Was Grandpa Really A Moron?: Critical Inquiries For A New American Century

Was Grandpa Really a Moron?
from

Critical Inquiries for a New American Century
by
Peter E. Hendrickson
A Brief Introduction To The Fascinating Truth About The

Income Tax
PART ONE
The purpose of this brief study is to introduce a couple of key

facts that must be known by anyone hoping for a clear
understanding of the legal character of the United States federal
income tax (and the state and local impositions of the same
tax). Were going to start by:
1. Examining the meaning of the Constitutional term
capitation (a tax effectively falling on revenue
generally-- that is, a tax on what comes in, either in
its entirety, or on any part, of otherwise undistinguished
revenue); and
2. Establishing that the income tax is, and always has
been, an exercise-of-privilege-based piece of the
action excise tax on distinguished activity, rather than
a capitation, and that income as meant in the context
of the tax refers only to that distinguished activity (the
amount of which is measured by the dollar value it
produces).
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A Brief Introduction To The Fascinating Truth About The Income Tax
The Meaning of Capitation

There is a persistent misunderstanding in America about
the meaning of one of the key terms in our own federal
Constitution. That term is "capitation", and it is the sole
specifically-listed type of direct tax in the Constitution.
Its a funny thing that this term should be so poorly
understood, and has seen little effort in the past to discern its
meaning.
Under the utterly explicit and still-controlling
prescription of the Constitution, anything which qualifies as a
capitation is subject to the rule of apportionment (by which the
total to be collected with each imposition of the tax is divided
among the states in proportion to their shares of the national
population, and is then collected and remitted by the state
governments). The reciprocal of this, of course, is that in order
for the income tax we know and love (or any other tax, for that
matter) to be administered WITHOUT apportionment, and yet
still be valid, it CANNOT be a capitation. Before we discuss
what the tax IS then, lets have a close look at what it CANNOT
be...
CAPITATION, A poll tax; an imposition which is yearly

laid on each person according to his estate and ability.
2. The Constitution of the United States provides
that no capitation, or other direct tax, shall be
laid, unless in proportion to the census, or
enumeration, therein before directed to be
taken. Art. 1, s. 9, n. 4. See 3 Dall. 171; 5 Wheat
317. Bouviers Law Dictionary, 6th Ed. (1856).
(Emphasis added.)
In a way, this simple definition from what was, in its

time, the Congressional law dictionary of record more-or-less
tells us all that we need to know. A capitation is an annual
imposition on each person measured by his estate and ability.
Some may split hairs on the meaning of estate, but ability
pretty clearly refers to ability to pay, and that pretty clearly
means revenue. On the other hand, the reference to a poll
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tax leads to some confusion as well, especially when more

modern references are relied upon.
For instance, the entire definition of capitation offered
by Blacks Law Dictionary (fifth edition) is as follows:
Capitation tax. A poll tax (q.v.). A tax or imposition

upon the person. It is a very ancient kind of tribute,
and answers to what the Latins called tributum, by
which taxes on persons are distinguished from taxes on
merchandise, called vectigalia.
Not very illuminating.
Turning to the definition of "poll tax" in the same
collection, we find:
Poll-tax. A capitation tax; a tax of a specific sum

levied upon each person within the jurisdiction of the
taxing power and within a certain class (as, all males of
a certain age, etc.) without reference to his property or
lack of it.
Poll taxes as a prerequisite to voting in federal elections
are prohibited by the 24th Amendment and as to state
elections such were held to be unconstitutional in
Harper v. Virginia Bd. of Elections, 383 U.S. 663, 86 S.
Ct. 1079, 16 L.Ed2d 169.
If one makes no further study of this subject, and relies on
Black's definitions, one would conclude that a "capitation" is just
a poll tax (that is, a head tax), and might even confuse it
with a "voting tax"-- that is, a tax taken at the polling place
before the right to vote can be exercised.
However, Blacks definitions are woefully incomplete
and misleading. A capitation is NOT simply a "poll tax", and a
"poll tax" is not a "voting tax" (as is self-evident when the
Constitutions apportionment clause is considered, since
apportionment cant apply to a voting tax, and is superfluous
in regard to head tax). Nonetheless, since most have never
made a study of this subject, sloppy presentations in prominent
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sources such as Blacks have muddied the subject enough to

make "capitation" a cognitive 'hiccup' term. Far too many who
encounter the term, even while poring over the language of our
fundamental law, simply skim past with no registration of its
meaning or import.
So, just to clear up (or forestall) such confusion, lets
examine the relevant observations of a couple of fellows who
were inarguably in a position to know what they were talking
about. We'll start with Alexander Hamilton, one of the chief
authors of the Constitution itself, who discussed direct and
indirect taxes in the first tax case argued before the United
States Supreme Court, observing that:
The following are presumed to be the only direct taxes.

