard is quoted in a summary of the amendment’s effect for Congress in hearing testimony in 1943:

"[T]he amendment made it possible to bring investment income within the scope of the general income-tax law, but did not change the character of the tax. It is still fundamentally an excise or duty..."

This isn’t Hubbard’s personal opinion. Almost immediately after the amendment was declared adopted in 1913, and the income tax was revived after its 18-year hiatus since the Pollock decision, the application of the tax was again challenged (in Brushaber v. Union Pacific RR Co., 240 U.S. 1 (1916)).

Frank Brushaber, a New Yorker with investments in the Union Pacific Railroad Company, based his suit on a series of contentions about the 16th Amendment. The Supreme Court took the case with the intention of settling all issues regarding the purpose and meaning of the amendment and declaring the ongoing nature of the income tax as affected thereby.

The lengthy, detailed and unanimous ruling issued by the court declares that the amendment has no effect on what is and what is not subject to the income tax {emphasis added}, and does nothing to limit or diminish the apportionment provisions in the Constitution concerning capitations or other direct taxes. Here are three more good summaries of the Brushaber ruling to add to F. Morse Hubbard’s:

"The Amendment, the [Supreme] court said, judged by the purpose for which it was passed, does not treat income taxes as direct taxes but simply removed the ground which led to their being considered as such in the Pollock case, namely, the source of the income. Therefore, they are again to be classified in the class of indirect taxes to which they by nature belong."
Cornell Law Quarterly, 1 Cornell L. Q. 298 (1915-16)
"In Brushaber v. Union Pacific Railroad Co., Mr. C. J. White, upholding the income tax imposed by the Tariff Act of 1913, construed the Amendment as a declaration that an income tax is "indirect," rather than as making an exception to the rule that direct taxes must be apportioned."
Harvard Law Review, 29 Harv. L. Rev. 536 (1915-16)
"The Supreme Court, in a decision written by Chief Justice White, first noted that the Sixteenth Amendment did not authorize any new type of tax, nor did it repeal or revoke the tax clauses of Article I of the Constitution, quoted above. Direct taxes were, notwithstanding the advent of the Sixteenth Amendment, still subject to the rule of apportionment…"
Legislative Attorney of the American Law Division of the Library of Congress Howard M. Zaritsky in his 1979 Report No. 80-19A, entitled 'Some Constitutional Questions Regarding the Federal Income Tax Laws'

So, the class of what qualifies as "income" subject to the tax remains the same after the amendment as it had been before it. The 16th Amendment eliminated the "source" argument, but didn't change the limits on what was subject to the tax. If something didn’t qualify as taxable without apportionment prior to Pollock and the amendment, it still doesn't qualify as taxable without apportionment. The Supreme Court reiterates this in ruling after ruling:

“[B]y the [Brushaber] ruling, it was settled that the 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.”
U. S. Supreme Court, Stanton v. Baltic Mining Co., 240 U.S. 103 (1916)
"The Sixteenth Amendment, although referred to in argument, has no real bearing and may be put out of view. As pointed out in recent decisions, it does not extend the taxing power to new or excepted subjects..."
U.S. Supreme Court, Peck v. Lowe, 247 U.S. 165 (1918)
"[T]he settled doctrine is that the Sixteenth Amendment confers no power upon Congress to define and tax as income without apportionment something which theretofore could not have been properly regarded as income."
U.S. Supreme Court, Taft v. Bowers, 278 US 470, 481 (1929)
"[T]he sole purpose of the Sixteenth Amendment was to remove the apportionment requirement for whichever incomes were otherwise taxable. 45 Cong. Rec. 2245-2246 (1910); id. at 2539; see also Brushaber v. Union Pacific R. Co.,240 U. S. 1, 240 U. S. 17-18 (1916)"
U.S. Supreme Court, So. Carolina v. Baker, 485 U.S. 505 (1988)

Summing it all up, the 16th Amendment comes down to this:

The Pollock court had said, "Congress has laid a tax on a big class of excisable objects (which it calls "incomes"), and it's all good. But when the tax is applied to dividend and rent {emphasis added} "incomes", it actually functions as a property tax on their sources and therefore, in regard to those two "incomes", the tax has to be apportioned."

The 16th Amendment simply says, "Nix to that last bit."

The Income Tax Remains An Excise, And Unapportioned Capitations Remain Prohibited

THE EASIEST WAY TO COMPREHEND THE LEGAL REALITY OF THE "INCOME TAX" TODAY in light of the actual meaning and effect of the 16th Amendment is to simply think of the Pollock decision as having gone the other way. Simply imagine that the Pollock Court had upheld the application of the tax to excisable dividends and rent without apportionment, and the 16th Amendment had never happened. What we would have had from that course of events is exactly what we have now-- federal authority for an indirect excise tax falling only on objects suitable to that type of tax, unthwarted by the argument that if applied to excisable dividends and rent, that excise tax becomes a property tax requiring apportionment.

