By David Caddell
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 of enumeration.-- The Sixteenth Amendment
There is an old adage that there are only two things in life you must do: pay taxes and die. However, according to thousands of tax protesters across the country, the part about paying taxes may not necessarily be true. Aaron Russo is one such opponent of the U.S. government's taxation of the American peoples' wages.
In America: Freedom to Fascism, a recent documentary by the popular film producer, Russo sets out on a mission to determine whether there is, in fact, a law that requires American citizens to pay a tax on their wages. His findings are astonishing. According to Russo, the federal government has perpetrated "two frauds" on the American people. First, he claims there is no federal law requiring Americans to pay taxes on their wages and that such a tax would be unconstitutional. To support this argument, Russo claims that the Sixteenth Amendment, which is believed by many to have provided the federal government with the power to tax such wages, was not properly ratified by the states. And, even if it was, Russo argues that it doesn't allow the government to tax the fruit of our labor. Second, Russo asserts that American tax dollars are being funneled to the Federal Reserve, which, contrary to popular opinion, is a private corporation composed of rich international bankers who control the value of the American dollar.
Russo claims that his documentary has been viewed by more than 1,700,000 people. The film, which was sharply criticized by New York Times writer David Cay Johnston, has sparked a debate regarding the federal government's power of taxation. In his review, Johnston declares that the assertions made by the film "collapse under the weight of fact." But the question remains: is there a law requiring Americans to pay a tax on their wages? And if there is such a law, is it constitutional?
At the heart of the debate is whether taxable "income" includes wages earned from labor. Title 26 of the Internal Revenue Code, like the Sixteenth Amendment, provides that income means all income "from whatever source derived." Indeed, many federal court opinions, including those of the U.S. Supreme Court, have made clear that the taxing power of Congress is expansive and that "income" includes wages resulting from labor. For example, in Doyle v. Mitchell Bros. Co., 247 U.S. 179 (1918), the U.S. Supreme Court ruled, "As was said in Stratton's Independence, Limited v. Howbert, 231 U.S. 399, 415, 34 S. Sup. Ct. 136; 'Income may be defined as the gain derived from capital, from labor, or from both combined.'"
Today, this principle is very well-settled among the various federal courts. In U.S. v. Connor, 898 F.2d 942, 944 (3d Cir. 1990), Judge Sloviter, writing for the Third Circuit Court of Appeals, recognized, "We take this opportunity to reiterate that wages are income within the meaning of the Sixteenth Amendment. Unless subsequent Supreme Court decisions throw any doubt on this conclusion, we will view arguments to the contrary as frivolous, which may subject the party asserting them to appropriate sanctions." A similar result was reached by the Seventh Circuit Court of Appeals in Granzow v. Commissioner, 739 F.2d 265, 267 (7th Cir. 1984), where the court ruled, "It is well settled that wages received by taxpayers constitute gross income within the meaning of section 61(a) of the Internal Revenue Code, 26 U.S.C. Â§ 61(a), and that such gross income is subject to taxation." Similarly, the Eleventh Circuit has stated, "As detailed in the Tax Court opinion in this case, it is clear beyond peradventure that the law is well established and long settled that wages are includable in taxable income." Waters v. Commissioner, 764 F.2d 1389, 1390 (11th Cir. 1985). Notably, the court in Waters required the party to pay damages, finding the argument that wages are not income to be frivolous.
While it doesn't seem that the U.S. Supreme Court has ever taken the opportunity to directly address whether the Sixteenth Amendment was properly ratified, other federal courts have had little trouble finding it to be effective. In fact, at least one federal court has clearly ruled that the Sixteenth Amendment was properly ratified. See U.S. v. Thomas, 788 F.2d 1250 (7th Cir. 1986).
Tax protesters also point to selective language in a handful of U.S. Supreme Court opinions to claim that the Sixteenth Amendment provided Congress no new power of taxation. For example, such claims are often based on quotes found in the Supreme Court opinion Stanton v. Baltic Mining Co. , 240 U.S. 103 (1916). There the Court stated that 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..." Tax protesters argue that since all taxes had to be apportioned uniformly among the states prior to the Sixteenth Amendment, the income tax as it exists is unconstitutional. Yet these claims are based on less than careful legal analysis. And when read in context, the quote cited by Russo and others clearly illustrates that the Court was explaining that the Sixteenth Amendment did not alter Congress' broad power under Article I of the Constitution to tax. In fact, in Stanton, the Court actually determined that the income tax did not violate either the Fifth or Sixteenth Amendments to the Constitution.
Although Russo's tax claims seem to miss the mark, he has certainly raised a cloud of suspicion regarding the Federal Reserve. As he claims in a recent interview with OldSpeak (see here), the Federal Reserve is a private corporation run by rich bankers. According to Russo, the Reserve is the bankroll for the federal government, even though American citizens allegedly pay taxes to support the same government. In reality, the Federal Reserve and its structure are less than clear. It seems that the Federal Reserve is akin to a "quasi-governmental" organization that includes both private and governmental characteristics. If Russo is right, Americans should be alarmed that the guiding force of our economy is controlled by the decisions of a few private elite members of society--and worse yet, if our entire source of money is controlled by them.
David Caddell is a staff attorney with The Rutherford Institute.