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OBAMACARE INCOME TAX SURCHARGE UNCONSTITUTIONAL

 

By Phil Hart
December 24, 2009

NewsWithViews.com

The current attempt by today’s White House Administration to impose more big government on the American People by way of the “single payer option” for healthcare is as unconstitutional as gun confiscation or the elimination of free speech. Obamacare will be funded with a health care surcharge on the today’s income tax, which constitutes an unapportioned direct tax on the wages and salaries of the American People, not allowed by our Constitution.

How so you might ask? Good question. In order to answer that question, we must first review “Constitutional Taxation 101” a course that no lawyer ever took, nor has any judge, member of Congress nor has any PhD candidate in constitutional law. Law schools do not teach courses about the Constitution; they teach courses about litigated cases about the Constitution. The American People are nearly 100 percent illiterate, at all levels, when it comes to constitutional taxation. The higher the level of ignorance among the American people, the greater the amount of fleecing that takes place.

To understand constitutional taxation, we must first understand the terms of the Constitution’s Framers. What is a direct tax? And what is an indirect tax? In 1787, those terms were widely used by the Framers as they debated and drafted our Constitution. These framers knew the meaning of these to terms. Very simply, a direct tax taxes a “noun”, and an indirect tax taxes a “verb”.

What is a tax on a noun? It is a tax on something that exists. A house exists. A tax on a house is a direct tax. The tax is levied on the house, and the tax must be paid. There is no getting out of paying a direct tax. Either the tax gets paid, or the house is eventually seized by the taxing authority. “Labor” is a noun too; and a tax on labor is a direct tax; it is a capitation tax, which must be apportioned.

The next question that begs to be answered is, “What is a tax on a verb?” This is a tax on the happening of an event. It is a tax on a choice a person makes. It is a tax that can be avoided, or the burden of the tax can be shifted to another. If you choose to buy gasoline, you choose to pay the excise tax on each gallon of gas. You could, of course, choose to ride your bicycle and avoid the tax. You pay the indirect tax because of choices you make.

If you are a bus company, you have to pay this excise tax when you put fuel into the fuel tank of your bus. However, you pass on the cost of the tax by charging more for the bus tickets; and the customers of the bus company pay the tax “indirectly”. Again, this tax can be avoided if the bus patron chooses not to travel, or to travel by some other means. An indirect tax is also a tax on a privilege, like operating a business in a corporate form. One chooses to do business as a corporation, and in doing so, chooses to pay the tax levied on the government granted privilege of limited liability and indefinite corporate existence.

We refer to Adam Smith, author of Wealth of Nations (1776), to support our above definitions. Adam Smith began writing his timeless work in 1765. By the time the Constitution was written, in 1787, Wealth of Nations was in its sixth edition. Every one of the Framers of the Constitution was familiar with Smith’s work. Here is what Adam Smith, the eighteenth century guru of economics, had to say about direct and indirect taxes:

“The impossibility of taxing the people, in proportion to their revenue, by any capitation, seems to have given occasion to the invention of taxes upon consumable commodities. The state not knowing how to tax, directly and proportionally, the revenue of its subjects, endeavors to tax it indirectly by taxing their expense, which, it is supposed, will in most cases be nearly in proportion to their revenue. Their expense is taxed by taxing the consumable commodities upon which it is laid out.” Adam Smith, Wealth of Nations, book V, pg. 541 (Prometheus Books, Amherst, New York, 1991) (1776).

We also find the following Adam Smith quote in Wealth of Nations, “Capitation taxes, so far as they are levied upon the lower ranks of people, are direct taxes upon the wages of labor.” Adam Smith, Wealth of Nations, id. at pg. 540.

A Capitation tax is a tax on wages and salaries, so says Adam Smith. Such a tax must meet the constitutional requirement that it be apportioned among the people, such that each person pays the same amount of tax.

