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Is All Economic Activity (Or The Gains Therefrom) Taxable By The Federal Government?

Of Course Not!


THE FIRST THING TO UNDERSTAND is that any tax on (or measured by) common economic activity (or the proceeds therefrom) is a "capitation" as that term is meant in the United States Constitution. The United States Supreme Court declares the meaning of the Constitutional term "capitation" in its ruling in Pollock v. Farmer's Loan & Trust, 157 U.S. 429 (1895) – the most detailed analysis of federal taxing powers ever made by the court. The court cites to, and endorses, the observations as to the Framers' understanding and use of the term of Albert Gallatin, state and federal congressman and senator, U.S. Minister to England and France, and still the longest-serving Secretary of the Treasury in U.S. history. As the Supremes say:

"..Albert Gallatin, in his Sketch of the Finances of the United States, published in November, 1796, said: 'The most generally received opinion, however, is that, by direct taxes in the constitution, those are meant which are raised on the capital or revenue of the people;...'


"He then quotes from Smith's Wealth of Nations, and continues: 'The remarkable coincidence of the clause of the constitution with this passage in using the word 'capitation' as a generic expression, including the different species of direct taxes-- an acceptation of the word peculiar, it is believed, to Dr. Smith-- leaves little doubt that the framers of the one had the other in view at the time, and that they, as well as he, by direct taxes, meant those paid directly from, and falling immediately on, the revenue;...'"

Adam Smith's definition of "capitation" (and therefore that of the Framers) includes the following (among much else):

"The taxes which, it is intended, should fall indifferently upon every different species of revenue, are capitation taxes,"… "Capitation taxes, if it is attempted to proportion them to the fortune or revenue of each contributor, become altogether arbitrary. The state of a man's fortune varies from day to day, and without an inquisition more intolerable than any tax, and renewed at least once every year, can only be guessed at."…"Capitation taxes, so far as they are levied upon the lower ranks of people, are direct taxes upon the wages of labour, and are attended with all the inconveniences of such taxes."…" In the capitation which has been levied in France without any interruption since the beginning of the present century, the highest orders of people are rated according to their rank by an invariable tariff; the lower orders of people, according to what is supposed to be their fortune, by an assessment which varies from year to year."

(Bear in mind that Smith is using the common word 'wages', not the custom-defined legal term of the same spelling found in the modern revenue laws.)  Smith goes on to discuss the version of capitations imposed under the name of "poll taxes," as well, observing that in the first poll tax, for instance, many were taxed according to their supposed fortune, being "assessed at three shillings in the pound of their supposed income."

"CAPITATION, A poll tax; an imposition which is yearly laid on each person according to his estate and ability." 

Bouvier's Law Dictionary, 6th Ed. (1856).  (This was the official law dictionary of Congress in the middle of the 19th century.)

Clearly, a general, indiscriminate tax on "all that comes in," or on "every species of revenue," or which is assessed as a percentage of earnings or receipts (as in "three shillings in the pound"), qualifies as a "capitation" as the term is used in the United States Constitution.  Taxes of this sort had been laid in Europe for decades, as Smith describes, but under a variety of other names.  Smith's "peculiar acceptation" of the term "capitation," as Albert Gallatin put it, was his recognition that any tax a man must himself pay is in fact a tax on the man--a capitation--even though it might nominally be laid on something else.  Smith saw that just as a tax nominally laid on the man is a burden on his revenue (and a hindrance to his productivity), so a tax nominally laid elsewhere but which must be paid out of a man's revenue is an imposition on the man directly (and a hindrance to the exercise of his rights).


Smith was blessed with this insight due to having an economist's perspective and applying it to the task of accurately identifying and accounting for the practical realities of the incidence of a tax and how it is paid – doubtless the first time anyone had done so. The Framers were devoted, respectful and voracious students of Smith's work. Both because Smith's logic was unassailable, and because the Framers were intent on maximizing individual liberty, and thus sought to ensure strict, meaningful limitations to the permission to lay and collect taxes given to the federal government (a permission entirely withheld under the Articles of Confederation which the Constitutional Convention had met to revise), they used Smith's comprehensive, nuanced term as the keystone of their category of "direct taxes" in the new Constitution.