Capitation or poll taxes. Taxes on lands and buildings.
General assessments, whether on the whole property of
individuals, or on their whole real or personal estate; all
else must of necessity be considered as indirect taxes.
In addition to his inclusion of general assessments on personal
estates as being in the class of direct taxes, note also that
Hamilton does NOT characterize poll tax as just an alternative
name for capitation; more important still, as will become
clearer in a moment, he specifically declares poll taxes to also
be among the direct taxes subject to the apportionment rule.
Now lets turn to the singular expert on this subject, and
the one whose work guided the framers in their use of terms in
the taxing clauses, Adam Smith, author of The Wealth Of
Nations, perhaps the most important work ever written about
economics and taxation:
The taxes which, it is intended, should fall indifferently

upon every different species of revenue, are capitation
taxes, Capitation taxes, if it is attempted to
proportion them to the fortune or revenue of each
contributor, become altogether arbitrary. The state of a
man's fortune varies from day to day, and without an
inquisition more intolerable than any tax, and renewed
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at least once every year, can only be guessed

at.Capitation taxes, so far as they are levied upon
the lower ranks of people, are direct taxes upon the
wages of labour, and are attended with all the
inconveniences of such taxes. In the capitation
which has been levied in France without any
interruption since the beginning of the present century,
the highest orders of people are rated according to their
rank by an invariable tariff; the lower orders of people,
according to what is supposed to be their fortune, by an
assessment which varies from year to year. (Bear in
mind that Smith is using the common word 'wages', not

the custom-defined legal term of the same spelling
found in the modern revenue laws.)
Smith goes on to discuss the version of capitations imposed

under the name of poll taxes, as well, observing that in the
first poll tax, for instance, many were taxed according to their
supposed fortune, being assessed at three shillings in the
pound of their supposed income.
Clearly, a general, indiscriminate tax on income read as
all that comes in, or on every species of revenue, qualifies as
either a capitation or a poll tax (or both) as each term is
properly understood. Consequently, we know that any such tax
must, under the provisions of the Constitution, be administered
exclusively by the rule of apportionment.
Ill close this introductory discussion of capitations
with the acknowledgment by the United States Supreme Court,
in the case of Pollock v. Farmers Loan & Trust, 157 U.S. 429
(1895), that the understanding of the term that I have
presented here is precisely the one which informed the Framers
of the Constitution when choosing the wording capitations and
other direct taxes in laying down the rule of apportionment.
Declaring the meaning of the phrase capitations and other
direct taxes in its ruling in the case, the court resorts to the
authority of Albert Gallatin, Pennsylvania state congressman,
United States Representative and Senator, United States
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Minister to England and France, respectively, and the longest

serving Secretary of the Treasury in American history, and says:
...Albert Gallatin, in his Sketch of the Finances of the

United States, published in November, 1796, said: The
most generally received opinion, however, is that, by
direct taxes in the constitution, those are meant which
are raised on the capital or revenue of the people;...
...
He then quotes from Smiths Wealth of Nations, and
continues: The remarkable coincidence of the clause of
the constitution with this passage in using the word
capitation as a generic expression, including the
different species of direct taxes-- an acceptation of the
word peculiar, it is believed, to Dr. Smith-- leaves little
doubt that the framers of the one had the other in view
at the time, and that they, as well as he, by direct
taxes, meant those paid directly from, and falling
immediately on, the revenue;...
The Origin of the Tax; Its Character as an Excise; and
the Meaning of Income
The name by which the tax is described in the statute is, of

course, immaterial. Its character must be determined by its
incidents... Dawson v. Kentucky Distillers & Warehouse Co.,
255 U.S. 288 (1921)
The Lincoln administration was aware of all that we

