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09/05/2007 - 1:12pm

The Income Tax May Be Legal, But Illegally Enforced


If you do some basic searching, you can find all sorts of websites talking about the illegality of the personal income tax. Many of them will target their arguments towards the fact that the Constitution doesn't allow the federal government to apply direct taxes to the people, and some others argument about whether or not the 16th Amendment was legally ratified.

But I have another view of this, and it's in-line with the Constitution and with the 16th Amendment that demonstrates that the income tax is legal, but not in the way it's being applied to wages. That is, income can be taxed under constitutional income tax laws, but wages and salaries cannot. For many, this may beg the question, "What's the difference between income and wages?"

If I buy something for $50, and then sell it for $75, I have a $25 profit -- That's my income, and the $25 profit can be taxed (not the entire $75). If I buy something for $50 then sell it for $50, I have no profit and I pay no taxes. The IRS recognizes these as deductions and taxes only the profit. However, most people don't make profit when they work, because they make an equal exchange.

If I have a job where I make $200/day, then I am trading $200 worth of labor for $200 worth of cash. My profit, or income, is $0. However, the IRS does not recognize this deduction, which is where the illegality of the income tax comes from.

Here's a scenario. If you have money invested in a mutual fund that yields you $2,000 in a single year, and you earn $50,000 per year, the IRS will apply the income tax to the entire $52,000, when in fact it should be applied only to the $2,000 you made in profit. The $50,000 in wages was acquired by giving your employer $50,000, so no net gain was made from that exchange.

I was thinking about this further from the employer's standpoint. As it is now, your employer is able to deduct your wages because you claim the income taxes on them instead of him. So if you were to not claim this as income because it's simply an asset exchange, then that might mean that it's an asset exchange for your employer as well. If this is the case, your employer's taxes would go up, and your wages would decrease proportionately so your employer could afford to pay the taxes. It would mean the government would have the same amount of tax revenue, it would just be coming from somewhere else. And with all the pay cuts to offset taxes, everyone would be making the exact same amount of money as before, so really nothing would change except where the liability lies.

Then I looked at this from an "office supply deduction" standpoint. When OfficeMax buys inventory, they are making an asset exchange (cash for inventory), and cannot make a deduction at that point. If I (as an employer, in this scenario) go to OfficeMax to buy some paper, they then can deduct this from inventory and write it off as Cost of Goods Sold. At that same time, I can write it off as an office supply.

So property can change forms as it's transacted between entities, from the IRS's standpoint. When OfficeMax sells me paper, they are deducting an asset, but I am not claiming a new asset, because the paper is a consumable to me, even though it was an asset (inventory) to OfficeMax.

In this same way, labor is transformed. The employee is making an asset exchange (labor for cash), but the employer is acquiring a consumable that they can deduct immediately as an expense. So when thought out, if the IRS enforced the income tax legally, there would be an overall increase in usable wages in the population with no adverse affect on companies, and a severally-needed cut in government revenue.

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Posted by: Dee White
08/08/2008 6:51am

Mr. Coons, your argument is factually ridiculous. The putative income tax only exists because judges allow others to use coercion,i.e. fire you from job or force, ie. police beating, to extort your funds. If you doubt this, file an action in U.S. District Court. Be sure to place the burden to prove the existence of the putative IRS on the Government.

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