Summary
The Constitution prohibits capitation and other direct taxes without apportionment. (See Article 1, Section 2, Clause 3 and Section 9, Clause 4)
The Supreme Court has declared the meaning of “income” to be fixed and confined to objects proper to an excise. Objects proper to an “income” excise are privileges–which is to say, activities not of common right–and even then only to the extent that such activities are profitable and properly fall under the taxing authority’s jurisdiction.
(See Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916)
The court states that taxation on “income” is
” . . . in its nature an excise entitled to be enforced as such and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxation was adopted to prevent, in which case the duty would arise to disregard form and consider substance alone, and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it.”)
In other words, if the tax should mutate or be construed so as to embrace objects not appropriate for an excise, such as “all that comes in,” for instance (therefore becoming, de facto, a capitation, or other direct tax), it would have to be implemented under the rule of apportionment regardless of the fact that it was still being called only an “income” tax.
Federal jurisdiction is limited by Article 1, Section 8 Clause 17:
“The Congress shall have Power To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten miles square) as may, by Cession of particular State’s, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like a
Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenal’s, dock-yards, and other needful Buildings.”
The federal government cannot tax–directly or indirectly–anything or activity outside either it’s legal or it’s geographical jurisdiction.
Legal jurisdiction, simply stated, involves a government’s authority over itself and it’s own creations. A thorough discussion of this type of jurisdiction could easily fill a book of it’s own; sufficient for the present to observe that such jurisdiction does not involve (or establish) coercive authority to burden–by taxation or otherwise–any natural person in the exercise of his or her Rights.
“It could hardly be denied that a tax laid specifically on the exercise of those freedoms would be unconstitutional.”
–United States Supreme Court, Murdock v. Pennsylvania 319 U.S. 105 480-487, (1943)
Because the Rights retained by the people are many and (mostly) undefined, the practical effect of this limitation is to confine the lawful application of excises to the benefits of privilege granted or facilitated by the government; in other words, gains arising from the exercise of federal power either by, or for the special benefit of, the recipient of the gains.
“The terms ‘excise tax’ and ‘privilege tax’ are synonymous. The two are often used interchangeably.”
–American Airways v. Wallace 57 F.2d 877 (1932)
“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.” ” . . . the requirement to pay such taxes involves the exercise of privilege . . .”
–U.S. Supreme Court, Flint v. Stone Tracy Co., 220 U.S. 107 (1911)
Consequently, the ONLY lawful objects of the “income” tax are activities for which one is paid by the federal government or a federal agency or instrumentality; activities effectively connected with the performance of the functions of a public office; activities as a federal employee, federal instrumentality, or a federally chartered “State” worker; or activities as a paid officer of a federal corporation. Hence, private sector, non federally privileged activity earnings and business receipts are NOT subject to the federal excise (“income”) tax
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