have just discussed when, in 1862, it instituted the income tax
weve since come to know so poorly, but loathe so well. The
Lincoln administration knew the Constitution prohibits
capitations and other direct taxes unless apportioned; it knew a
tax that actually touched upon the all species of revenue
which constitute the broad class of receipts known as income
in the common usage of that word WOULD be a capitation, and
had under various names always been recognized and
designated as a direct tax throughout history; and it also knew
that apportioned direct taxes were really only suited to one-time
debt-retirements and had traditionally been used exclusively for
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that purpose.
One-time debt-retirement was not what the Lincoln
administration needed or wanted. Lincoln was looking to
finance an ongoing war effort, and he needed the kind of tax
that, once instituted, keeps on giving and giving without the
inconveniences of repeated legislation and voting. In short, he
wanted an excise, and thats what he imposed-- an excise on
certain activities, measured by (and typically paid out of) the
revenue they produced.
"...in Springer v. U. S., 102 U.S. 586 (1880), it was held

that [the] tax upon gains, profits, and income was an
excise or duty, and not a direct tax, within the meaning
of the constitution, and that its imposition was not,
therefore, unconstitutional." United States Supreme
Court, Pollock v. Farmer's Loan & Trust, 158 U.S. 601,

(1895);
taxation on income was in its nature an excise

entitled to be enforced as such,
United States Supreme Court, Brushaber v. Union Pacific

R. Co., 240 U.S. 1 (1916), quoting and reiterating
language used in its ruling in Pollock v. Farmer's Loan
and Trust.
"I hereby certify that the following is a true and faithful

statement of the gains, profits, or income of _____
_____, of the _____ of _____, in the county of _____,
and State of _____, whether derived from any kind of
property, rents, interest, dividends, salary, or from any
profession, trade, employment, or vocation, or from any
other source whatever, from the 1st day of January to
the 31st day of December, 1862, both days inclusive,
and subject to an income tax under the excise laws
of the United States."
(from the first income tax return form, emphasis
added).
As legislative draftsman for the United States Treasury

Department F. Morse Hubbard put it in no uncertain terms while
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testifying before Congress in 1943:
The income tax... ...is an excise tax with respect to

certain activities and privileges which is measured by
reference to the income [earnings] which they
produce.
House Congressional Record, March 27, 1943, page

2580
***
Perhaps because the tax can easily be mistaken for a

tax on the revenue itself (due to the fact that the amount of
activity being taxed is measured by the dollars produced, and
the amount of tax-due is determined by applying the rate of tax
to that amount of dollars), the name income tax
recommended itself to Congress; nonetheless, the tax is not, for
reasons we have observed, any kind of general tax on income
read as all that comes in. Instead, it is a tax on only a
specialized subset of the larger class of income, consisting
exclusively of revenues attributable to the voluntary, profitable
use of federal privilege, property or powers-- that is, revenues
in which the federal government has a direct ownership interest,
and to which it can therefore exercise a direct claim as a matter
of right.
(As an aside, it is worth noting that within the realm of
federal privilege, and within the context of the tax, though,
income COULD be described as effectively meaning all that
comes in, and sometimes is so described by courts and
government agencies. This is because every activity involving
the use of federal privilege, property or prerogative measurable
by dollars (or dollar-value) produced qualifies as the income
subject to the tax:
(a) GENERAL DEFINITION. Gross income includes

gains, profits, and income derived from salaries, wages,
or compensation for personal service . . . of whatever
kind and in whatever form paid, or from professions,
vocations, trades, businesses, commerce, or sales, or
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dealings in property, whether real or personal, growing

out of the ownership or use of or interest in such
property; also from interest, rent, dividends, securities,
or the transaction of any business carried on for gain or
profit, or gains or profits and income derived from any
(emphasis added)
source whatever. . . .
Commissioner v. Glenshaw Glass Co., 348 U.S. 426

(1955)
So, to the extent that one operates within the federal universe
(so to speak), income DOES mean all that comes in, and
may be described that way within the appropriate context. But
this doesnt extend the reach of the tax to activities outside of
that universe. Thus, even within that universe and context, the
more accurate and complete definition of the term income is
all that comes in here.)
The language of the original income tax enactment is
helpful in illuminating the true character of the tax and the
income to which it applies:
An Act to provide Internal Revenue to support the

