Ratification of the Sixteenth Amendment
In response, Congress proposed the Sixteenth Amendment (ratified by the requisite number of states in 1913),[20] which states:
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 or enumeration.
The Supreme Court in Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916), indicated that the amendment did not expand the Federal government’s existing power to tax income (meaning profit or gain from any source) but rather removed the possibility of classifying an income tax as a direct tax on the basis of the source of the income. The Amendment removed the need for the income tax to be apportioned among the states on the basis of population. Income taxes are required, however, to abide by the law of geographical uniformity.
Some tax protesters and others opposed to income taxes cite what they contend is evidence that the Sixteenth Amendment was never properly ratified, based in large part on materials sold by William J. Benson. In December 2007, Benson’s “Defense Reliance Package” containing his non-ratification argument which he offered for sale on the Internet, was ruled by a Federal court to be a “fraud perpetrated by Benson” that had “caused needless confusion and a waste of the customers’ and the IRS’ time and resources.”[21] The court stated: “Benson has failed to point to evidence that would create a genuinely disputed fact regarding whether the Sixteenth Amendment was properly ratified or whether United States Citizens are legally obligated to pay Federal taxes.”[22]

I have heard that there is in fact no law that states an American citizen must pay income tax.

Apparently a few individuals working for the IRS put out a reward of $5000 for the person that could find the law and no one could so they resigned.

Could be nonsense though. Anyone heard of this?

In response to Nick Benjamin’s post:
“Now we can all discuss what we think is fair, but lets have the moral discussion first. Why do we think that we can take more money from people just because they have it? Where is that line? I realize that there are plenty of idle wealthy in that top 5% and 1% groups that didn’t create their own wealth, but what is the justification for taking it? ”

Well you answer your own question, first in your very statement of the question and then in the last sentence of the paragraph restating the question. Fair and moral are not separate issues; It is moral to do what’s fair, and immoral to create and exacerbate unfairness. And you admit that there are “plenty of idle wealthy”– who didn’t EARN the wealth they were able to TAKE, just from being born lucky–so it’s only fair, and therefore moral, for society to take back at least some of what was not rightfully earned from the super-rich, and give a more FAIR level of earnings to the non-rich workers.

The income tax started as a tax on the wealthy only. Recent reductions in tax rates have made it a tax for the upper middle class and wealthy once again. Bush’s tax cuts removed a lot of the poor from the tax rolls altogether, and reduced the rate from 10% to 5% for many others. It is true that the bottom 40% of wage earners get a refund exceeding their contribution in income taxes. To be fair, this refund (the “earned income tax credit”) is intended to reduce the impact of the payroll tax (ie Social Security and Medicare), which is a punishing regressive tax on the poor wage earner. It starts with the first dollar earned and is an effective rate of about 15% (when you count employer match).

No wage earner pays less than that 15% effective rate on income up to $102,000. Until this year, the amount collected from that tax more than paid for the outlays of the Social Security administration (and in fact, was “siphoned off” into the general fund). The rich wage earner … and if you earn over $102,000 you are rich … gets a pass for every dollar past that amount. So you have to adjust those higher rates in income taxes by the payroll tax break they are getting.

An income tax rate that jumps from 25% to 32% at $102,000 would mean the rich wage earner would have the same amount of take-home pay in his paycheck (and the employer would pocket his contribution of 7%). As it is, once he hits $102,000, he gets an 15% reduction in the effective tax he pays.

The problem comes when you’re calculating the benefits for richer people. Clearly the Google guys would not be super-rich if Uncle Sam hadn’t used money to build the Internet, but how much? The waitress benefits significantly because roads allow her to get work, but how much?

Oh, and in countries with no government the rich are only rich in comparison to everyone else. Nigeria has half our population, but only two Billionaires. Brazil is closer to 2/3, but they only have 11. IMO it’s pretty clear the US has the optimal form of government in terms of allowing people to become ridiculously wealthy.

I have no vested interests here, by the way. I moved to Asia before the Bushies stormed the Oval Office.

Scrap the complex tax code, go with some simple progressive percentages, tax all the churches and other non-profits, and then see how fast we can take something as simple as that and screw it all up with complexities and exemptions. But at least we’ll start with the same clean slate that we had a couple of centuries ago.

I’m not. Progressive taxation (higher rates for those with higher income) makes sense to me. How high is another matter. I think rates over 50% are punitive, especially if you consider that doesn’t include the state bite on top of the federal. Maybe at 50 million it wouldn’t bother me that much.

Then it seems we largely agree on that point. Plus the feds don’t consider the money that was paid to the states as income. You’d only be taxed on what was left and at whatever marginal rates applied to that amount.

Just because people are creative and driven doesn’t mean they don’t care whether they get to keep what they’ve earned.

