|Throw Him Into The Street If He Can't Pay His Social Security Tax
An attendee at an "untax seminar" I was conducting in Sioux Falls, South Dakota in 1977 told me the following story. It seems that he was a self-employed carpenter earning approximately $11,000 per year. However, since he had 9 or 10 children, he had enough deductions to eliminate any Federal "income" tax (even using the fictitious basis the IRS uses to calculate such taxes); and, as a result, he had not filed or paid Federal "income" taxes for a number of years. Somehow his case came to the attention of the IRS. He explained all this to them and they agreed that he had no Federal
"income" taxes to pay. They said, however, that his "Social Security taxes" (i.e. self-employment taxes) were unrelated to his personal deductions or exemptions and, based upon his self-employment income over a number of years, he owed about $3,000 in unpaid Social Security taxes to the government.
Well, this individual told the IRS that he simply didn't have $3,000 to give them. As he explained to me, providing for so large a family took all the money he earned and he did not have a nickel left over with which to pay any portion of such a huge tax bill. So what did the IRS do? They put a lien on his house for the $3,000!!
He had come to my seminar extremely distraught and fearful since the IRS was threatening to auction off his house unless he paid the $3,000. He wanted to know if they could really throw him and his 9 children out into the street if he didn't pay up—as this was precisely what they were threatening to do! Apparently a benevolent government (one that installed Social Security as a means of "helping" people in their old age) was willing to take this couple's home away and throw them and their children out into the street in order to accomplish so noble a goal. How absurd can a situation be?
This poor man really didn't know what to do. He didn't have any extra money with which to pay the tax bill and he was petrified at the thought of being put out of his house with such a large family. He told me, "I don't know where else I can go!" I could offer him little legal help, since at that time I hadn't yet learned that all such IRS liens are illegal and that the Code does not provide for such a tax liablity.
I did suggest that he go to the local newspaper and tell them his story. I felt that the situation was so ludicrous that if he could just focus some publicity on the matter the IRS would probably back off. Apparently this approach worked. I was told that the story did appear in a Sioux Falls paper and the IRS did, indeed,
back off. I wonder, though, how many others have had their homes seized and sold because they couldn't pay their "Social Security" taxes?
Over the years I have heard of at least two other cases where people have had liens put on their houses for allegedly failing to pay such "Social Security taxes". Should the government be in the position to take away a person's home in order to fund a project designed to "take care" of them in their old age?
But, apart from the obvious moral absurdity of the above, the Act's illegality should also be apparent. If this carpenter had no liablity for "income" taxes under Section 63, he couldn't have an "income" tax liability under any other section! Again, the 16th Amendment only provides for a tax on "income" and if citizens have no "income" that is taxable under Section 61 they can have no "income" (self-employment or otherwise) that is taxable under any other Code Section.
There is, of course, yet another reason why this "self-employment tax" is illegal. Presumably those who are self-employed have been made subject to two "income" taxes, while millions of other Americans — such as those who are retired and those who "work" for Federal and State governments — are only subject to one "income" tax. Again, such an assumption is legally ridiculous and totally repugnant to the Constitution. Therefore, all those who are self-employed can obviously stop paying their "self-employment income tax" on a variety of Constitutional grounds.
How To Stop Paying "Self-Employment" Taxes
Self-employed individuals normally pay such "Social Security" taxes when they file quarterly tax estimates and when they file their final income tax returns. Since the law doesn't require anyone to file either a
quarterly tax return or a final return,4 dropping out of Social Security for the self-employeds is easy. They should just stop filing quarterly and annual tax returns altogether! Not only will they get out of "Social Security" and regular "income" taxes, but with all the time, money and aggravation they save, they will have more time and energy to devote to their businesses. Suddenly they will have the capital and time with which to expand. They will be able to hire more people. They will be able to turn out better products or deliver better and faster service. In short, self-employeds should stop paying these taxes so they'll be better able to serve their customers, their employees, their communities, their families and their countryl
SUMMARIZING THE POINTS COVERED IN CHAPTER 4
1. The portion of "Social Security" taxes paid by employers is a contrived "excise" tax on wages paid.
2. While the employers' tax (unlike the tax on employees) contains some elements of legitimacy, it, too, can be disregarded for the following reasons: 1) numerous provisions of the Social Security Act are obviously unconstitutional and thus render all taxes established under it null and void; 2) since Social Security taxes are admittedly not levied to "provide for the ... general welfare of the United States", but levied to pay Social Security benefits, all such taxes are rendered unconstitutional on their very face; and 3) there is no provision in the law "requiring" employers to pay such taxes.