Government and to pay interest on the Public Debt
Sec. 86. And be it further enacted, That on and after
the first day of August, eighteen hundred and sixty-two,
there shall be levied, collected, and paid on all salaries
of officers, or payments to persons in the civil, military,
naval, or other employment or service of the United
States, including senators and representatives and
delegates in Congress, when exceeding the rate of six
hundred dollars per annum, a duty of three per centum
on the excess above the said six hundred dollars; and it
shall be the duty of all paymasters, and all disbursing
officers, under the government of the United States, or
in the employ thereof, when making any payments to
officers and persons as aforesaid, or upon settling and
adjusting the accounts of such officers and persons, to
deduct and withhold the aforesaid duty of three per
centum, and shall, at the same time, make a certificate
stating the name of the officer or person from whom
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such deduction was made, and the amount thereof,

which shall be transmitted to the office of the
Commissioner of Internal Revenue, and entered as part
of the internal duties; (Income derived from less
formalized federally-connected activities, such as

investment in, or contracts with, federal entities is also
taxed under other provisions in the act.)
It is because the tax confines itself solely to revenue-generating

federal activities as listed in part in this section of law that it is
NOT a capitation-- that is, a tax on revenue generally. This
limited scope also prevents the income tax from amounting to
a tax burdening the exercise of individual rights, by the way-- a
transgression which by itself would drop the tax squarely into
the category of direct even without regard to the capitation
issue. As the Supreme Court observes in the case of Knowlton
v. Moore, 178 U.S. 41 (1900), quoting the long-standing official
French tax law definition as being illustrative of the distinctions
drawn in the U. S. Constitution:
Direct taxes bear immediately upon persons, upon the

possession and enjoyments of rights;
Many other rulings make the same, utterly fundamental point,
which is self-evident, in any case. To tax undistinguished
revenue simply as an exercise of power is to tax a persons
exercise of the fundamental individual right to work or trade.
The right to follow any of the common occupations of

life is an inalienable right
It has been well said that the property which every
man has in his own labor, as it is the original foundation
of all other property, so it is the most sacred and
inviolable. The patrimony of the poor man lies in the
strength and dexterity of his own hands, and to hinder
his employing this strength and dexterity in what
manner he thinks proper, without injury to his neighbor,
is a plain violation of this most sacred property.
United States Supreme Court, Butchers Union Co. v.
Crescent City Co., 111 U.S. 746 (1883);
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Included in the right of personal liberty and the right

of private property- partaking of the nature of each- is
the right to make contracts for the acquisition of
property. Chief among such contracts is that of personal
employment, by which labor and other services are
exchanged for money or other forms of property
United States Supreme Court, Coppage v. Kansas, 236

U.S. 1 (1915).
On the other hand, to tax revenue proceeding from the

voluntary, profitable exercise of the governments own property
or powers (whether directly or by proxy through investment) is
to impose an indirect tax having nothing to do with the taxpayers rights.
Instead, such a tax merely involves an
ownership-related claim to a piece of the privileged action.
PRIVILEGE: A particular benefit or advantage enjoyed

by a person, company, or class beyond the common
advantages of others citizens. An exceptional or
extraordinary power of exemption. A particular right,
advantage, exemption, power, franchise, or immunity
held by a person or class, not generally possessed by
others. Blacks Law Dictionary, 6th Edition.
...the requirement to pay [excise] taxes involves the
exercise of privilege United States Supreme Court,
Flint vs. Stone Tracy Co. 220 U.S. 107 (1911);
The terms excise tax and privilege tax are

synonymous. The two are often used interchangeably.
American Airways v. Wallace, 57 F.2d 877, 880 (Dist.

Ct., M.D. Tenn., 1937)
The 'Government' is an abstraction, and its possession

of property largely constructive. Actual possession and
custody of Government property nearly always are in
someone who is not himself the Government but acts in
its behalf and for its purposes. He may be an officer, an
agent, or a contractor. His personal advantages from
the relationship by way of salary, profit, or beneficial
personal use of the property may be taxed... United
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States Supreme Court, United States v. County of