SO, WE'VE SEEN THAT CAPITATIONS are taxes of any kind which effectively fall on persons, whether measured by wealth, economic activity or even just laid as a flat amount.  A capitation is only legal if laid by means of apportionment:

"No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken."

 United States Constitution, Article 1, Section 9

The apportionment requirement on a capitation or other direct tax was not changed by the 16th Amendment. The Supreme Court, in Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916), the case taken up by the court for the express purpose of settling the meaning and effect of the 16th Amendment, addresses Brushaber's contention that the amendment provides for a non-apportioned capitation or other direct tax as follows:

"We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the 16th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes. And the far-reaching effect of this erroneous assumption will be made clear by generalizing the many contentions advanced in argument to support it..."

Noting that nothing in the 16th Amendment repeals Article 1, s. 9, cl. 4 imposing the apportionment requirement on capitations and other direct taxes, the court points out that Brushaber's erroneous argument would cause:

“...one provision of the Constitution [to] destroy another; that is, [it] would result in bringing the provisions of the Amendment [supposedly] exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned."

The court declares that the only effect of the 16th Amendment is to overrule the Pollock decision's characterization of the application of the tax to rent and dividends that otherwise qualify as "income" as really being a direct tax, and therefore invoking the apportionment requirement, based on the reasoning that the source of the dividends is personal property (the stock), and to tax the dividend is effectively to tax the source.


The court reiterates this point repeatedly in subsequent rulings:

"The provisions of the Sixteenth Amendment conferred no new power of taxation..." 

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..." 

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." 

Taft v. Bowers, 278 US 470, 481 (1929);

Contemporaneous analyses of the Brushaber ruling summarize it concisely:

"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 court through C. J. White held that the tax was constitutional. The major proposition of appellant's argument is not true. Hence, the conclusion does not follow. The 16th Amendment does not permit a new class of direct tax, (in fact as it will be later shown, the court does not think that the amendment treated the tax as a direct tax at all)... The Amendment, the 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).

Treasury Department legislative draftsman F. Morse Hubbard does the same 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 with respect to the privilege of carrying on any activity or owning any property which produces income."

Here is 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':

"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…"

In 1988, the Supreme Court again re-iterates that the 16th Amendment doesn't allow the application of the tax to anything not already properly subject to it before the amendment was ever adopted:

"The legislative history merely shows... ...that the sole purpose of the Sixteenth Amendment was to remove the apportionment requirement for whichever incomes were otherwise taxable." 

So. Carolina v. Baker, 485 U.S. 505 (1988).

In fact, today's tax remains in large part a body of enactments preceding the 16th Amendment by 51 years:

"The whole body of internal revenue law in effect on January 2, 1939... ...has its ultimate origin in 164 separate enactments of Congress. The earliest of these was approved July 1, 1862; the latest, June 16, 1938."

Preamble to the 1939 Internal Revenue Code

(The current codified version of the tax statutes was first called the IRC of 1954 and then later relabeled the IRC of 1986, but with the exception of some statutes-at-large enacted in the interim, it remains for the most part derived from the IRC of 1939. See the Congressional Joint Committee on Taxation derivation tables here.  That code, as you see, is itself derived in large part from pre-16th amendment enactments.)


NOW, DON'T LET THE SIGNIFICANCE of what you've just read escape you. What qualifies as "income," and is subject to the tax, was identified and taxed as such long before the 16th Amendment. NOTHING IS TAXABLE WITHOUT APPORTIONMENT NOW THAT WASN'T TAXABLE WITHOUT APPORTIONMENT THEN.


As the Supreme Court says over and over, all the 16th Amendment did is override the Pollock court's decision holding that apportionment must be applied in order to tax even "income"-qualified dividends and rent, because of their relationship to their sources. The 16th neither ended or repealed the apportionment requirement for any tax that had qualified as a capitation or other direct tax before it, nor did it "initiate" the income tax, which was already 51 years old when the amendment was declared adopted.


