Indirect Taxation

Constitution of the United States, Article I, Section 8

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

Constitution of the United States, Amendment XVI

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.

What is Indirect Taxation?

Ordinarily, all taxes paid primarily by persons who can shift the burden upon someone else, or who are under no legal compulsion to pay them, are considered indirect taxes; Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429 (1895)

Corporations and businesses, who employ labor, are able to shift and pass on the cost of labor and indirect taxes to consumers, while individuals lack this ability. When deciding the constitutional limits on the power of indirect taxes the Court has opined that:

The power of taxation, which is expressly granted, is plenary, and is limited only by the requirement that it shall be exercised uniformly throughout the United States. South Carolina v. Baker, 485 U.S. 505, 523 (1988)

... indirect taxes are the familiar federal taxes imposed on activities or transactions. That category of taxes includes duties, imposts, and excise taxes, as well as income taxes. Moore v. US., 602 U.S. 572 (2024)

This quote is from Wikipedia: Income tax in the United States

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.

Direct and Indirect Income Taxes

This information will show that the income tax is an indirect tax, as it applies to corporations and businesses, but functions as a direct tax on individuals who are merely wage earners. The income tax had its origin and took hold by aiming the taxing policies to the rich and the accumulation of wealth, where less than 3% of the population paid these income taxes. The Pollock decision was only concerned with separating the source of the income from taxing the source itself. The 16th Amendment was introduced to be sure that incomes, "from whatever source derive" was taxable as an excise or indirect tax. The Internal Revenue Code, Subtitle A-Income Taxes PART I §61 states that "income means all income from whatever source derived, including (but not limited to) ..." The correct interpretation reads the words "income from whatever source" to mean that property, or the source is separate from the income.

Wages are taxable, and if wage taxes are indirect taxes, then the employer collects the tax and the remainder becomes property of the wage earner. This would include lunch reimbursements, Central Illinois Pub. Svc. Co. v. United States, 435 U.S. 21 (1978)

A withholding or payroll tax is appropriately an indirect tax collected indirectly. A tax on the wages after payment is made is considered a direct tax which must be paid directly.

Wage earners and families do not have the ability to shift the burden of the income tax to someone else, like corporations or businesses can. The individual income tax makes almost all citizens are under legal compulsion to pay the tax directly. Taxing citizens

1. The "Corporate Income Tax" is an indirect tax, as it applies to corporations, and is not subject to the apportionment rule. Businesses follow the similar rules as corporations in arriving at taxable income. The key element of an indirect tax is that the tax is paid by someone who can shift the burden to someone else. Profit and income is realized after deductions.

2. The "Individual Income Tax" is an indirect tax with plenary power under the Constitution. the Internal Revenue Code¹ requires all employers to "deduct" (i.e., excise), and forward wage and employment taxes collected at the source or payment. In this method, the wage and employment taxes are indirect and within the constitutional authority of indirect taxes.

The Internal Revenue Code 26 U.S. Code § 3403: (a) Liability for tax. - The employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter, and shall not be liable to any person for the amount of any such payment.

3. The "Individual Income Tax" is a direct tax, as it directly applies the tax onto wage earners and families, in sharp contrast to applying the tax onto taxable events. In practice, custom, and law Once this tax is paid, the money is the property of the employee, and any further tax on that money is a direct tax on property, which must be collected by rule of apportionment, This would remove wage earners and families from the tax rolls, without liability, penalty, or risk, due to the fact that the tax has already been paid. Making citizens directly liable for an indirect tax is a violation of the Constitution, especially when the tax was excised, or extracted, or taken "from whatever source derived" at the time of payment. The key element of a direct tax is that the tax is paid by someone who cannot shift the burden to someone else. Wage income is calculated without deductions that were part of that commercial transaction.

Taxes on individual income activity, i.e., wages and salaries, are subject to indirect taxes and must be collected indirectly. The first income tax in 1961 was an indirect tax, as it was collected by the employer and paid by the employer to the government. The Social Security tax is an indirect tax, as it is collected by the employer and paid by the employer to the government. The Current Tax Payment Act of 1943, Pub. L. 68, Ch. 120, 57 Stat. 126 (June 9, 1943), re-introduced the requirement to withhold income tax in the United States. Tax withholding had been introduced in the Tariff Act of 1913 but repealed by the Income Tax Act of 1916.

This information will show that wages and salaries are subject to indirect taxes and must be collected indirectly without making citizens directly liable for the tax. The tax is collected by the employer and paid by the employer to the government. The current regiment of making citizens directly liable for an indirect tax that can be collected indirectly is a violation of the Constitution. The Supreme Court has never addressed this issue. Wages, subject to indirect income tax, but once wages and salaries are paid to the employee, the money is the property of the employee and the government has no right to it, unless under the rule of apportionment and representation. ^{2 3 4}

Footnotes

1. 26 U.S. Code § 3402 - Income tax collected at source: (a)Requirement of withholding (1)In general. Except as otherwise provided in this section, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary.

   ↩

2. 26 U.S. Code § 3403 - Liability for tax: The employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter, and shall not be liable to any person for the amount of any such payment.

   ↩

3. AI & DIRECT TAXES

   ↩

4. Wage Taxes

   ↩