Allegheny, 322 US 174 (1944)
Its confinement to activities distinguished by privilegedependence is what keeps the income tax from crossing the
line into being both a capitation and a burden on the exercise of
natural rights.
For the sake of clearing away possible cognitive
stumbling blocks it is necessary to point out that while the realm
in which the tax operates is limited, within that realm the tax is
quite comprehensive. As was noted previously, within the
federal universe, EVERY gainful activity qualifies as incomeproducing, because every such activity is privileged in the
relevant sense. While working for the Post Office might not
seem like the exercise of a privilege as we are accustomed to
think of that word (as opposed to, say, the privilege involved in
profiting from investment in a railroad running on federallygranted or -subsidized land, or owning or investing in a national
bank or other federal instrumentality), in a legal sense it very
much is. ANYTHING one does that requires the permission of
another is the exercise of a privilege, and can properly be
subject to conditions such as taxes.
In fact, legally speaking, even something as mundane
as being allowed to borrow my lawnmower for use in your
landscaping business is a privilege-- something to which you
have no inherent right and which I can withhold from you-- or
tax-- at my pleasure. Opening and operating Joes Delivery
Service is a matter of right, and anyone can do it without
anyone elses permission. Working for the United States Post
Office, on the other hand, can only be done with the permission
of the United States. By confining itself exclusively to receipts
proceeding from such voluntarily-engaged-in, but federalprivilege-dependent activities-- whether those of a federal
worker, investor, office-holder or cash-grant beneficiary-- the
income tax as practiced in America does not cross the line
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from an indirect tax to what would otherwise inescapably be a

direct tax, and one which would require the mechanism of
apportionment in its administration.
It is true that the external appearance of many of these
activities is indistinguishable from those conducted as matters of
private right. A doctor working for the federal government
practices medicine in the same manner as a doctor in private
enterprise does. A plumber in the civil service uses the same
tools and skills as the one that comes to your home. An
investor buying stock in a national bank or railroad, or other
federal corporation or instrumentality, places those orders with
his broker at the same time that he buys stock in Sears, and his
dividend check may even combine the profits from all of these
investments.
However, the superficial similarity of private and
privileged activities masks a fundamental difference between
them, which is that those in the subset to which the tax applies
are made possible only due to the existence, and with the
cooperation, of the federal government. In a very real and
explicit sense, the aptly-named income tax in this country is,
in fact, a FEDERAL income tax. A detailed, accurate and
comprehensive study of the income tax law-- such as that
presented exclusively in Cracking the Code- The Fascinating
Truth About Taxation In America (CtC)-- makes clear that this
distinction is thoroughly embedded in that law. In no respect
whatsoever does the federal income tax purport to be anything
but the limited, specialized tax that it must be, or to touch upon
any revenue not distinguished as noted here-- decades of
diligent efforts to obscure that fact in the public mind
notwithstanding.
For instance, a close examination of the current
statutory structure defining wages-- a term central to the
measurement and reporting of income-taxable activities by
paid-performers-of-services-- illustrates that the tax remains
scrupulously adherent to its proper Constitutional limits. The
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term confines itself to remuneration paid to:
...an officer, employee, or elected official of the United

States, a State*, or any political subdivision thereof, or
the District of Columbia, or any agency or
instrumentality of any one or more of the foregoing.
*State, as used in this statute, has its own custom
definition in the law.
This definition also explicitly covers remuneration paid for

service as officers of federal corporations, and implicitly covers
other federal workers/office holders not listed, by virtue of the
includes mechanism discussed briefly below and in detail in
CtC. (NOTE: The language presented above is from the general
wage withholding section of the internal revenue laws. The
more narrowly focused FICA income surtaxes are also
measured and reported using the term wages, but deploy a
somewhat more elaborate structure to define the term, which is
also discussed in detail in CtC.)
Similarly, the statutory
definition of the conduct of a trade or business, the receipts
from which are to be reported and taxed as income, is:
...the performance of the functions of a public office.

By virtue of the statutory rule of construction concerning
includes-- another custom legal term deployed in the
definitions of both of wages and trade or business, these
terms are amenable to a narrowly limited potential expansion to
cover other things of the same class (legal character) as those
already listed, but nothing else.
Includes and including are deployed in a number of
key statutes by which the income tax is laid, and the terms
have been a source of confusion in some quarters, even within
the legal profession. Thus, they merit an extended discussion.
Normally, includes and including are flatly restrictive.
As United States Supreme Court Chief Justice John Marshall
derisively observed when presented with a strained argument to
the contrary in an 1808 case:
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It [is argued that] the word "including" means

"moreover", or "as well as"; but if this was the meaning
of the legislature, it was a very embarrassing mode of
expressing the idea." United States v. The Schooner
Betsey and Charlotte, 8 U.S. 443 (1808).
Marshall goes on to declare that the proposition that "moreover"

or "as well as" is, in fact, what is meant by the legislative use of
"including" (or, by extension, includes) is nonsense. The court
re-iterates this rule a century later:
"The [state supreme] court also considered that the

word including was used as a word of enlargement, the
learned court being of the opinion that such was its
ordinary sense. With this we cannot concur. Montello
Salt Co. v. Utah, 221 U.S. 452 (1911)
In federal tax law, though, includes and including

are permitted a little bit of latitude, being controlled by the
following rule:
Includes and including: The terms ''includes'' and