3. Since the law admits that the tax paid by em-
4 This is explained in considerable detail in Irwin Schiffs How Anyone Can Stop Paying Income Taxes.
ployers is an "excise", the tax withheld from employees must be a direct tax. And since it is not apportioned it is openly and incontrovertibly unconstitutional.
4. There is nothing in the law itself that states that any portion of "Social Security" taxes paid by either employers or the self-employed goes for Social Security benefits.
5. "Social Security" taxes paid by the self-employed are levied in the guise of a "self-employment" tax, allegedly measured by "self-employment income".
6. The Code, however, does not define "self-employment income" and, therefore, such a tax cannot be legally extracted.
7. In any case, the 16th Amendment precludes the government from defining and taxing "self-employment income" on a different basis than "income" itself; and any attempt to do so is unconstitutional.
8. Self-employed individuals cannot be made subject to two "income" taxes while millions of retired Americans and government employees are made subject to only one.
9. Self-employed individuals can avoid paying "Social Security" taxes by no longer filing either quarterly tax estimates or final returns, in which case they will avoid paying regular "income" taxes along with "Social Security" taxes.
10. Self-employeds who stop paying "income" taxes will be in a much better position to expand their businesses, and thus will become far more valuable to their communities and to the nation.
Court - Playing
Games With The Law
The Social Security Act covered a variety of new and far-reaching Federal programs and established a number of new taxes to go along with them. The Act's provisions were contained in eleven titles:
1. Title I created a new Federal charity program for the aged, based solely upon need.
2. Title II established a "Social Security" old-age retirement benefit for certain citizens based upon past wages.
3. Title III created a Federal scheme whereby people would now get paid for not working. This program was euphamistically called "unemployment insurance".
4. Title IV created a Federal charity program for "dependent" children.
5. Title V established another Federal charity program for "the health of mothers and children, especially in rural areas and in areas suffering from severe economic distress".
6. Title VI created a Federally financed service "... for the purpose of assisting states, counties ... in establishing and maintaining public health services ... ".
7. Title VII established a Social Security Board "... to make recommendation as to the most effective methods of providing economic security through social insurance ..." (which is a totally asinine concept and provides a fitting commentary on the Act as a whole).
8. Title VIII provided for "Social Security" taxes to be paid by certain employers and employees —though the government claimed these taxes were for general revenue purposes.
9. Title IX established a Federal tax on employers of eight or more (to fund unemployment "insurance") — though, again, the government claimed that such taxes were for general revenue purposes.
10. Title X established a Federally funded charity program specifically for the blind (why only for the blind?).
11. Title XI contained definitions and general provisions.
Figure 24 contains the first two sections of the original Title VIII. Note that the first paragraph of Title VIII is entitled "Income Tax on Employees" and confirms the fact that the so-called "Social Security" tax taken from employee paychecks is, in reality, just another "income" tax! The heading used in the original act showing this is far more accurate than the one used today (Figure 1, page 24). The original heading would still be in use today if it were not the government's intention to deliberately deceive the public as to what is really going on. The second paragraph (Section 802) also confirms that the tax is not a tax on wages but is merely "collected by the employer.. .from the wages as and when paid ..."
TITLE YIH—TAXES WITH RESPECT TO EMPLOYMENT
INCOME TAX ON' EMPLOYEES !!
section 801. In addition to other taxes, there shall be levied, collected, and paid upon the income of every individual a tax equal to the following percentages of the vrages (as defined in section 811) received bv him after December 31, 1936, vdth respect to employment (as defined in section 811) after such date:
(1) With respect to employment during the calendar years 1937, 1938, and 1939, the rate shall be 1 per centum.
(2) With respect to employment during the calendar years 1940, 1941, and 1942, the rate shall 6e l1/^ per centum.
(3) With respect to employment during the calendar years 1943, 1944. and 1945, the rate shall be 2 per centum.
(4) With respect to employment during the calendar years 1946, 1947, and 1948, the rate Shall be 2^ per centum.
(5)With respect to employment after December 31, 1948, the rate shall be 3 per centum.
•DEDUCTION Of TAX FROM WAGES
sec. 802. (a) The tax imposed by section 801 shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wagres as and when paid. Every employer required so to deduct the tax is hereby made liable for the payment of such tax, and is hereby indemnified against the claims and demands of any person for the amount of any such payment made by such employer. f (b) If more or less than the correct amount of tax imposed by section 801 is paid with respect to any wage payment, then, under regulations made under this title, proper adjustments, with respect both to the tax and the amount to be deducted, shall be made, without interest, in connection with subsequent wage payments to the same individual by the same employer.
