American Association for Lockean Liberty, Inc.

“The secret to good government, peace and prosperity lies in the ownership of the medium of exchange. When the people own the coin and currency they use, then the government depends on the people for its support, and the people direct the policies of government. If any other entity controls the medium of exchange that the people [believe they] are forced to use, then that entity directs the policies of government, and through government, controls the people.”  Merrill Jenkins, Jr.

Mr. Jenkins, a “monetary realist,” stated this in the 1960′s after the Federal Reserve Note became irredeemable for silver coin and/or when U.S. silver coin was replaced by cupro-nickel coin in 1965, but I think his statement has great relevance today, and even applies no matter what metal the coinage is made of.  It also shows how money can greatly affect whether or not we get a government that is truly representative of the people’s will.

Because the 1819 McCulloch case defines the boundaries and limitations of corporate power in the United States, and is the legal foundation upon which the Federal Reserve System rests, it is one of the most important cases in U.S. legal history.

In this case, the federal government was found to have an implied Constitutional power to incorporate a second quasi-public privately-owned central bank to help it execute the powers verbally expressed in the following eight clauses: (i) NECESSARY AND PROPER CLAUSE; (ii) DIRECT TAX CLAUSES; (iii) INDIRECT TAX CLAUSE; (iv) BORROWED MONEY CLAUSE; (v) COMMERCE CLAUSE; and the powers under Article 1, Section 8, Clauses 11, 12, and 13, respectively, to (vi) declare and conduct war; (vii) raise and support armies; and (viii) provide and maintain a navy.

The implied power to incorporate a federal central bank authorized by McCulloch is for a limited 20 year term, and expired in 1836.  After this point, and until the Civil War, state bank notes coming from privately-owned state banking corporations dominated the U.S. economy.

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Chartalism, often called Modern Monetary Theory, is based on the idea that money has value only by government “fiat” and that money should enter the “bloodstream” of the economy through federal central planning and spending, in Washington through the Treasury Department’s central bank, the Federal Reserve, and its notes.

Because Chartalist money is pure fiat and not redeemable on demand for Constitutional coin, an income tax is needed to create a demand for the currency, or to motivate the user to acquire the currency for the payment of taxes.  Without this motivational tax Read the rest of this entry »

In this discussion topic, I’d like to explore the 32-year period between when Andrew Jackson’s Supreme Court obstructed federal attempts to control the monetary system in Briscoe v. Bank of Kentucky (1837), and when the Lincoln administration re-established federal monetary powers (1) through the National Banks Act of 1863; (2) by imposing a 10% “death tax” on the issuance of state bank notes in 1866; and (3) through the Supreme Court’s affirmation of the validity of that hefty tax on state bank notes in Veazie Bank v. Fenno (1869). Read the rest of this entry »

I’d like to open up an analysis/discussion about three areas of tax and monetary law that were routinely being disrespected by the South after ratification of the Constitution in 1787, the violation of which I believe led to the Civil War:

(1) Direct Tax Clauses and the Three-Fifths Rule (I:2:3 & I:9:4)
(2) Slave Importation Clause (I:9:1)
(3) Monetary Clauses (I:8:5, I:8:2 & I:10:1)

Also, I’d like to avoid discussing the Fugitive Slave Clause (IV:2:3), even though it clearly involved slavery, mainly because violation of this clause was committed by the North and did not threaten the viability of the emerging federal government.

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Under this topic, I’d like to explore the 33-year period beginning in 1862, when Lincoln imposed the first (10-year term) income tax, which was supported by the Supreme Court in Springer v. U.S., 102 U.S. 586 (1880), and ending when a very similar 1894 income tax was struck down by the Supreme Court in Pollock v. Farmers’ Loan, 157 U.S. 429, 158 U.S. 601 (1895).

What’s going on here?

Please stay confined to this 33-year period and let’s try to advance an understanding as to why the Supreme Court is forcing a distinction between taxes on “income derived from property sources” vs. taxes on “income not derived from property sources.”

Of course, we can discuss the Sixteenth Amendment and other cases after 1895, but use them to try to determine what’s going on in these 33 years.

My theory is that by focusing exclusively on this income tax “incubation period” the rest of income tax law evolution unfolds automatically, but otherwise the income tax is nearly impossible to comprehend.

As research in the book explains, “taxes on income” have always been Constitutional, except for a particular form of income tax that was declared unconstitutional by the Supreme Court between Pollock (1895) and ratification of the Sixteenth Amendment (1913), and that’s a tax on what we call “income derived from property sources” (IDPS).

Taxes on IDPS were ruled unconstitutional during these 18 years because of the hastily-imposed income tax of 1862, and the Court needed to clarify within which of the two classes of taxation taxes on IDPS rightfully belonged, it being already well-established that taxes on IDNPS (described below) were in the indirect class. Without forcing this clarification (that taxes on IDPS also belonged in the indirect class), the Court would be unable to definitively separate the slave’s labor (property) from slaveholder profits (income), the two classes of taxation would continue to blur (as in the 1880 Springer case), and the entire idea of private property could “be frittered away [and] one of the great landmarks defining the boundary between the nation and the states of which it is composed, would have disappeared, and with it one of the bulwarks of private rights and private property.” Pollock (1895)

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“No state shall … make anything but gold and silver a tender in payment of debts.”  Article 1, Section 10, U.S. Constitution, the GOLD AND SILVER CLAUSE

The first point I’d like to make is that  Article 1, Section 10 refers only to powers that state governmental entities are prohibited from doing and it does not involve powers granted to Congress or the federal government.

So, in other words, the federal government is not required to maintain a coin-based currency in gold or silver coin so that states would be prevented from violating the Gold & Silver Clause.  The main goal of the clause was to discourage or stop states (not the new federal gov’t) and their chartered banks from issuing paper money, by which all 13 colonies had managed to debase their currencies when the Constitution was ratified.

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Understanding Income Tax Powers (click to view chart)

As the nonprofit’s book explains, there are two forms of income on which taxes can be laid.  Only one form of income taxes, taxes on “income derived from property sources,” was unconstitutional between Pollock (1895) and ratification of the Sixteenth Amendment (1913).

Income Derived from Property Sources (IDPS)

So, what exactly is income derived from property sources (IDPS, also called “income per se”) and why were taxes on this form of income declared unconstitutional by the Supreme Court between 1895 and 1913?

The following chart will help explain.  Taxes on the following income items were viewed as unlawful between 1895-1913 because: (1) the original Constitution did not contain the word “income” and (2) British tax law had historically viewed all taxes on income as direct, and if America followed suit (which it did not), then any tax on IDPS would need to follow the Constitutional rules of apportionment and proportionality contained in the two Direct Tax Clauses. Read the rest of this entry »