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Any tax on wages or salaries, when that tax is paid by the paycheck’s recipient (and not by the employer) is a direct tax. In fact, it is a “capitation tax.” As such, the Constitution requires that such a tax be apportioned among the several States (see Art. I, sec. 2, cl. 3; and Art. I, sec. 9, cl. 4).

The Framers of the Constitution were so serious about this apportionment requirement for direct taxes; it is likely the United States would have never survived the Articles of Confederation without it. The great compromise that kept the 1787 Constitutional Convention from blowing apart was when the Framers traded the apportionment provision requirement on direct taxes for the provision that each state (including the small states) were to get two senators in the Senate. Consequently, we should honor what those men did in Philadelphia in 1787 by respecting this very constitutional requirement today.

Judicial History

Now you might think, “Doesn’t the Income Tax Amendment of 1913 (The Sixteenth Amendment) provide for an exception to the constitution’s apportionment requirement for direct taxes so that Obamacare can be funded by an income tax surcharge on our wages and salaries?” Well, that is what the parties on both sides of the case thought in Brushaber v. Union Pacific Railroad Co., 240 U.S. 1 (1916) and in Stanton v. Baltic Mining, 240 U.S. 103 (1916). These were the first two cases that litigated the newly imposed income tax after the “Income Tax Amendment” was added to the Constitution in 1913.

All the parties to these cases argued that the Sixteenth Amendment provided for a new tax, that being a direct tax that did not have to be apportioned, nor did it have to be subjected to any regulating constitutional rule. Thirty-five times in the Stanton Case, the argument was made that the Sixteenth Amendment provided an exception to the apportionment requirement for a direct income tax. A sampling of the Stanton arguments before the United States Supreme Court include:

“The Sixteenth Amendment authorizes direct taxes upon ‘incomes,’ but not upon capital or property. Income taxes may now be imposed without regard to apportionment among the States, according to their population.

All forms of direct taxation other than taxes on ‘incomes,’ clearly remain subject to the same constitutional limits as formerly.” Brief for Appellant at pg. 24, Stanton v. Baltic Mining Co., 240 U.S. 103 (1916).

“This is a direct tax on ‘net income,’ and nothing else can constitutionally be taxed directly, without apportionment.” id. at 36.

“The Sixteenth Amendment only authorizes direct taxes on ‘incomes.’” id. at 60.

“All forms of direct taxation of real and personal property, other than income taxes, still require apportionment; otherwise they are unconstitutional.” id. at 139.

All this was rejected by the Supreme Court. In the Court's Opinion on the Stanton Case, they said:

“But aside from the obvious error of the proposition intrinsically considered, it manifestly disregards the fact that by the previous ruling [Brushaber] it was settled that the provisions of the Sixteenth Amendment conferred no new power of taxation but simply prohibited the previously 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 derived.” Stanton v. Baltic Mining Co., supra.

Unfortunately for tens of millions of Americans, the Supreme Court was very wordy in its Brushaber Opinion when covering this point. But the law commentaries were more clear. And here is what they said:

“In Brushaber v. Union Pac. R.R. Co., Mr. Chief Justice 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.” The Income Tax and the Sixteenth Amendment, 29 Harvard Law Review 536 (1915-6).

Cornell Law Quarterly simplifies what the Supreme Court said in Brushber:

“The contention of the appellant was as follows:

(1) The Sixteenth Amendment provided for a new kind of a direct tax, a tax on incomes from whatever source derived.

The court, through Chief Justice White, held that the tax [in Brushaber] was constitutional. The major proposition of the appellant’s argument is not true. Hence, the conclusion does not follow. The sixteenth amendment [sic] does not permit a direct tax, (in fact as it will later be shown, the court does not think that the amendment treated the tax as a direct tax at all), carrying with it the distinguishing characteristic of a hitherto unrecognized uniformity.

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.” Ramon Siaca, The Federal Income Tax Law of 1913: Construction of the Sixteenth Amendment, 1 Cornell Law Quarterly 298, 299 and 301 (1916).