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Historical Perspectives on the Federal Income Tax

Mr. Richard M. Creamer June 01, 2003

Director of Compliance Services

Internal Revenue Service

Department of the Treasury

Ogden, Utah 84201

Pamela F. Olsen

Assistant Secretary for Tax Policy

1500 Pennsylvania Ave. NW, Room 1334

Washington, DC 20224


RE: Form 907, Request for extension of time to bring suit, file # 0469104150

Dear Mr. Creamer,

Pursuant to Section 6532 (a) (2) of the Internal Revenue Code, we respectfully request an extension of time to file our suit for refund. Due to the conflict in Iraq and the financial impact those expenses will have on the current budget we feel that the timing of our suit may be inappropriate. Besides, we do not object to the taxation of income, for it is understood that such must be in an organized society. We do, however, strongly object to the inclusion of our living expenses in taxable income, as those expenses are not "taxable" income under the Sixteenth Amendment any more than the "reasonable and necessary expenses" of business are.

As you know the ratification of the Sixteenth Amendment was for the specific purpose of making the accumulated wealth of our country contribute to the support of government, not to enslave the working class. The entire American history of taxation, at least until 1940, shows this to be true. It was the taxation of income, not people, that drove the demand for a correction of the error made by the Supreme Court in the Pollock Cases of 1895. Congress, realizing that the decision in Pollock forever barred it from assessing a tax upon the accumulated wealth derived from capital, sought the approval of the people to rectify that inequity. In the debates over the wording of that amendment Congress made it very clear that the income tax was not to be a "capitation" tax, or a direct tax upon capital. Instead, the purpose of the 16th Amendment was to allow Congress the ability to treat the net income, or profits, derived from capital in the same manner they had always treated the net income, or profits, derived from business and professional labor. The Secretary of the Treasury made that position clear under Article 21 of Regulation 45 (1918) when he defined "net-income" as being "commercial net income". The Regulations remained that way up until 1954 when Congress revised the Tax Code. It was the personal exemption allowance that, throughout the 52 years proceeding the amendment and the 27 years that followed, insulated the people from the excise tax levied upon commercial net income from being a tax upon them personally.

It was well recognized by the framers of our Constitution and those who followed the framers, that a tax levied upon the basic necessities life was, in essence, a capitation tax requiring apportionment. The framers recognized that a tax upon the fruits of labor was also a capitation tax, for those fruits were necessary in order to purchase the necessities of life. Where were they to draw the line between the fruits of personal labor necessarily expended to support the worker and his family, and a gain or profit derived from that personal labor?

The question was easy to answer in the case of capital, for capital has a defined cost or value when it is acquired (also referred to as its "tax basis"). This is not true with personal labor, except for the personal labor purchased by employers for use in making capital productive. Congress, rather than deal with that issue instead chose to set the "personal exemption" at a relatively high amount in order to avoid the question of constitutionality being raised. That all changed in 1940, not in an effort to enslave the common worker through an excise tax on income, but to ensure that those who operated upon the basis of commercial net income paid the tax imposed upon them. However, when faced with an overwhelming need for revenue due to the war effort, and finding that the common worker was willing to contribute, Congress abandoned the prior principles upon which the Sixteenth Amendment was found acceptable to the people.

We do not protest the taxation of our wages, except for the fact that it is those wages which provide the means for the support ourselves and family. The current proposal to lower taxes is welcomed, however, shouldnít Congress be looking at the impact upon the living expenses of the worker, rather than the bottom line profits of corporations and business? When was the last time Congress paid attention to the needs of the working class, instead of the grumbling of business and wealth? When do we get to satisfy our needs and acquire the ability to accumulate a wealth of our own, before we are forced to pay a tax based upon that implied accumulation of wealth to our government?

We believe Congress should be promoting the accumulation of wealth by the working class, in order to relieve government of the obligation to provide for those who now refuse to work or who are now unable to provide for themselves after retirement. This can only be accomplished by allowing the working class the ability to keep the fruits of their labors. By putting the money back into the laborerís pocket, Congress will accomplish the Presidentís goal; not by lower taxes, but by increasing the profits of business from which more tax dollars will be generated.

It is our position that the personal exemption is not a gesture of generosity on behalf of the government. It was constructed specifically to avoid the unconstitutional direct taxation of people, without apportionment. History and the Congressional Record show this to be true. The personal exemption is itself a Constitutional imperative in relation to a Federal income tax. How could the amount of the exemption be determined arbitrarily, without subjecting the tax to Constitutional objection as being repugnant to Article 1, Section 9, clause 4?

It is not our desire to file a lawsuit, as legal battles rarely accomplish anything. The solution, to us anyway, seems relatively simple. Congress has at times indicated a desire to sunset the Internal Revenue Code, why? Other than the tumult the Tax Code has created, its basic concept is correct. They have now acknowledged the practicality of lowering taxes, albeit at the wrong end of the scale. Return the tax to its Sixteenth Amendment meaning by increasing the personal exemption to an amount that actually reflects reality for the majority of American citizens, and the objection to its imposition goes away; both in the moral as well as the legal aspects. The personal exemption for a single person in 1913 was $3,000, the same as it is today, 90 years later. However, inflation has taken its toll and $3,000 no longer satisfies the constitutional purpose for which the personal exemption was made part of the statute.

We believe that this inequity should be changed over a period of years, not as a result of an adverse ruling by the court. We have provided the outline of our legal argument for your review and consideration and it is our hope that a reasonable and timely solution can be found. We are asking for this extension in order for our concerns to be addressed in an appropriate manner by Congress, not the court system.




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