What is the basis for the belief by those in the THM that they have a God-given, fundamental right to earn a living by their own labor and that their exercising that fundamental right is tax-exempt—that laboring for a living is not a "taxable" activity?
If there is no law clearly and plainly imposing liability on the typical working American, then any further inquiry is not really necessary. If one were to have millions of dollars of income, within the Constitutional meaning of that term, in any given tax period, even if it were derived from his exercising a clearly taxable privilege, without any liability for the tax he would owe no income tax, would he? But it is impossible to simply stop there, put the books down and walk away. The question, "Why?", begs—demands—an answer. Why has Congress obviously, knowingly, chosen to omit such an essential provision from the law establishing such a significant source of revenue?
In examining the meaning of the words of Section 1 imposing a tax on "taxable" "income", the THM has discovered that "income" has a specific legal meaning that is far narrower than its current vernacular usage and they have concluded that it is impossible to derive income, i.e., profit, from personal earnings. It has also concluded that working for a living is not among those privileged activities within the Constitutional taxing authority of the federal government. But the next inquiry is, since indirect taxes, such as the income tax, are taxes on privileged activities, is working for a living a privileged activity?
Perhaps the best and most succinct discussion of what a privilege is in its essence, as opposed to distinguishing between a right and a privilege, is actually found in a State Supreme Court case, Jack Cole Co. v. MacFarland, 337 S.W.2d 453, 206 Tenn. 694 (1960). In that case the Court was faced with a challenge to the State income tax based upon Tennessee's Constitution, which permitted the legislature to tax incomes insofar as they were derived from stocks and bonds that are not taxed ad valorem. In a direct and logical approach to the question the Court held:
The defendant contends that the tax is a privilege tax because the Legislature has designated the receipt or realizing of earnings or income [note the mutually exclusive disjunctive, earnings "or" income] as a privilege. Defendant cites numerous cases supporting the contention that the Legislature can name anything to be a privilege and then tax it.
It cannot be denied that the Legislature can name any privilege a taxable privilege and tax it by means other than an income tax, but the Legislature cannot name something to be a taxable privilege unless it is first a privilege.
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Realizing and receiving income or earnings is not a privilege that can be taxed.
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"Privileges are special rights, belonging to the individual or class, and not to the mass; properly, an exemption from some general burden, obligation or duty; a right peculiar to some individual or body." Lonas v. State, 50 Tenn. 287, 307.
Since the right to receive income or earnings is a right belonging to every person, this right cannot be taxed as privilege.
This common sense treatment of the question is so obvious that it approaches being self-evident. Privileges belong only to the privileged, so if everyone has it, whatever it is, no one is "privileged", so it cannot be taxed as such. Although the court referred to the right to receive income, it also referred to privileges as a right, not a privilege or franchise, so it would appear that the court here was not distinguishing between taxable privileges and non-taxable rights, so much as that whether called a "right" or a "privilege", if it is common to all men, as opposed to some limited set of persons who enjoy that "right" or "privilege", then it is not a privilege and, thus, is not taxable as such.
We often mistakenly or carelessly refer to rights as privileges and vice versa. How many times have you heard someone, even the courts, refer to our Fifth Amendment privilege against self-incrimination? Or a corporation's right to own property or to perpetual existence? But is engaging in laboring for a living a right possessed by everyone? Or is it a privilege, enjoyed only by the privileged? If it is a right, then is exercising an inalienable, fundamental right conferred by our Creator, not government, on every man, not "the few, the proud, the privileged", taxable by the federal government? Is that an activity that can be taxed by any government for that matter?
Extending and continuing with Jack Cole's common sense approach, if the power to tax is the power to destroy, as Chief Justice Marshall stated in McCulloch, then is it plausible, or even coherent, to suggest that we abolished one government for failing to secure our rights in order "to institute [a] new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect [our] Safety and Happiness" and at the same time provided that new government with the power to destroy the rights that government was created to preserve and secure? Such a premise is not only insupportable on its face, it offends both reason and conscience. If we have a right, not privilege, to earn a living through our own labors, then, surely, the federal government, created to preserve that right and prohibited by the Constitution, including the Bill of Rights, from injuring or abridging that right, cannot rationally claim to be empowered to tax . . . empowered to destroy . . . that right.
