Constitution Class tonight at 6:30 at Faith Armory in Temecula. . .
-12-
The Progressive Era
12.1 - Income Tax and the Federal Reserve
Income Tax
The income tax was never supposed to come into existence. The Founding Fathers prohibited direct taxes in Article I, Section 9, Clause 4 of the U.S. Constitution, and the proposed amendment was never expected to be ratified by the States.
Progressivism was on the rise in the United States around the turn of the 20th Century. Americans were concerned about the large national debt that remained with the United States as a result of the Spanish-American War, and the growing social inequality between the rich and the poor. The idea that there should be a tax that “soaks the rich” began to take root among progressives of both major parties. The Democrats took to progressivism more than the Republican Party, and the liberals of the Democrat Party were looking for a way to embarrass the conservative arm of the GOP so that they could gain some traction in the next election.
With social unrest rising among the population, a democrat proposed The Bailey Bill with the express hope the Republicans would reject it. The theory was that after the Republicans rejected the bill, the democrats could then point a finger at the Republicans, claiming for political purposes that the Republicans were in cahoots with the corrupt wealthy corporate types, and their rejection of the Bailey Bill, which would have imposed an income tax on the rich, was proof of such an alignment between the Republicans and the wealthy.
The conservative Republicans knew what the progressives of the Democrat Party were up to, and launched a counter move. They proposed a constitutional amendment that would impose an income tax on the rich, and when the States refused to ratify the amendment, the Republicans would use that failure to ratify the amendment as proof that the people, through their State legislatures, were against the idea of a new income tax. In turn, that would defeat the Bailey Bill, for how could Congress approve an income tax against the rich through the Bailey Bill after the people and States rejected a constitutional amendment that would have done the very same thing?
The proponents of the 16th Amendment promised that if it were to be ratified (and remember, it was fully expected not to be ratified) the income tax would only be imposed on the top 5% wage earners, it would be voluntary, and it would be temporary.
The progressives of the Republican Party, however, rallied behind the proposed amendment, and the Secretary of State announced the amendment was ratified on February 12, 1913.
Progressives, satisfied the 16th Amendment was ratified, hoped to use it to tax the rich. In the beginning, only 5% of the people were required to submit tax returns. Many of the rich, however, avoided the tax with charitable deductions, and other creative strategies.
During World War II Franklin Delano Roosevelt saw the income tax as a way to vastly increase revenue, and initiated a policy of withholding from “all” wages and salaries, not just the highest incomes enjoyed by the rich. Rather than the rich paying the tax at the end of the year, the tax was collected at the payroll window before it was even due to be paid by the taxpayer. This style of collection shifted the tax from its original design as a tax on the wealthy to a tax on the masses, mostly on the middle class.
In addition to violating the original intent of Article I, Section 9, the income tax also opposes the 4th Amendment which requires that a citizen’s privacy be protected. An income tax enforced by the Internal Revenue Service violates the privacy of the home, business, personal papers and personal affairs of the private citizen. Since the tax is based on income, the IRS has the task of making sure everyone pays his fair share. This task is physically impossible without prying into the private papers, private business and personal affairs of the individual citizens.
More amazing than the birth of the 16th Amendment in the sense of how it was simply a political ploy that was never expected to be ratified, is the fact that there is evidence that the amendment was not fully ratified.
According to some researchers, the 16th Amendment was never properly ratified by the requisite three-fourths of the states. However, despite the failure of the States to fully ratify the amendment, Secretary of State Philander Knox fraudulently declared ratification. Some may suggest that he did so under the urgings of wealthy bankers like J.P. Morgan.
Federal Reserve
The same year the 16th Amendment created the income tax, the federal reserve was also created. The federal reserve is not a federal agency, and is actually a privately owned corporation owned by a secret group of international bankers. The federal reserve holds a monopoly on the creation of money in the United States. Whenever the U.S. Government needs money it borrows the money from the federal reserve. The federal reserve gladly loans that money because doing so results in a good profit for the bankers.