''including'' when used in a definition contained in this
title shall not be deemed to exclude other things
otherwise within the meaning of the term defined.
Rev. Act of 1938 901(b) (Codified at 26 USC 7701(c).)
The Department of the Treasury has helpfully clarified the

meaning of this provision with the following regulatory
language:
The terms includes and including do not exclude

things not enumerated which are in the same general
class; 27 CFR 26.11 and 27 CFR 72.11
The United States Supreme Court has been even more helpful:
[T]he verb "includes" imports a general class, some of

whose particular instances are those specified in the
definition. This view finds support in 2(b) of the Act,
which reads: "The terms 'includes' and 'including,' when
used in a definition contained in this title, shall not be
deemed to exclude other things otherwise within the
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meaning of the term defined. Helvering v Morgans,

Inc, 293 U.S. 121, 126 fn. 1 (1934)
The court refers to and re-iterates this observation in Federal
Land Bank of St. Paul v. Bismarck Lumber Co. 314 U.S. 95, 62
S.Ct. 1 U.S. (1941):
[I]ncluding... ...connotes simply

application of the general principle."
an
illustrative
(That is, the enumerated items in a definition in which

including is deployed "illustrate"-- identify, and thus establish-the contours of the class which the defined term represents-the "general principle" of its application). In Massachusetts v.
EPA, 549 U.S. 497 (2007), the court re-iterates this doctrine
concerning the meaning of includes and including in a
dissent on other grounds authored by Justice Scalia and joined
by Chief Justice Roberts and Justices Thomas and Alito:
The word including can indeed indicate that what

follows will be an illustrative sampling of the general
category that precedes the word. Federal Land Bank of
St. Paul v. Bismarck Lumber Co., 314 U.S. 95, 100
(1941). (Internal quote marks in the original.)
The reference to the Federal Land Bank ruling, which itself drew
on the Helvering v. Morgan ruling, makes clear that the
circumstances under which the 2007 court recognizes that the
use of including (or includes) indicates that what follows is an
illustrative sampling of a general category being defined is when
their use is under the influence of the language of 26 USC
7701(c).
The principle involved in the includes mechanism is
largely that described by the Supreme Court in Gustafson v.
Alloyd Co. (93-404), 513 US 561 (1995):
a word is known by the company it keeps (the

doctrine of noscitur a sociis). This rule we rely upon to
avoid ascribing to one word a meaning so broad that it
35
is inconsistent with its accompanying words, thus giving

unintended breadth to the Acts of Congress.
The 1st Circuit Court of Appeals puts it this way in Brigham v.
United States, 160 F.3d 759 (1st Cir. 1998):
"[T]he terms 'includes' and 'including' . . . shall not be

deemed to exclude other things otherwise within the
meaning of the term defined." 26 U.S.C. 7701(c). In
light of this we apply the principle that a list of terms
should be construed to include by implication those
additional terms of like kind and class as the expressly
included terms. *fn2: This follows from the canon
noscitur a sociis, "a word is known by the company it
keeps." Neal v. Clark, 95 U.S. 704, 708-09 (1878).
The principle is clarified by these additional, related rulings:
When a statute includes an explicit definition, we must

follow that definition, even if it varies from that term's
ordinary meaning. Stenberg v. Carhart, 530 U.S. 914
(2000)
It is axiomatic that the statutory definition of the term

excludes unstated meanings of that term. Meese v.
Keene, 481 U.S. 465 (1987)
Of course, statutory definitions of terms used therein

prevail over colloquial meanings. Fox v. Standard Oil
Co., 294 U.S. 87, 95, 55 S.Ct. 333, 336. Western
Union Telegraph Co. v. Lenroot, 323 U.S. 490 (1945)
These rulings reflect the fact that when a word becomes a

statutorily-defined term, its original meaning is entirely
stripped away and replaced with the new meaning described.
This is why, for instance, the definition of employee at which
we looked earlier explicitly lists federal employees. Despite
being identically spelled and pronounced, the statutorilydefined-term doesnt mean anyone who works for a boss, or
whatever dictionary definition you might find for the common
word employee; nor does it mean employee as commonly-
36
defined plus the additional listed persons or types (by virtue of