Our first question, then, is:
Do we, the People, have a fundamental, Constitutionally protected right to earn a living through our own labor?
That question can only be answered by the Supreme Court, since neither the Congress, by statute, nor the executive branch, by fiat, has the power to define the limits of our rights nor their powers. So, what has the Supreme Court had to say about the question?
The case of Butcher's Union v. Crescent City Co., 111 U.S. 746 (1884), was mentioned in another segment to this presentation for the proposition that our labor is in fact our property, part of our patrimony, and, in fact, our most "sacred and inviolable" of property. That case, however, is even more notable for its recognition of the right to engage in labor for a living. At issue was whether a 25-year monopoly granted Crescent City on slaughter-house operations within a 1,145 square mile area of Louisiana was entitled to enforcement.
The majority held that it was not entitled to enforcement because no legislature could enter into an irrepealable act, restraining the prerogatives of subsequent legislators. Justice Field's concurrence in that case, however, was a harbinger of what would become a line of scores of cases recognizing that the fundamental right to earn a living through one's own labor at an occupation of his own choosing was part and parcel of our right to pursue happiness. In that opinion Justice Field stated:
"Among these inalienable rights, as proclaimed in that great document, is the right of men to pursue their happiness, by which is meant the right to pursue any lawful business or vocation, in any manner not inconsistent with the equal rights of others, which may increase their prosperity or develop their faculties, so as to give to them their highest enjoyment." (emphasis added)
Justice Field was not alone in his assessment. He was joined in his concurrence by Justice Bradley, who, writing for himself and JJ. Harlan and Woods, also concurred, but on the basis of Field's reasoning, stating:
The right to follow any of the common occupations of life is an inalienable right; it was formulated as such under the phrase "pursuit of happiness" in the Declaration of Independence, which commenced with the fundamental proposition that "all men are created equal, that they are endowed by their Creator with certain inalienable rights; that among these are life, liberty, and the pursuit of happiness." This right is a large ingredient in the civil liberty of the citizen. (emphasis added)
Only two years later, in Yick Wo v. Hopkins, 118 U.S. 356 (1886), the Supreme Court made that pronouncement official, this time as a unanimous court. In that case at issue was a San Francisco ordinance prohibiting laundries from operating in wooden structures. The Court held that the ordinance was an unconstitutional impingement on the right of a resident alien, Yick Wo, to continue to operate his laundry business which was located in a wooden structure. The Court reasoned that:
But the fundamental rights to life, liberty, and the pursuit of happiness, considered as individual possessions, are secured by those maxims of constitutional law which are the monuments showing the victorious progress of the race in securing to men the blessings of civilization under the reign of just and equal laws, so that, in the famous language of the Massachusetts Bill of Rights, the government of the commonwealth "may be a government of laws and not of men." For, the very idea that one man may be compelled to hold his life, or the means of living, or any material right essential to the enjoyment of life, at the mere will of another, seems to be intolerable in any country where freedom prevails, as being the essence of slavery itself. (emphasis added)
From this well sprang a host of cases recognizing the right of every man to employ his skills, strength, energy and intellect to his own advantage and to contract it to others for his own benefit in pursuit of prosperity and happiness.
In Allgeyer v. Louisiana, 165 U.S. 578 (1897), the Supreme Court held invalid a Louisiana statute prohibiting a citizen from contracting outside the State for insurance on his property lying therein because it violated the liberty guaranteed to him by the Fourteenth Amendment.