The federal reserve is not the first central bank, but it is the longest lasting. The first bank of the United States in 1791, created by Alexander Hamilton, became a system of control over the American economy, and was, as described by Jefferson and Madison, “an engine for speculation, financial manipulation, and corruption.”
In order to properly function, a central bank needs a collection of large sums of money from the people to pay off the interest on the money the government borrows. The creation of the income tax provided that opportunity.
The Federal Reserve Act surrendered control of the monetary system to the international banking cartel and guaranteed the eventual abandonment of the gold standard. The Federal Reserve's debt-based money guaranteed the enslavement of every American under a crushing debt burden. The Federal Reserve guaranteed the ability of the international banking cartel to confiscate wealth through artificially created boom/bust cycles.
The result is that the U.S. Government, and the bankers in charge of the federal reserve, can manipulate the economy simply by the amount of money they decide to pump into the system. The more currency is pumped into the system, the greater the rise of inflation rates. A reduction of the printing of money then results in a recovering economy. Government spending, in relation to the National Debt, has a direct impact on the economic cycles we experience. The more the government borrows, the more fiat money is pumped into the system. The result is increased inflation, and a stalled economy. Cutting spending results in less money being borrowed, which then returns value to the dollar, and in turn reduces the level of inflation.
The welfare system was created to compensate for the damage caused by the Federal Reserve and the income tax.
The 16th Amendment allows for the taxation on income from whatever source derived, which gives Congress, for the most part, carte blanche to tax at will, while giving the IRS the power to do all of the things the founders specifically disallowed the federal government from doing. This invasion of privacy, without due process, will continue as long as the 16th Amendment remains in force.
The income tax is in line with the Marxist philosophy of destroying a capitalist society by steeply graduating taxes on income and heavy levies upon the estates of people when they die.
Terms:
Bailey Bill - Income Tax introduced in April 1909 by Senator Joseph W. Bailey, a Democrat from Texas, designed to embarrass conservative Republicans when they voted against it.
Carte Blanche - Unrestricted power to act at one's own discretion; unconditional authority; derived from “blank cheque.”
Direct Taxation - A government levy on the income, property, or wealth of people or companies. A direct tax is borne entirely by the entity that pays it, and cannot be passed on to another entity.
Federal Reserve - A privately owned corporation that is owned by a secret group of international bankers. The federal reserve holds a monopoly on the creation of money in the United States. Whenever the U.S. Government needs money it borrows the money from the federal reserve, thus creating a national debt.
Fiat Money - Money that derives its value from government regulation or law, but is not backed by any tangible collateral; money that lacks any intrinsic value.
Inflation - A sustained, rapid increase in prices, over months or years, and mirrored in the correspondingly decreasing purchasing power of the currency.
Progressivism - Philosophy that views progress as seeking change in approaches to solving economic, social, and other problems, often through government sponsored programs.
Questions for Discussion:
1. Why did the Founding Fathers not allow direct taxation by the Federal Government?
2. What lesson can be learned from the story of the Bailey Bill and the passing of the 16th Amendment?
3. Why didn’t “soaking the rich” work as hoped?
4. Why did President Roosevelt extend the income tax to include all wages and earnings?
5. How does the existence of Federal Reserve adversely influence our economic system?
Resources:
Abolish the Federal Reserve dot org: http://abolishthefederalreserve.org/
Bill Benson, The Law That Never Was: http://www.thelawthatneverwas.com/
Ethan Pope, America’s Financial Demise: Approaching the Point of No Return; Dallas, TX: Intersect Press (2010)
G. Edward Griffin, The Creature from Jekyll Island : A Second Look at the Federal Reserve; Appleton, WI: American Opinion Publishing (1994)
W. Cleon Skousen, History of the 16th Amendment, National Retail Sales Tax Alliance: http://www.salestax.org/library/skousen_16history.html