SO, ALL TAXES ON PEOPLE and/or undistinguished revenue or economic activity have to be apportioned, and that remains true even after the 16th Amendment.  Therefore, as sure as night follows day, any economic activity upon which an unapportioned tax is laid or measured MUST be NOT common, and NOT something that can be done as a matter of right. Here's a little more Supreme Court jurisprudence saying the same, in a different way:

"Direct taxes bear immediately upon persons, upon the possession and enjoyments of rights;"

Knowlton v. Moore, 178 U.S. 41 (1900);

"The right to follow any of the common occupations of life is an inalienable right… It has been well said that 'the property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property' Smith, Wealth of Nations, Bk. I, c. 10."

Butcher's Union Co. v. Crescent City Co., 111 U.S. 746 (1883) (Concurring opinion);

"Included in the right of personal liberty and the right of private property- partaking of the nature of each- is the right to make contracts for the acquisition of property. Chief among such contracts is that of personal employment, by which labor and other services are exchanged for money or other forms of property" 

Coppage v. Kansas, 236 U.S. 1 (1915).



The object of an unapportioned federal tax MUST involve the exercise of privilege. The only things that aren't done by right are necessarily those done by permission (privilege), so this point is self-evident. Further, in its rulings in the Pollock and Brushaber cases, the Supreme Court explains that the reason the 16th Amendment and Article 1, s. 9, cl. 4 can coexist is because "income" as meant in the amendment and the tax statutes is (and always has been) a distinguished subclass of "what comes in," being confined to what is amenable to an excise tax.

"…in Springer v. U. S., 102 U.S. 586 (1880), it was held that [the] 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, 158 U.S. 601, (1895);


"…taxation on income was in its nature an excise entitled to be enforced as such,"

Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916), quoting and reiterating Pollock v. Farmer's Loan and Trust.

The Treasury Department has ALWAYS acknowledged this:

"I hereby certify that the following is a true and faithful statement of the gains, profits, or income of _____ _____, of the _____ of _____, in the county of _____, and State of _____, whether derived from any kind of property, rents, interest, dividends, salary, or from any profession, trade, employment, or vocation, or from any other source whatever, from the 1st day of January to the 31st day of December, 1862, both days inclusive, and subject to an income tax under the excise laws of the United States."

(from the first income tax return form, emphasis added).

F. Morse Hubbard puts this in no uncertain terms in his Congressional testimony:

"The income tax... ...is an excise tax with respect to certain activities and privileges which is measured by reference to the income [earnings] which they produce."

House Congressional Record, March 27, 1943, page 2580

Excise taxes are taxes on gains from the exercise of privilege (e.g., permission to sell certain things to the taxing authority, or on that authority's property; the use of the authority's prerogatives; the administration of the authority's powers; or doing any such things by proxy, through investment). Thus, they are indirect, voluntarily accepted costs of enjoying the exercise of a federal privilege for one's own benefit.

"...the requirement to pay [excise] taxes involves the exercise of privilege." 

Flint vs. Stone Tracy Co. 220 U.S. 107 (1911);


"The terms 'excise tax' and 'privilege tax' are synonymous. The two are often used interchangeably."

American Airways v. Wallace, 57 F.2d 877, 880 (Dist. Ct., M.D. Tenn., 1937);


"The 'Government' is an abstraction, and its possession of property largely constructive. Actual possession and custody of Government property nearly always are in someone who is not himself the Government but acts in its behalf and for its purposes. He may be an officer, an agent, or a contractor. His personal advantages from the relationship by way of salary, profit, or beneficial personal use of the property may be taxed..." 

United States v. County of Allegheny, 322 US 174 (1944).

Taxes on anything done or enjoyed as a matter of right are direct-- unavoidable in purpose and practice. Direct taxes fall on someone simply for being a person and acting as such. Hence, such taxes are involuntary taxes. A tax on breathing is an obvious example; a tax on someone for trading the shoes he makes for the bread he eats, or for the trading tokens (money) he will then pay to another producer for that bread, is no less "direct".


