Transcript Income Taxes and The Destruction of Liberty

Income Taxes and
The Destruction of
Liberty
Vernon K. Jacobs
(C) 2008 All Rights Reserved
www.offshorepress.com/liberty.htm
The Framers Feared Taxes
• According to Charles Adams, author of For
Good & Evil
• “The concept of checks and balances in
government had its origin, most of all, in
checks on the tax gatherers.”
Civil Law & Criminal Law
• The Founding Fathers would be aghast at the extent
of non-criminal regulation in our society. And that is
the key to stripping us of our Constitutional rights
• If all of the civil enforcement mechanisms were
treated as criminal matters, suddenly all manner of
Constitutional safeguards would attach.
• By an International Tax Attorney
The 8th Amendment
• “Excessive … fines (shall not be) imposed,
nor cruel and unusual punishments
inflicted.”
• What about a $95,000 fine for filing an
information return 6 days late?
Article 1, Section 9
• “No Capitation, or other direct,Tax shall be
laid, unless in Proportion to the Census or
Enumeration ….”
• The purpose of the 16th Amendment was
to over-rule this provision.
The 5th Amendment
• “… nor shall private property be taken for
public use without just compensation.”
• This clause clearly did not anticipate the
income tax or the 16th Amendment
The 4th Amendment
• “The right of the people to be secure in
their persons, houses, papers and effects,
against unreasonable searches and
seizures, shall not be violated, and no
warrants shall issue, but upon probable
cause …”
The 10th Amendment
• “The powers not delegated to the United
States by the Constitution, nor prohibited
by it to the States, are reserved to the
States respectively, or to the people.”
• This did not contemplate direct taxation of
state residents by the federal government
The 16th Amendment
• “The Congress shall have the 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.”
• This marked the beginning of the loss of
freedom in the U.S.A.
What is a “Direct” Tax?
• In 1796, the Supreme Court held that a
direct tax was a tax on land or a head tax,
but in 1894, the Court concluded that it
also included an income tax.
• The 1894 decision over-ruled an income
tax introduced in that year
Motives for Passing the
16th Amendment
• Resentment of extremely wealthy North
East “Robber Barons”
• Popularity of Populist, Socialist and
Communist political/economic views
• Let someone else pay the taxes
• Belief by conservatives that the
Amendment would never pass
Constitutional Challenges -1
• The 16th amendment was quickly taken to
the high court which “disposed of the
question with little more than a one-liner.”
(Charles Adams)
• The Court held that the argument against
the Amendment was without merit and
having an “Absolute want of foundation in
reason.” (Magoun 1898)
Constitutional Challenges - 2
• “Legal scholars were almost dumfounded at the
ease with which the Court had side-stepped
what they believed should have been the most
important tax case in the history of the nation.”
(Charles Adams)
• Hundreds of subsequent challenges have met
with similar treatment by the Supreme Court and
such arguments are now considered to be
frivolous and subject to sanctions
Frivolous Tax Disputes
• “We perceive no need to refute these arguments
with somber reasoning and copious citation of
precedent; to do so might suggest that these
arguments have some colorable merit. The
constitutionality of our income tax system-including the role played within that system by
the Internal Revenue Service and the Tax Court-has long been established.” (Crain v. Commissioner, 737
F.2d 1417 (1984))
Unreasonable Searches
• The 4th Amendment is Often regarded as the
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privacy Amendment
TCMP - Taxpayer Compliance Measurement
Programs
MSSP - Market Segment Specialization Program
Abusive Audits to Secure Customer Lists from
Entity Formation Services
IRS Tax Collectors
• Collectors initiate levies, liens, garnishments and
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seizures of taxpayer’s assets.