In Truax v. Raich, 239 U.S. 33 (1915), an Arizona statute requiring employing a minimum quota of citizens was declared unconstitutional. The Supreme Court held at p. 41:
"It requires no argument to show that the right to work for a living in the common occupations of the community is of the very essence of the personal freedom and opportunity that it was the purpose of the [14th] Amendment to secure. Butchers' Union Co. v. Crescent City Co., 111 U.S. 746, 762; Barbier v. Connolly, 113 U.S. 27, 31; Yick Wo v. Hopkins, supra; Allgeyer v. Louisiana, 165 U.S. 578, 589, 590; Coppage v. Kansas, 236 U.S. 1, 14." (emphasis and added)
Again, in Adams v. Tanner, 244 U.S. 590 (1917), the Supreme Court considered a statute prohibiting employment agencies from charging fees for obtaining employment. The Supreme Court held:
"The liberty mentioned in that amendment means not only the right of the citizen to be free from the mere physical restraint of his person, as by incarceration, but the term is deemed to embrace the right of the citizen to be free in the enjoyment of all his faculties; to be free to use them in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation." (emphasis added)
The Supreme Court was presented with a German teacher's challenge of a Nebraska law which prohibited teaching lessons in any language other than English in Meyer v. Nebraska, 262 U.S. 390 (1923). In holding the law was an unconstitutional infringement on a fundamental right protected by the 14th Amendment, the Supreme Court stated:
"While this Court has not attempted to define with exactness the liberty thus guaranteed, the term has received much consideration and some of the included things have been definitely stated. Without doubt, it denotes not merely freedom from bodily restraint but also the right of the individual to contract, to engage in any of the common occupations of life, to acquire useful knowledge, to marry, establish a home and bring up children, to worship God according to the dictates of his own conscience, and generally to enjoy those privileges long recognized at common law as essential to the orderly pursuit of happiness by free men. Slaughter-House Cases, 16 Wall. 36; Butchers' Union Co. v. Crescent City Co., 111 U.S. 746; Yick Wo v. Hopkins, 118 U.S. 356; Minnesota v. Barber, 136 U.S. 313; Allgeyer v. Louisiana, 165 U.S. 578; Lochner v. New York, 198 U.S. 45; Twining v. New Jersey, 211 U.S. 78; Chicago, Burlington & Quincy R.R. Co. v. McGuire, 219 U.S. 549; Truax v. Raich, 239 U.S. 33; Adams v. Tanner, 244 U.S. 590; New York Life Ins. Co. v. Dodge, 246 U.S. 357; Truax v. Corrigan, 257 U.S. 312; Adkins v. Children's Hospital, 261 U.S. 525; Wyeth v. Cambridge Board of Health, 200 Mass. 474." (emphasis added)
In Massachusetts Bd. Of Retirement v. Murgia, 427 U.S. 307 (1976), at issue was a Massachusetts law regarding an age limit for police officers. There was no question regarding the right to pursue one's occupation as being protected under the Constitution, but only with respect to the standard of review of the law. In objecting to the court's application of a rational basis standard rather than a strict scrutiny test, Justice Marshall wrote:
"Whether "fundamental" or not, "`the right of the individual . . . to engage in any of the common occupations of life'" has been repeatedly recognized by this Court as falling within the concept of liberty guaranteed by the Fourteenth Amendment. Board of Regents v. Roth, 408 U.S. 564, 572 (1972), quoting Meyer v. Nebraska, 262 U.S. 390, 399 (1923). As long ago as Butchers' Union Co. v. Crescent City Co., 111 U.S. 746 (1884), Mr. Justice Bradley wrote that this right 'is an inalienable right; it was formulated as such under the phrase `pursuit of happiness' in the Declaration of Independence . . . . This right is a large ingredient in the civil liberty of the citizen.' Id., at 762 (concurring opinion). And in Smith v. Texas, 233 U.S. 630 (1914), in invalidating a law that criminally penalized anyone who served as a freight train conductor without having previously served as a brakeman, and that thereby excluded numerous equally qualified employees from that position, the Court recognized that 'all men are entitled to the equal protection of the law in their right to work for the support of themselves and families.'Id., at 641."
"'In so far as a man is deprived of the right to labor his liberty is restricted, his capacity to earn wages and acquire property is lessened, and he is denied the protection which the law affords those who are permitted to work. Liberty means more than freedom from servitude, and the constitutional guarantee is an assurance that the citizen shall be protected in the right to use his powers of mind and body in any lawful calling.' Id., at 636." (emphasis added)
There is no doubt that the right to work and to pursue one's chosen occupation is a basic and fundamental right that neither the federal government nor, through the 14th Amendment, the States, may abridge. This is a right that is not owed to the federal government or the Constitution and one the federal government does not grant or permit, thus it neither exists by its authority nor is it introduced by its permission.
Thus, the THM has concluded and believes that laboring for a living, what the typical working American does his entire work life, is not a privileged activity, but rather an activity of right. It cannot be both, and if it is not a privileged activity, as noted in Stratton's Independence, a "privilege or franchise", then it is not the proper subject of any indirect tax. Likewise, if it is not a "privilege or franchise", according to Baltic Mining it is not a proper subject of the income tax, either.