Social Security Held to be Unconstitutional
On April 14, 1937, the Court of Appeals for the First Circuit in Boston, Massachusetts declared the Social Security Act unconstitutional on a variety of grounds. The opinion of that Court is contained in two
excellently researched and written decisions1 and came about when George P. Davis (a stockholder in both the Boston & Maine railroads and the Edison Electric Company of Boston) sought to enjoin each company from paying Social Security and unemployment compensation taxes on the grounds that such taxes were: 1) not authorized by the Constitution; 2) the Act infringed on the rights of the states; and 3), that the tax imposed ". . .a precarious and arbitrary burden on those who it affects". The Appellate Court agreed with Mr. Davis on all counts.
Tax on Employers not a Lawful Excise Tax
Citing numerous historical sources (Adam Smith's 'The Wealth of Nations" and transcripts of State conventions related to the ratification of both Federal and State Constitutions) and case law, the Appellate Court correctly concluded that an excise tax as contemplated by the Constitution was a tax on articles of consumption and could not constitutionally apply to the mere employment of ordinary workers. As the court explained in Davis vs. Boston (page 374):
In the discussions in the several state conventions, both as to the adoption of the Federal Constitution and with reference to the adoption of the respective state constitutions, it seems apparent that the understanding of the term "excise tax" was a tax laid upon articles of use or con-
1 Davis vs. Boston I.M.R. Co. 89 F2nd 368 and Daws us. Edison Electric Illuminating Co. of Boston et al 89 F2nd 393.
sumption, not according to their value, but an arbitrary amount fixed by the Legislature; and the term "commodity" appears to have been used in its ordinary sense as including goods, wares, merchandise, produce of the land and manufacture.
Massachusetts in framing its Constitution in 1780, in addition to the ordinary direct taxes, authorized the Legislature to impose "reasonable duties and excises upon any produce, goods, wares, merchandise and commodities whatsoever."
The Appellate Court also had ample Supreme Court case law to support its position. Here are but a few examples:
"An inland imposition, paid sometimes upon the consumption of the commodity, or frequently upon the retail sale, which is the last stage before the consumption.." And on page 618 of 184 U.S., 22 S.Ct. 493, 497, 46 L.Ed. 713: "To determine, then, what excise means, we have for our guidance, first, an enumeration of the articles that it fell on in Great Britain in 1787. We have, second, the nature of the tax as judicially determined; and we have, third, the definition of it, or the common understanding of men about it, as given by the Encyclopedia IJrittanica and the Century Dictionary. Taking these three sources of information and combining them, it would seem that the leading idea of excise
is that it is a tax, laid without rule or principle, upon consumable articles, upon the process of their manufacture and upon li^ censes to sell them." *
The Appellate Court went on to explain that the Supreme Court (in Flint vs. Stone Tracy Co. 220 U.S. 107) had held that:
"Excises are 'taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges.*"
Refusing to label a tax something that it obviously was not, the Court, again quoting from Flint vs. Stone Tracy Co., stated:
"While the mere declaration contained in a statute that it shall be regarded as a tax of a particular character does not make it such if it is apparent that it cannot be so designated consistently with the meaning and effect of the act," although such a dec* laration may "be entitled to some weight."
'Davis vs. Boston, p. 375, citingPatton vs. Brady 184 U.S. 608.
Tax Unconstitutionally Arbitrary
In order to illustrate the arbitrary nature of the tax, the court used an example of an individual building his own house with day laborers. Such an individual, the Court pointed out, could "... not be said to be engaged in the business of building houses or contracting ..." but would be doing "... what every person has a natural right to do in the pursuit and in the exercise of liberty guaranteed him under the 5th Amendment of the Constitution ...".
For instance, a physician or a lawyer may decide to construct a house for himself by day labor. In so doing he cannot be said to be engaged in the business of building houses or contracting; but simply doing what every person has a natural right to do in the pursuit of happiness and in the exercise of the liberty guaranteed to him under the Fifth Amendment of the Constitution. He employs common laborers, masons, carpenters, plumbers, electricians, painters, steamfitters. and it may well be that during the construction of his home he might find that he has had for one day, or a part of a day—though not at the same moment of time—
With such examples the Court clearly exposed the illegal and arbitrary nature of the tax and also the government's absurd claim that the tax on employers was a legitimate excise. Citing additional case law to support these arguments, the Court stated that an individual who ". . . enjoyed no franchise or special privilege by the legislature but was exercising a common right could not be made subject to an excise tax ...". Developing this argument further the court said:
"The right to set up and maintain theatres and other places of public amusement is not natural and inherent. Working by an artisan at his trade, carrying on an ordinary business, or engaging in a common occupation or calling cannot be subjected to a license fee or excise. These plainly are not affected with a public interest" '
"The rights to labor and to do ordinary business are natural, essential and inalienable, partaking of the nature both of personal liberty and of private property."
' Citing Gleason vs. McKay 134 Mass 419 and O'Keefe vs. Som-rville 190 Mass 110.