I didn’t say they don’t care. I said they weren’t in it for the money so much. In other words, they won’t stop making what they think are good investments or trying to come up with new software or making a better LED over not being able to keep some marginal percentage of their income above some some amount that is way beyond what they need to satisfy all but the most absurd material wants.

Again, what’s the calculus? What the method by which we say that the government is doing too much for rich people and meanwhile not enough for poor people.

There is no absolute calculus. There are arguments, like the one we’re having, and judgment. There’s democracy. But the lack of an absolute calculus doesn’t support any given tax regime over any other, so it’s kind of a moot point. I can’t say for sure what the best decisions will be for me tomorrow, but I still have to do something, so I’ll do my best.

But IMO it’s a big leap from there to the conclusion that it all relies on government (versus individuals and private entities) and that the large enterprises are primary benefactors.

It doesn’t all rely on government, and I never wrote that. It’s that comparatively, larger entities rely more on government institutions and infrastructure than smaller ones.

There used to be a lot less government, and there were plenty of rich folks. And being poor was practically a death sentence.

Well, sure, when rich people were allowed to exploit the poor to the point of killing them. There were kings and lords in the days of feudalism, but I doubt you’re arguing for a return to that, or the early days of the mining town with the company store and company housing and 80-hour work weeks, or chattel slavery for that matter. Regulatory environments are there so that rich people have to become rich while observing some reasonable degree of morality and humanity. I think we can accept that construct as a given with no need to harken back to the unfettered good old days of blatant exploitation. (Please don’t take that to mean that I’m suggesting you would advocate feudalism or slavery and such, KK. I know you better than that.)

I’d like to know, is anyone here arguing against progressive taxation? Or are we arguing about where the marginal rates should be? My personal opinion is that there should be additional brackets for high earners. By “high earners,” I mean households bringing in more than half a million dollars per year. I’d probably add another bracket at a million, another at five million, and anonther at ten million (maybe another at 50 million, and another at 100 million?). Keep in mind that we’re talking about marginal rates here. Once you’ve gotten to 10 or 50 million, I wouldn’t have a problem with marginal rates over 50%.

I’m not. Progressive taxation (higher rates for those with higher income) makes sense to me. How high is another matter. I think rates over 50% are punitive, especially if you consider that doesn’t include the state bite on top of the federal. Maybe at 50 million it wouldn’t bother me that much.

But I do think incentive and motivation does matter quite a bit. You said:

I think people who make lots and lots of money (like 10’s of millions or more) doing something truly productive aren’t in it for the money so much. They’re people who like to do things, who are curious and driven, and who want to see their vision realized.

That’s pretty romantic of you. Not to mention blithe. Just because people are creative and driven doesn’t mean they don’t care whether they get to keep what they’ve earned. They’ll be just as creative and driven when it comes to tax avoidance. What so often happens is that the super wealthy find creative ways to avoid taxes, and then it’s the next level or two down that get hammered.

You can demand data all you like, but it rings hollow when you don’t have any yourself. And just because I can’t tell you how many stars there are in the sky or how many houses there are in New Jersey, it doesn’t make me a troll to say there are more stars in the sky than houses in New Jersey. If you honestly think something is obvious, I don’t think it makes you a troll to say it, despite not having a handy data-set available. (Not that the validity of such a data-set wouldn’t be endlessly argued over if it did exist.)

My point was that without real data, real methods of making a good faith determination, one ought to show some reticence before making grand claims. So my point doesn’t ring hollow at all. I didn’t say Nick was wrong, I said it was inflammatory to claim the point was obvious. Your analogy is quite crappy. Anyone who understands basic notions about orders of magnitude in real-world phenomena knows there are more stars. Stars and numbers of houses are basic quantifiable concrete things. Which is exactly what notions of how much a given individual benefits from government are not.

What is obvious is that people with more income and more wealth are benefiting financially (to a greater degree than those with less) from something. They may be smart, hard-working, visionary, highly motivated and whatever else. But almost no one in modern society creates wealth in a vacuum. And certainly no one creates lots and lots of it in a vacuum.

Right, and how much ongoing credit goes to the individual versus the government, to say nothing of private institutions.

There’s a monetary system, banking system, legal system, educational system and system of infrastructure; there are subsidies and R&D grants; there is military and police protection; all off the top of my head. It’s hard to see how these things don’t provide greater benefit to those who earn and have accumulated more than to those who earn and have accumulated less. It’s the whole context within which people wind up with more or less. It seems obvious to me as well, so I would like to know how wealthier people haven’t benefited more given that they are, well, wealthier. I can’t see that the burden of proof lies on my side any more than on the opposite.