Is the THM's belief frivolous? In view of the unqualified and numerous declarations of the Supreme Court that the right to work for a living is an inalienable, fundamental, Constitutionally protected right, can anyone contend that the THM's answering our question in the affirmative is without a basis in law? Could any reasonable man, upon seeing these authorities, be expected to reach a similar conclusion?
Having established that the answer to our first question is "Yes, working for a living, contracting our labor out to others in order to provide for ourselves and our families is a Constitutionally protected, fundamental right, not privilege, possessed by all, not the few", then our next inquiry must be:
Is the exercise of an inalienable, fundamental, Constitutionally protected right within the power of Congress to tax?
This issue, whether exercising one's right to earn a living through his own labor and at any lawful occupation of his own choosing is Constitutionally exempt, beyond the taxing authority of the federal government, has never been directly addressed. The taxing of fundamental rights is so repugnant to the mind, spirit and conscience of any man that even Congress has not undertaken to impose a tax on the exercise of those rights, the IRS's application of the income tax to the working American despite the absence of any statutory imposition of liability for the tax on him notwithstanding. Therefore there is little direct case law on the issue.
The States, who, through the due process clause of the Fourteenth Amendment, are subjected to the same limitations as Congress against violation of fundamental rights, have, however, attempted to tax the exercise of fundamental rights, so there is some illumination to be gleaned from some cases arising out of those attempts. It would seem that if the States are prohibited from taxing the exercise of a fundamental right by the same Bill of Rights imposed on Congress from the beginning, then that limitation would, surely, apply to Congress, as well.
In 1934, Louisiana's legislature passed an excise tax on publishers of newspapers, magazines and other printed publications. The Supreme Court, in Grosjean v. American Press Co., 297 U.S. 233 (1936), struck the law down as an abridgement on the fundamental freedom of speech, stating at 244:
"That freedom of speech and of the press are rights of the same fundamental character, safeguarded by the due process of law clause of the Fourteenth Amendment against abridgment by state legislation, has likewise been settled by a series of decisions of this Court beginning with Gitlow v. New York, 268 U.S. 652,666, and ending with Near v. Minnesota, 283 U.S. 697, 707. The word "liberty" contained in that amendment embraces not only the right of a person to be free from physical restraint, but the right to be free in the enjoyment of all his faculties as well. Allgeyer v. Louisiana, 165 U.S. 578, 589." (emphasis added)
The Court in Grosjean pointed out, as it did in Murdock and Follett, infra, that a publishing company was not immune from all taxation, in that it could be taxed on its profits as a corporation or on its property, but the tax in question in Grosjean was an excise on publishing a newspaper, the exercise of a right, not on the exercise of corporate privileges nor on its property.
A license fee for distributing religious material door to door was struck down by the Supreme Court in Murdock v. Pennsylvania, 319 U.S. 105(1943) as abridging freedom of speech, press and religion. The Court stated:
"The First Amendment, which the Fourteenth makes applicable to the states, declares that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press . . ." It could hardly be denied that a tax laid specifically on the exercise of those freedoms would be unconstitutional. Yet the license tax imposed by this ordinance is, in substance, just that."
Striking down a Virginia poll tax in 1966, the Supreme Court in Harper v. Virginia Bd. Of Elections, 383 U.S. 663 (1966), quoted and cited United States v. State of Texas, 252 F. Supp. 234 (1966), saying:
"If the State of Texas placed a tax on the right to speak at the rate of one dollar and seventy-five cents per year, no court would hesitate to strike it down as a blatant infringement of the freedom of speech. Yet the poll tax as enforced in Texas is a tax on the equally important right to vote."
It is important to note that in both Grosjean and Murdock, the Supreme Court pointed out that where the purported taxpayer is engaging in both the exercise of a right as well as the exercise of a privilege, the privileged activity is taxable although it is done in relation to the exercise of a right. For example, Grosjean specifically pointed out that the American Press could be taxed for engaging in business as a corporation or for the sale of commodities, including newspapers. In Murdock, the Court also distinguished between a non-taxable exercise of a religious freedom, evangelic activities, and the taxable sale of religious commodities, such as books and other writings. See also, for example, Jimmy Swaggart Ministries v. Board of Equalization of California, 493 U.S. 378 (1990).