As a matter of the fundamental (Constitutional) law, there is no such thing as a direct, involuntary federal tax on Americans. A tax on (or measured by) anything attendant upon being a human being and exercising one's rights as such invokes the insulation of the apportionment mechanism. That mechanism places the actual imposition of the tax onto the states, which agreed to the structure when ratifying the Constitution or joining the union. The states then come up with the funds to pay such direct taxes by whatever mechanism or process is legal under their own Constitutions and is most amenable to their own citizenry.


Excises, however, are not burdened with these restrictions, because the imposition of the tax only attends a voluntary election to engage in the taxed activity by the person who will be liable (an election made for his or her own benefit), and the tax is really just a claim to a piece of the action by the privilege-granting entity. (Arranging to make and trade shoes using leather provided by the federal government would be an example of such an excise-taxable, no-apportionment-required activity; among actual current examples are things like operating for-profit railroads built on federally-owned land; operating "national bank"; or getting paid to administer a federal program-- at any level, from janitor to cabinet secretary.)

"When a court refers to an income tax as being in the nature of an excise, it is merely stating that the tax is not on the property itself, but rather it is a fee for the privilege of receiving gain from the property." John R. Luckey, Legislative Attorney with the Library of Congress, in "Frequently Asked Questions Concerning The Federal Income Tax" (C.R.S. Report for Congress 92-303A (1992)).

By the way, though called by other names such as "tariffs" or "duties", even taxes on importing goods across the national border are also excises. They tax an exercise of privilege since "ownership" of the national border has been ceded to the federal government, and one brings goods across it into the country only with federal permission.) Thus, as long as the "income tax" is confined to the exercise of privilege, it can be applied without apportionment and without creating the inherent Constitutional conflict of a direct tax which is nonetheless not apportioned.


WE HAVE NOW SEEN that capitations are taxes on people as such, whether taking the form of a "head tax" or a tax on any exercise of any right, including (but not limited to) the right to engage in economic activity and receive, possess and enjoy the benefits therefrom, and that such taxes must be apportioned, and only excises-- taxes on the exercise of privilege-- can be applied without apportionment.  In light of these proofs, it is indisputable that IF a federal tax is NOT apportioned it MUST be recognized as NOT falling on any exercise of any right, including (but not limited to) the right to engage in economic activity and receive, possess and enjoy the benefits therefrom, and therefore HAS to be on something exclusive of them, which can only be the exercise of privilege.  Anything that is not an exercise of right is perforce an exercise of privilege.


That the tax is circumscribed in just exactly this way is not only self-evident, but is acknowledged by every possible authority (and is precisely how the income tax laws are actually written, as is definitively proven in CtC).  Therefore, that "income" as that term is used in and relevant to the tax laws means, and has ALWAYS meant, only privilege-connected economic activity or the fruits therefore is AXIOMATIC, and a DEMONSTRATED FACT.


That it must always stay that way in order for the Constitution to remain in harmony has been explicitly recognized by the United States Supreme Court.  In its landmark Brushaber decision, the court observes that substance must always rule form to preserve the harmony of Article 1 sec. 9, cl.4 and the 16th Amendment, and if ever it came to pass that the tax was being applied to unprivileged activities or the revenue they produced:

"the duty would arise to disregard form [that is, any pretense by which it is made to appear that the tax is being confined to its proper limits when it is not, such as by creatively construing the meaning of "income," or the use of any pretense, scheme or construction by which non-specialized revenue or activities are made to appear otherwise so as to be subjected to the tax] and consider substance alone [that is, what the tax is actually falling upon as a practical reality], and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it." 

Brushaber, supra.

Clearly, only economic activities (or the gains therefrom) within a certain, limited class are taxable by the feds as "income".


By the way, any apparent inconsistency with these facts in the representations or behavior of any court or government agency or anyone else is simply an exercise of craft in an effort to EVADE the truth. These folks won't outright lie (at least, not typically), but they're VERY practiced at dodging and dishing out confusion, and over the years have equipped themselves with a lot of carefully-constructed, highly misleading material to cite and quote.


The law has NOT changed, but in the 1940s, the state's clients, cronies and apparatchiks became creative and corrupt in generating and exploiting presumptions against the unwary, and are now very reluctant to lose the aggrandizement, power and wealth to which they have become accustomed. See Part II in CtC to learn about this creative corruption.