which federal employees would have been encompassed
without being listed). When the former understanding and
usage is intended, no statutory definition is provided; and when
the latter construction is intended qualifying phrases such as,
includes, but is not limited to and including, but not limited
to are deployed, as can be found in dozens of places within
the body of federal tax law.
If a definition IS provided, and includes is used
without additional qualifying language (as in the definition of
employee discussed above) the term only means what the
enumerated list describes-- in this case, persons working for the
federal government or its subordinate entities, under a variety
of different labels and in a variety of different capacities.
Thanks to the limited-expansion rule provided at 7701(c), the
meaning of the defined-term employee can be considered to
cover others not listed who also work for the federal
government or its subordinate entities (and who are thus within
the class established by the existing list), but no one else.
These rules and statutory practices play an important role in
preventing the income tax from functioning as a de facto
capitation or other direct tax.
_____________________________________________
PART TWO
OK, now weve seen that the income tax is, always has been,
and can only be, an exercise-of-privilege-based piece of the
action excise tax on distinguished activity, rather than a
capitation, and that income as meant in the context of the tax
refers only to that distinguished activity (the amount of which is
measured by the dollar value it produces).
Now well look at what the 16th Amendment was all about, and
discover that, rather than instituting, or authorizing the
income tax, the amendment concerned nothing more than
37
closing a loophole opened by a late-nineteenth-century Supreme

Court ruling that briefly impeded the application of the tax to a
particular kind of income, which is distinguished from the
larger subclass of distinguished, revenue-measured taxable
activity by virtue of its connection to personal property.
The whole body of internal revenue law in effect on January 2,
1939... ...has its ultimate origin in 164 separate enactments of
Congress. The earliest of these was approved July 1, 1862; the
latest, June 16, 1938."
-Preamble to the 1939 Internal Revenue Code
It is clear that were the distinct, limited meaning of the

income subject to the income tax to be eroded away, and
the tax come to be applied to all that comes in, it would be,
and would have to be recognized as, a capitation or other direct
tax. The United States Supreme Court explicitly declares in its
1916 ruling in Brushaber v. Union Pacific R. Co., 240 U.S. 1
(while specifically considering the limited meaning and effect of
the 16th Amendment) that should the tax ever come to exceed
its proper boundaries,
the duty would arise to disregard form [that is, any
pretense by which it is made to appear that the tax is
being confined to its proper limits when it is not, such
as by creatively construing the meaning of income, or
the use of any pretense, scheme or construction by
which non-specialized revenue or activities are made to
appear otherwise so as to be subjected to the tax] and
consider substance alone [that is, what the tax is
actually falling upon as a practical reality], and hence
subject the tax to the regulation as to apportionment

which otherwise as an excise would not apply to it.
But, of course, the law behind the tax never has

exceeded those boundaries. This is why the very tax which is
administered today, on the same activities as it is administered
today-- without apportionment, and without any pretense of
relief of the apportionment rule, such as is inaccurately ascribed
38
to the 16th Amendment-- could be laid and administered for

decades BEFORE that amendment, and yet be upheld by the
United States Supreme Court.
For example, in Gray v. Darlington, 82 U.S. 63 (1872),
the court had occasion to rule on a capital gains application of
the tax, citing the following language from the 1867 statute,
'There shall be levied, collected, and paid annually

upon the gains, profits, and income of every person, . .
. whether derived from any kind of property, rents,
interest, dividends, or salaries, or from any profession,
trade, employment, or vocation, . . . or from any other
source whatever, . . . a tax of five per centum on the
amount so derived over $ 1000 . . .. And the tax herein
provided for shall be assessed, collected, and paid upon
the gains, profits, and income for the year ending the
31st of December next preceding the time for levying,
collecting, and paying said tax.'
The court finds no issue with the tax generally, but merely holds
that,
The rule adopted by the officers of the revenue in the

present case would justify them in treating as gains of
one year the increase in the value of property extending
through any number of years, through even the entire
century. The actual advance in value of property over
its cost may, in fact, reach its height years before its
sale; the value of the property may, in truth, be less at
the time of the sale than at any previous period in ten
years, yet, if the amount received exceed the actual
cost of the property, the excess is to be treated,
according to their views, as gains of the owner for the
year in which the sale takes place. We are satisfied that
no such result was intended by the statute.
Again, in Springer v. U. S., 102 U.S. 586 (1880), a test
case of which the Supreme Court declares that:
The central and controlling question in this case is

whether the tax which was levied on the income, gains,
and profits of the plaintiff in error, as set forth in the
record, and by pretended virtue of the acts of Congress
39
and parts of acts therein mentioned [the act of June