But nowhere do we find that an excise tax has ever been imposed in this country on the natural right to employ labor in manufacturing, or in any trade or calling for profit.
It is urged that the tax imposed under section 901 of title IX (42 U.S.C.A. § 1101) is imposed on the privilege of doing business. If Congress had so intended, we think it would have said so. Section 901 does not impose a tax on any business in which any employer may be engaged, nor on the manufacture of any goods, wares, merchandise, or commodity, but solely with respect to having in one's employ eight or more employees, the amount of the tax being based on the amount of the total pay roll.
Tax Unconstitutional — Not for the "General Welfare"
Another reason the Court found the Act unconstitutional is that it violated the general welfare clause of the Constitution. The Court noted that the taxes to be collected were to be used for the specific benefit of some and not for others and, therefore, the tax was not for the
"general welfare of the United States" as provided by Article 1, Section 8, Paragraph 1 of the Constitution.4 On this issue the Court stated:
"A tax, in the general understanding of the term, and as used in the Constitution, signifies an exaction for the support of the government. The word has never been thought to connote the expropriation of money from one group for the benefit of another. * * * The exaction cannot be wrested out of its setting, denominated an excise for raising revenue and legalized by ignoring its purpose as a mere instrumentality for bringing about a desired end. To do this would be to shut our eyes to what all others than we can see and understand,"
If the act is carried out as planned by Congress, and a tax is imposed on every employer which is credited against a tax
4 According to Article 1, Section 8, paragraph 1, the Federal government is only authorized to collect taxes for the "general welfare of the United States" and not for the specific welfare of some groups to the exclusion of others. Of course, the government today now violates this provision with total impunity and does not feel bound by it in any manner, shape or form, thanks in large measure to its success in getting Social Security through the courts.
imposed by the state, and, under the conditions imposed by section 302 and 303 of title III and section 903 of title IX (42 U. S.C.A. §§ 502, 503, 1103), is paid to employees found to be eligible, it amounts, in effect, to taking the property of every employer for the benefit of a certain class of employees. The entire plan, viewed as a whole, is an attempt to do indirectly what Congress cannot do directly, and to assume national control over a subject clearly within the jurisdiction of the states.
f9] Therefore, to provide unemployment benefits regardless of need, to persons who have worked in local employments in local trade and manufacturing within a state, not related to interstate commerce, or in any calling not related to the matters subject to the control of the Congress, is not to provide for the general welfare of the United States.
It is important to note that the Appellate Court looked at the entire Social Security Act (all eleven titles) as a whole. The Federal government, on the other hand, in arguing the Act's constitutionality, had the nerve to contend that the revenue sections of the Act were not in any way connected to the benefit sections! If that truth were admitted, the open and shut unconsti-tutionality of the Act would have been uncontested! But an honorable Appellate Court was not going to buy the government's absurd claim that the Act's taxes and
related benefits were separate and not tied together. The Court stated it was not going to "shut (its) eyes to what all others ... can see and understand ...". Convinced beyond any doubt that the entire Social Security Act was unconstitutional, the Court declared it so and included in its opinion the following stirring passage taken from yet another5 Supreme Court decision:
" The Constitution, in all its provisions, looks to an indestructible Union, composed of indestructible States.' Every journey to-a forbidden end begins with the first step; and the danger of such a step by the federal government in the direction of taking over the powers of the states is that the end of the journey may find the slates so despoiled of their powers, or— what may amount to the same thing—so relieved of the responsibilities which possession of the powers necessarily enjoins, as to reduce them to little more than geographical subdivisions of the national do-tnain. It is safe to say that if, when _the Constitution was tinder consideration. Jt had been1 thought that any such danger lurked behind its plain words, it would never have been ratified."
Davis vs. Boston, page 377)
5 Davis vs. Boston, page 377, citing Carter vs. Carter Coal Co. 298 U.S. 238.
Then these learned judges added these prophetic passages:
That this amounts to coercion of the slates and control by Congress of a matter clearly within the province of the states cannot be denied. If valid, it marks the end of responsible state government in any field in which the United States chooses to take control by the use of its tax-^ jng power. If the United States can taloJT control of unemployment insurance and old age assistance by the coercive use ol taxation, it can equally take control of education and local health conditions by levying a heavy tax and remitting it in the states which conform their educational system or their health laws to the dictates of a federal board.
It is plainly the duty of the courts to uphold and support the present Constitution until it has been changed in the legal way.
(page 377) and ...
In this sense,
Congress has not an unlimited power of taxation; but it is limited to specific objects,—the payment of the public debts, and providing for the common defense and general welfare. A tax, therefore, laid by
Congress for neither of these objects, would be unconstitutional, as an