But where the tax is being imposed on the exercise of the right rather than the exercise of a privileged activity, such as exercising corporate privileges or engaging in the sale of commodities, then the tax must yield to the fundamental right. Exercising a privilege for religious motives, for example, would nonetheless be exercising a privilege, not a right, and, therefore, subject to taxation.
In laboring for a living, however, one is not engaging in any privileged activity, he is exercising an inalienable, fundamental, Constitutionally protected RIGHT, and there is no collateral privileged activity. He is not exercising corporate privileges, nor is he manufacturing, selling or consuming commodities for a living. Neither he nor his labor exist by any sovereign's authority other than his Maker and since his activity is of right he requires no one's permission. So by both the McCulloch sovereignty test and the Flint excise test, confirmed by Grosjean, Murdock, Jones, Follett, Harper and others, the answer to the second question is apparent:
The exercise of a right is not only inalienable and Constitutionally protected against federal and State abridgment and interference, it is also Constitutionally exempt from taxation.
Perhaps that apparent and inescapable conclusion is the reason that for many years, so long as the income tax was imposed on "net income" instead of the exempt income excluding "taxable income", the tax acts and regulations made it very clear that any income that is "exempt . . . by fundamental law" or "not taxable by the federal government under the Constitution" or "Constitutionally exempt" should not be included in gross income and, in fact need not even be mentioned or otherwise disclosed in the return. See Examples of Regulations acknowledging Constitutional exemption.
Even now, when Section 1's imposition of a tax only on "taxable" income, putting the public on notice that it is not imposed on exempt or non-taxable income, 26 CFR § 1.861-8T informs the "taxpayer" that any income that is either in whole or in part exempt from taxation should be excluded from gross income. It then goes on to provide four examples. None of those, however, are examples of what IS exempt as one would expect to see, but rather examples of what is NOT exempt. If you were called upon to give an example of what IS exempt, would the exercise of a fundamental right, such as the fundamental right to earn a living through one's own labor, come to mind?
For these reasons the THM has contended that not only do we have a fundamental right to labor for a living, our exercise of that right is beyond the taxing arm of the federal government, or any government for that matter. Is that contention frivolous? Without a basis in law? Unfounded? In view of the repeated pronouncements in Grosjean, Murdock, and others, could any reasonable man reach a similar conclusion?
The IRS's Response
Of all the issues giving an account of the IRS's response to this issue, whether the exercise of a fundamental right is fundamentally exempt from taxation, excluded from the scope of the income tax which is imposed only on "taxable" income, is the simplest.
The IRS does not have any response.
A review of the IRS's official list of "frivolous" arguments, it's publication, "The Truth About Frivolous Tax Arguments", reveals that neither the existence of a fundamental right to work for a living nor the fundamental exemption of exercising that right from taxation appears anywhere in that document. This can be considered nothing less than an admission that the argument that working for a living is not within the scope of the income tax is not a "frivolous" argument and that the IRS has no authorities, even contrived, twisted authorities, not even any of its usual "fractured fairy tales" or inferior courts' misstatements of Supreme Court holdings, that it can cite to contradict the conclusions and beliefs of the THM relative to this issue.
Are Fundamental Rights Taxable? Conclusion
The Supreme Court has left absolutely no doubt that everyone in America, the resident alien included, has a God-given, Constitutionally protected, fundamental, tax-exempt right to earn a living at any lawful business or occupation of his or her own choosing.
It is not surprising that when an issue is so overwhelmingly supported by, literally, dozens of holdings, the THM would adopt a firm belief that the working American, when exercising that fundamental right without having to engage in any related taxable privileged activity, would not be subject to the federal income tax even if there were a statute making him liable, since his fundamental exemption would exclude his personal earnings, whether any income could be derived therefrom or not, from the subject of the tax: "taxable", not exempt, income.
Is it any surprise, then, that the only person liable according to Subtitle A, the income tax law, is the withholding agent required to withhold income taxes from payments to nonresident aliens and foreign corporations, the only persons or entities whose rights are not under the protection of the U.S. Constitution?