Not Written for You: The Income Tax Hidden in Plain Sight
Part 7 of 13
The Privilege Tax
In Part 6, we established that the Constitution permits only two classes of tax: direct taxes, which must be apportioned, and indirect taxes, which must be uniform. There is no third class.
The income tax is not apportioned. It never has been. If it were a direct tax, it would be unconstitutional. So the question that has been before the courts since 1916 is straightforward: what kind of tax is the income tax?
The Supreme Court answered that question in Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916) — the first case to rule on the meaning of the Sixteenth Amendment. Justice White, writing for the Court, stated:
An excise. Not a direct tax. Not a new category. An excise — the same species of indirect tax that has existed since the Constitution was written.
The significance of that classification cannot be overstated. A federal court had already defined the term:
An excise is a tax upon the exercise of a government-granted privilege. If there is no privilege, there is no excise. And the courts have held that a legislature may not declare a right to be a privilege in order to impose an indirect tax upon it.
Congress Confirms It
The Supreme Court did not act alone. Congress itself has repeatedly classified the income tax as an excise.
In 1941, reporting on "The Revenue Bill of 1941," the House Committee on Ways and Means prepared House Report No. 1040. In the section entitled "Constitutionality of Proposal," the report states:
In 1943, the Congressional Record published a report prepared by F. Morse Hubberd, a former legislative draftsman in the Treasury Department:
In 1980, the Congressional Research Service issued a report entitled "Some Constitutional Questions Concerning the Federal Income Tax," written by attorney Howard M. Zaritsky:
Three separate statements from Congress and its research arm, spread across four decades. Each says the same thing.
Half the Courts Were Wrong
Despite Brushaber, half the federal circuit courts have held for decades that the income tax is a direct tax without apportionment. The other half have held, consistent with the Supreme Court, that it is an excise.
In June 2024, the Supreme Court settled the matter again. In Moore v. United States, the Court stated on page 2 of the syllabus:
The Constitution recognizes only three forms of indirect tax: duties, imposts, and excises. Since 1913, no branch of the federal government has classified the income tax as a duty or an impost. Every official classification — from the Supreme Court, from Congress, and from the Congressional Research Service — has called it an excise.
What the Sixteenth Amendment Did and Did Not Do
The Sixteenth Amendment reads: "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."
Many Americans assume this language granted Congress a new power to tax income. The Supreme Court has said otherwise:
And in 1988:
Read that last sentence carefully. The Court does not say the Amendment removed apportionment for all incomes. It says "whichever incomes were otherwise taxable." In other words, the income must first be subject to a proper excise — a tax on a privilege — and only then does the Amendment ensure that the tax cannot be struck down for want of apportionment.
The Sixteenth Amendment did not convert anyone's right to earn a living into a government-granted privilege. It did not expand the taxing power to new subjects. It simply clarified that a properly imposed excise on income could not be pushed into the direct tax category by a court looking at the source of that income.
The Question That Follows
If the income tax is an excise, and an excise is a tax on a government-granted privilege, then the question every American should be asking is: what is the privilege?
A welder in Ohio goes to work, earns a paycheck, and feeds his family. Where is the government-granted privilege? A teacher in Georgia grades papers and collects a salary. What privilege is she exercising? The answer is not found in common assumptions. It is found in the tax code — specifically, in the Treasury Decisions that implement it.
Next: The Secretary of the Treasury answers the question in Treasury Decisions 8734 and 8881. Both address one subject: income paid to foreign persons.
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