From: AdmrlLocke@aol.com Sent: Monday, August 31, 1998 5:19 PM Subject: GrammNet: My Column on 16th Amendment GrammNet Issue 8/31/98 Dear Friend, Here it is, just a little cooled off the presses, from what is now yesterday's edition (Sunday, 8/30/98) of the Quad-City Times: my column on the 16th Amendment. I'm working on an expanded version for magazine publication. It will probably shock and hopefully frighten you--hopefully, because it once again demonstrates that the price of liberty is indeed eternal vigilance. Since I raised the subject of George Bush, Jr. in an earlier issue of GrammNet I've received a fair amount of email regarding him and the other potential candidates, so I'm planning a general piece on how I view the chances of each. I suspect that you probably won't be too surprised or shocked (but possibly still frightened) by what I'll have to say. Incidentally, I wanted to point out that in my Wednesday Quad City Times I mentioned that the Clinton administration was talking tough on Iraq while in fact discouraging weapons inspectors from making surprising inspections so that more evidence of Iraqi chemical weapons won't leak to the press. The very next day, the top inspector, a United States Marine, resigned and held a press conference to expose the very Clinton policy of hiding evidence of Iraqi chemical weapons I'd written about the day before. I must say it's always nice to be publicly vindicated. On the other hand, it's sad to be right about such deceitful and dangerous foreign policy. Sincerely, David B. Levenstam, CPA, MT, MA To subscribe to GrammNet, email me at AdmrlLocke@aol.com, with a message to the effect that you'd like to subscribe. ----------------------------------------------- Repealing 16th Amendment Wouldn't Kill Income Tax By David B. Levenstam, CPA, MT, MA U.S. Senator Dick Lugar (R-IN), Congressman Bill Archer (R-TX), and Stephen Moore of the Cato Institute, an influential libertarian think-tank, all want to replace the federal income tax with a national sales tax. They think you can eliminate the federal income tax by repealing the 16th Amendment. They're wrong. Income taxes existed constitutionally before the 16th Amendment. Ratified in 1913, the 16th Amendment says that "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 amendment gives Congress power to impose virtually any income tax it wants, like our current system of multiple rates, surtaxes, alternative taxes, phase-outs, double-taxation of corporate earnings, and tax on phoney gains caused by inflation. But contrary to popular belief, repealing the 16th Amendment wouldn't eliminate Congress's power to impose an income tax, because not all income taxes were held unconstitutional by the Supreme Court before the 16th Amendment. In fact, from 1861 to 1872, Congress imposed income taxes without any interference from the high court. Embarrassed by the federal government's huge budget surpluses and facing reelection in 1872, President Grant and Congress allowed the income tax to lapse. But budget surpluses then and for the next thirty years didn't prevent supporters of an income tax from clamoring for another one. On the contrary, from 1874 through 1894, members of Congress introduced 68 bills to impose an income tax. By 1894, a majority in Congress came to support some income tax. It passed a law imposing a 2 percent flat tax on corporate net incomes, and on individual incomes in excess of $4000 ($76,000 in 1998 dollars). Unlike our current system, the 1894 law didn't tax dividends, thus avoiding the current double- taxation of corporate income. Opponents of the income tax immediately challenged it in court. In 1895, the Supreme Court, in Pollack v. Farmers Loan and Trust Company, struck down the 1894 income tax as unconstitutional. But the Court didn't rule that every federal income tax would be unconstitutional. On the contrary, the Court made clear that Congress could impose a tax on income from wages, salaries, and other personal services, as well as on income from intangible property, like stocks, bonds, patents and copyrights. The Supreme Court ruled that the law was unconstitutional solely because it taxed income from tangible property without apportionment. So Pollack would, even without the 16th Amendment, allow Congress to impose a tax on a broad range of income. Fourteen years after Pollack, Congress imposed a 1 percent flat tax on corporate net incomes in excess of $5000 ($95,000 in 1998 dollars). By taxing corporations on dividends received from other corporations, the 1909 act began the practice of double-taxing corporate income. Opponents challenged the 1909 act in court, too. In 1911--two years before the adoption of the 16th Amendment--the Supreme Court ruled in Flint v. Stone Tracy Company that the tax on corporations was constitutional as "an excise upon the particular privilege of doing business in a corporate capacity." In other words, just because it was a tax on income didn't mean it was an income tax. So much for reason. Therefore, even without the 16th Amendment, under the joint impact of Pollack and Flint, Congress could impose a tax on wages, salaries, professional service fees, interest, dividends, royalties from intellectual property, and any income earned by corporations. Congress could even continue the current double-taxation of corporate income which so discourages much-needed investment in the growth of our economy. So eliminating federal income taxation, as supporters of a national sales tax propose, would require more than merely repealing the 16th Amendment. We'd have to ratify an amendment which actively prohibits Congress from imposing any income tax. Without such an amendment, Congress would rely on the Supreme Court decisions in Pollack and Flint to continue collecting three-quarters of a trillion dollars each year in income taxes. As we've seen in Canada and Western Europe, we'd probably end up in the worst of all possible tax worlds: paying both a national sales tax and an income tax. ------------------------------------------------ David B. Levenstam, CPA,was the Louis Pelzer Fellow in American History at University of Iowa, and a Salvatori Fellow with The Heritage Foundation in Washington, D.C. He has masters degrees in Taxation and History, and has been a tax practitioner since 1982.