But there’s another easy way to grasp the legal reality of the “income” tax today in light of the actual meaning and effect of the 16th Amendment, too. That is to remember that the amendment caused no change to the apportionment rule for direct taxes {emphasis added} (as declared in all those Supreme Court rulings and other authorities quoted above). This means that taxes on general revenues and/or the unprivileged activities which produce them-- Constitutionally designated as “capitations”-- remain subject to that rule.

Here is the Supreme Court again declaring the ongoing vitality of the apportionment rule (the 16th Amendment notwithstanding), and specifically distinguishing the income tax as an excise and not a capitation:

"If [a] tax is a direct one, it shall be apportioned according to the census or enumeration. If it is a duty, impost, or excise, it shall be uniform throughout the United States. Together, these classes include every form of tax appropriate to sovereignty. Whether the [income] tax is to be classified as an "excise" is in truth not of critical importance [for this analysis]. If not that, it is an "impost", or a "duty". A capitation or other "direct" tax it certainly is not."
U.S. Supreme Court, Steward Machine Co. v. Collector of Internal Revenue, 301 U.S. 548 (1937) (Emphasis added; citations omitted.)

Thus, what the income tax DOES fall on, as the excise that it is, can be roughly but usefully perceived by remembering that it CAN’T fall on (or be measured by) the objects of a capitation, among which are:

"all that comes in";
"every different species of revenue";
"the fortune or revenue of each contributor";
"the [common-meaning] wages of labour";
"what is supposed to be one's fortune [per] an assessment which varies from year to year"; or
"[an assessed percentage] of [one's] supposed [commonly-defined] income".

The Income Tax IS Only Written And Administered As An Excise On Privilege

NOW, HERE IS WHAT WILL BE THE MOST SURPRISING THING OF ALL, in light of what you have just learned about the nature of the tax and the rules to which it is subject: The "income tax" laws make no attempt to violate the excise and capitation rules!

Though the mechanisms by which it does so are a bit difficult to find, the tax law, as written, confines itself carefully and scrupulously to nothing but gains resulting from the exercise of federal privilege {emphasis added}, just as any federal excise tax must do. It is not by accident or oversight that, for instance, the "wages" subject to the tax, or the phrase "trade or business" as used in the context of the tax, are custom-defined in the law.

As written, the “income tax” laws leave unprivileged earnings and receipts untouched, never crossing the line into the realm of capitations. As written, the “income tax” remains a proper excise, and as such, DOES NOT APPLY to the earnings of most Americans. {emphasis added}

This shouldn’t be surprising (just as nothing else you’ve read here should be). But unfortunately, a mature scheme has been in place for about the last 70 years which is designed to trick those ignorant of the nuances of the law into inadvertently declaring their unprivileged earnings to be privileged, allowing the government to treat them as subject to the tax*.

SO, THAT’S IT, MY FRIEND! Now you know that the 16th Amendment never authorized an unapportioned general tax (and I suspect you’re beginning to realize that for all of your working life you’ve probably been one of those Americans victimized by the misapplication of what the “income tax” really is).

This campaign of disinformation was assisted by increasing state influence in schools, propaganda resources {Intelligence & Hollywood, but I repeat myself}, and ten years of deep mental softening during the rigors of the Great Depression. Needless to say, no such campaign would have taken place had the 16th Amendment actually authorized the general tax in which you are encouraged to believe.

Unfortunately, the campaign succeeded. You were invited to believe the Leviathan-serving mythology about the 16th Amendment, and you did. In thrall to that myth, you have made the income tax a reality in your own life, despite it likely having no actual legal application to your activities {emphasis added}. In thrall to that myth, you have been actively declaring your unprivileged earnings to be the privileged kind to which the “income tax” that we really DO have actually applies.

I’LL LEAVE IT TO YOU TO DECIDE the significance of this truth about the “income tax amendment”. But if you wish, go to losthorizons.com, where you’ll find it all laid out in painstaking detail, including, among much else, exactly what this knowledge has meant for the tens of thousands of Americans who have been using it to reclaim complete authority over property they otherwise had lost (or would lose) to a tax which has proven to not apply to their activities and earnings (including the “Social Security” and “Medicare” versions of the tax). I’m not talking about some abstract legal claim. I’m talking about checks in the mailbox-- refund checks of every penny withheld and every penny paid-in, plus interest in many cases.

Learn more, spread the word, and act, my friend. Liberty is just over the horizon.

*You can learn all about how that works, how to keep from falling prey to this trick, and how to correct the ill effects of having fallen for this trick in the past, in ‘Cracking the Code- The Fascinating Truth About Taxation In America’.