And there’s all the private stuff overlaid on those things too. And how do we account for the large numbers of people who require all or most of their support from the government? Again, what’s the calculus? What the method by which we say that the government is doing too much for rich people and meanwhile not enough for poor people. Since poor people don’t benefit from let’s say a capital gains tax reduction, then what, it’s immoral?

Look, I get what you mean about how there’s this huge tapestry of modern institutions upon which huge and hugely lucrative modern enterprises rely. But IMO it’s a big leap from there to the conclusion that it all relies on government (versus individuals and private entities) and that the large enterprises are primary benefactors.

There used to be a lot less government, and there were plenty of rich folks. And being poor was practically a death sentence. Those were the days of the nasty, brutish, short lives. Now there’s a lot more government, and life is less brutish for the poor. In terms of life expectancy, for example.

And in places where there isn’t much government, wealthy people can do even better than in a highly regulated environment. They use only as much of their resources as they need to privately provide the things they want, and not a penny more.

I’d like to know, is anyone here arguing against progressive taxation? Or are we arguing about where the marginal rates should be? My personal opinion is that there should be additional brackets for high earners. By “high earners,” I mean households bringing in more than half a million dollars per year. I’d probably add another bracket at a million, another at five million, and anonther at ten million (maybe another at 50 million, and another at 100 million?). Keep in mind that we’re talking about marginal rates here. Once you’ve gotten to 10 or 50 million, I wouldn’t have a problem with marginal rates over 50%.

I’m not against people getting rich or even really, really rich. That’s why I wouldn’t advocate a marginal rate of 100% (or more) at any income level. I think every dollar of additional pre-tax income should result in some amount of after-tax income.

As far as disincentivizing productive activity (resulting in mass going-Galt by the millions of Randians), I think people who make lots and lots of money (like 10′s of millions or more) doing something truly productive aren’t in it for the money so much. They’re people who like to do things, who are curious and driven, and who want to see their vision realized. The ones who are in it just for the money are more likely to be Bernie Madoff types, in my opinion, so I don’t mind disincentivizing them.

But I still think the more money one makes, the more likely one is to rely more heavily on the institutions of government. Don’t get me wrong, I think everyone does to some degree or another. But when you start getting up towards, say, the million-dollar mark, you’re really gaining the benefits of the numerous systems we have in place that keep things working in a reasonably ordered fashion.

Nick, your anecdotal method is proof of exactly nothing. If you want me to take your silly argument seriously, come up with a functuonal working defintions of things like rich and poor and “benefit,” and come up with a reliable objective way to measure your hypothesis

I’m attempting to illustrate the point, not prove it beyond a doubt. As you point out proving this kind of thing to the penny would be virtually impossible. But proving it to the extent that I can morally justify rich people paying a higher tax rate is another thing entirely. The nice thing about morality is it’s supposed to be debatable.

That said I’d be interested in seeing somebody try to prove (for example) that a waitress benefits more from her government then the restaurant owner.

And yippee! I remembered how to do quotes!

What is obvious is that people with more income and more wealth are benefiting financially (to a greater degree than those with less) from something. They may be smart, hard-working, visionary, highly motivated and whatever else. But almost no one in modern society creates wealth in a vacuum. And certainly no one creates lots and lots of it in a vacuum.

There’s a monetary system, banking system, legal system, educational system and system of infrastructure; there are subsidies and R&D grants; there is military and police protection; all off the top of my head. It’s hard to see how these things don’t provide greater benefit to those who earn and have accumulated more than to those who earn and have accumulated less. It’s the whole context within which people wind up with more or less. It seems obvious to me as well, so I would like to know how wealthier people haven’t benefited more given that they are, well, wealthier. I can’t see that the burden of proof lies on my side any more than on the opposite.

You can demand data all you like, but it rings hollow when you don’t have any yourself. And just because I can’t tell you how many stars there are in the sky or how many houses there are in New Jersey, it doesn’t make me a troll to say there are more stars in the sky than houses in New Jersey. If you honestly think something is obvious, I don’t think it makes you a troll to say it, despite not having a handy data-set available. (Not that the validity of such a data-set wouldn’t be endlessly argued over if it did exist.)

Until then, I’ll continue to class it as preposterous to say that such a thing is “obvious” in any meaningful sense.

@WHQ For sure. What you say only begins to scratch the surface of how complex the calculus is on this matter. Which is why I was so irritated to see Nick blithely say that its obvious that rich people benefit the most from taxes. I don’tknow where we’d begin in trying to measure such a thing.Fundamentally, I don’t see what we gain from trying to determine which classes are benefitting from tax dollars. Not without a good honest objective way of actually doing it, Without that, all we get is an argument where each side is informed by its cherished prejudices.

“How might we figure this out?” Is an interesting question. But presuming the answer is “obviously the rich? ” Trolldom.