The 1998 IRS Restructuring Act was passed due
to collection abuses
Shelley Davis wrote about numerous abuses in
“Unbridled Power”
Taxpayers have little recourse after an
assessment is sent to collections, even if the
taxpayer does not owe any tax
Confiscation without
Compensation
• The 5th Amendment clearly did not contemplate
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the income tax
The 16th Amendment does not mention the 5th
Amendment but it clearly over-rides the
protection from taking private property for public
use without compensation
However, most lawyers will argue that this
Amendment is about imminent domain and/or
confiscation of property for the military
Excessive Fines - 1
• The 8th Amendment prohibits excessive fines,
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bail or punishments
A 2007 tax law permits a penalty on a tax
preparer of 50% of his fees -- but the fees are
also subject to income taxes of up to 50%
The penalty for not filing information returns
about foreign entities is $10,000 per year even if
the entity had no income
Excessive Fines - 2
• The penalty for filing a late return for a foreign
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trust is 5% of the gross assets
The penalty for not filing a report of your foreign
financial accounts is $10,000 for up to six years
If a foreign corporation with U.S. income files a
late return, the tax is based on gross income
without any deductions or credits
Powers Reserved to States
• The federal income tax bypasses the states
and puts the Federal government in direct
contact with state citizens
• “The state government lost more and more
of their autonomy … and (are) compelled to
apply to the central authorities for help (and
became dependent on the Federal
government.” (Frank Chodorov)
Non Uniform Taxation
• “If the Court sanctions the power of
discriminating taxation and nullifies the
uniformity mandate of our Constitution
… it will mark the hour when the sure
decadence of our government will
commence.”
• Justice Stephen J. Field, Pollack, 157 U.S. 607
(1894)
Discriminatory Taxation-1
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Unmarried vs. married
Young vs. seniors
Renters vs. home-owners
Rich vs. the poor
Employees vs. self-employed
Earned vs. passive income
Discriminatory Taxation-2
• Capital gains & dividends vs. other
income
• Tax haven USA
• U.S. mutual funds vs. foreign funds
• Non-filing of U.S. tax returns vs. foreign
information returns
Is Tax Reform Possible?
• Voters who depend on federal funds such as
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Seniors, government employees, federal
contractors, indigent elderly, tax industry,
charities, the arts, businesses
Populists, socialists and economic liberals
Tax subsidies vs. direct payments
Politicians derive power and influence from the
income tax to reward or punish
The elusive meaning of “income”
Consumers vs. capitalists
What is a “Fair Share”
• An equal amount for everyone?
• An Equal percentage of some common and
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measurable value (sales)?
Exemptions or rebates for the poor? (How to
define who is poor?)
Progressive tax rates?
Taxes on corporate revenues or profits?
Reform Alternatives - 1
• Flat rate income tax & simplification (1986)
• National sales tax - “Fair Tax” and revenue
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neutrality
Cut spending first (Ron Paul & Libertarians)
Indirect tax on wages, dividends, interest, etc.
(Similar to a V.A.T.)
Separate taxing and spending authority
Repeal the 16th Amendment and prohibit any
direct tax by the Federal Government
Voter approval for tax increases (The Swiss)
Adams’ Reform Proposals-1
• Subject tax collectors to personal civil
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liability and criminal prosecution
Have federal tax districts = IRS districts
Provide voter recall for district directors
Treat tax disputes the same as any debt
Decriminalize the tax law
Immunize judges and congressmen from
the tax collector
Adams’ Reform Proposals-2
• Prohibit taxes imposed directly on the
taxpayer/individual
• Adopt a maximum 10% tax rate and cut
spending to equal revenues
• Separate taxing and spending powers
(Parliament and the King)
• Prohibit punitive fines and penalties
Disclaimer
• The author is not an attorney
• Substantial portions of this presentation
are based on Charles Adams book “For
Good and Evil: The Impact of Taxes on the
Course of Civilization (1993)
• This presentation is not intended to
constitute tax advice for any person
About Vernon Jacobs, CPA
• Jacobs is a tax author and international
tax practitioner
• He is the author of the free Jacobs Report
and the subscription newsletter, the
International Wealth Protection Monitor
• He has written over 25 books on taxation
• He is the author of www.offshorepress.com
and www.vernonjacobs.com