The issue regarding the legality of income tax on labor is really a sensational one that it gets my attention right away from the moment I heard other people saying that it is not included in the bounds of our constitution the imposition of the said taxation. In order to verify this claim, I made my own study regarding the legality of the said taxation scheme and I found out that there is no statement on our constitution or in the Internal Revenue Code stating that we are required to pay an income tax from our labor.
Therefore, what is the basis of the government officials for charging us income taxes on labor if there is no single statement on our constitution that would supplement the said taxation schemes? With this, I may say, that income tax on labor is illegal for there is no statement in our constitution or even in the Internal Revenue Code saying that we have to pay for our labor.
With my position stated above, let me first further elaborate my arguments. According to our constitution, there are only two types of income that is being imposed by our government and they are the direct and indirect income taxes (“Chapter 1: Constitutional Taxation.” 1). Direct taxes include income taxes on wages and salaries of the citizens. Therefore, income tax on labor is not included in the direct taxes. Moreover, the term “indirect tax” was not used in the constitution but rather “any tax that is not direct”.
But this “any tax that is not direct” includes Duties, Imposts and Excises. Once again, income tax on labor is not included into this type of income tax. Either of the said two types of income tax did not even give any possibility that income tax on labor is included into at least one of them. There are really income taxes that are of malicious in nature and that most of us could help but to doubt the credibility of the said tax scheme.
As said by Edwin R.A. Seligman, the Supreme Court of the United States has thus held that certain kinds of income taxes are indirect, that certain other kinds of income taxes are direct, and that still other kinds of income taxes are invalid, irrespective of whether they are direct or indirect (2).
As for the Internal Revenue Code, there is also vagueness in the definition of what “income” is. Although it has been cited in the definitions of terms in Title 26 of the Internal Revenue Code, but none of them define the meaning of the term “income”. On the other hand, there are some legal cases that give their own definition of income as applicable to their situation and period. Like for example the case between Staples and US wherein they define income as tantamount to gain which could also coined as profit based from the 16th Amendment and the Revenue Acts.
They made a “default” definition of income based from the 16th Amendment and Revenue Acts for the purpose of their legal case. Another definition of the term “income” as based from legal cases would be the case between Conner and the U.S. as well as the case of Oliver and Halstead wherein they made a clarification regarding the difference between profit and wages. It is said that wages cannot be considered as profit within the bounds of law for profit means gains from investment or from business operation (“What is ‘income’?” 4).
Economically, income taxes are being used in order to generate funds to finance the projects and other functions of our government. Without these taxes, there would be no public schools, public hospitals as well as roads and other infrastructures that are of very important towards the attainment of impressive growth for the economy (Moffat 1). Like for instance, the construction of roads which are important for transporting goods from far flung states going to cities and other market areas.
Without this roads, transportation costs of producer’s increases and so with the prices of their products. But the question is, are all of the taxes that were paid by the tax payers really go to financing the said functions of the government?
According to Grace Commission Report, there are a lot of ways by which tax payers could save around $420 billion over three years without increasing the taxes being collected to them. Moreover, Grace told President Reagan that 1/3 of the taxes that were collected are being wasted and another third are not collected and the remaining third that the government could received are entirely absorbed by the Federal Debt and by Federal Government contributions to transfer payments (“The people’s income tax guide: Where do your taxes go?” 1).
In short, there is no single cent that goes to the funding of government’s functions to the state. The government gets its funds from loans from the IMF. Moreover, the funds being used for schools came from property taxes; funds for roads and bridges came from gas taxes while user fees funds airports, sewer and water systems.
In this regard, based from our constitution and from the report of Grace Commission, income tax on labor is illegal since it is not stated in our constitution or any of our laws and to make things worst, the income tax on labor that were collected did no serve it purpose which are being expected by the tax payers to the government.
“The people’s income tax guide: Where do your taxes go?” 2003. Truth in Taxation.US. 19 October 2007 <http://truthintaxation.us/?tax_inform=whereTaxesGo>
“Chapter 1: Constitutional Taxation.” 2000. Constitutionalincome.com. 19 October 2007
“What is ‘income’?” June 2007. Outraged.chatblogs.com. 19 October 2007
Moffat, Mike. “The Effect of Income Taxes on Economic Growth.” 2007. 19 October 2007 <http://economics.about.com/cs/taxpolicy/a/taxing_growth.htm>
Seligman, Edwin R.A. “The Income Tax Amendment.” 1910. Political Science Quarterly 193, 197. 19 October 2007.