30, 1864, as amended by the act of March 3, 1865-- the
relevant language of which duplicated that quoted
above in the Gray case], is a direct tax;
and that:
The plaintiff in error advises us by his elaborate brief

'that on the trial of the case below the proceedings
were merely formal,' and that 'no arguments or briefs
were submitted, and only such proceedings were had as
were necessary to prepare the case for the Supreme
Court';
the court ultimately concludes (as summarized in a later case)
that,
"[The] tax upon gains, profits, and income [is] an excise

or duty, and not a direct tax, within the meaning of the
constitution, and that its imposition [is] not, therefore,
unconstitutional." United States Supreme Court, Pollock
v. Farmer's Loan & Trust, 158 U.S. 601, 1895.
In the Pollock ruling itself, the most exhaustive judicial

consideration of the federal taxing power undertaken in
American history (and another ruling preceding the 16th
Amendment), the Supreme Court observes first that when used
in the generic sense of all that comes in, a tax on income is
inherently a direct tax:
In England, we do not understand that an income tax

has ever been regarded as other than a direct tax. In
Dowell's History of Taxation and Taxes in England,
admitted to be the leading authority, the evolution of
taxation in that country is given, and an income tax is
invariably classified as a direct tax.
and,
At the time the constitution was framed and adopted,

under the systems of direct taxation of many of the
states, taxes were laid on incomes from professions,
business, or employments...
40
The court then proceeds to distinguish the tax laid by the

federal income tax statutes as being only on a special class of
receipts amenable to taxation by excise (that is, the class we
have been referring to as income):
We have considered the act only in respect of the tax

on income derived from real estate, and from invested
personal property, and have not commented on so
much of it as bears on gains or profits from business,
privileges, or employments, in view of the instances in
which taxation on business, privileges, or employments
has assumed the guise of an excise tax and been
sustained as such. (Emphasis added)
(Remember, as noted in the Brushaber decision, a tax does not
qualify as an excise because the government chooses to call it
one [form], but because its character-- both as to object and
application-- is, in every particular, such a tax [substance].)
The court goes on to point out that this excise on income is, in
fact, what is taxed as such under the federal income tax
structure:
If [the portion of the 1894 Revenue Act laying the tax

on income from real estate] be stricken out, and also
the income from all invested personal property, bonds,
stocks, investments of all kinds, it is obvious that by far
the largest part of the anticipated revenue would be
eliminated, and this would leave the burden of the
tax to be borne by professions, trades,
employments, or vocations; and in that way what
was intended as a tax on capital would remain, in
substance, a tax on occupations and labor. We cannot
believe that such was the intention of congress. We do
not mean to say that an act laying by apportionment a
direct tax on all real estate and personal property, or
the income thereof, might not also lay excise taxes on
business, privileges, employments, and vocations. But
this is not such an act [because the real estate and
personal property exactions were not, in fact, laid by
apportionment in the act], and the scheme must be
considered as a whole. (Emphasis added)
41
The continued strict and scrupulous adherence of the

income tax to the same proper and necessary boundaries by
which it has been confined since its inception in 1862 is why the
Supreme Court is able to repeatedly declare over the years
SINCE the 16th Amendment that the amendment did not create
a new tax:
"The provisions of the Sixteenth Amendment conferred

no new power of taxation... Stanton v. Baltic Mining
Co., 240 U.S. 103 (1916);
did not extend the tax to anything it had not embraced before:
The Sixteenth Amendment, although referred to in

argument, has no real bearing and may be put out of
view. As pointed out in recent decisions, it does not
extend the taxing power to new or excepted subjects...
Peck v. Lowe, 247 U.S. 165 (1918);
did not create authority for some hybrid tax which could fall
upon any traditional or inherent object of a direct tax (such as a
general income tax) but which was now simply not subject to
the rule of apportionment:
"We are of opinion, however, that the confusion is not

inherent, but rather arises from the conclusion that the
16th Amendment provides for a hitherto unknown
power of taxation; that is, a power to levy an income
tax which, although direct, should not be subject to the
regulation of apportionment applicable to all other direct
taxes. And the far-reaching effect of this erroneous
assumption will be made clear by generalizing the many
contentions advanced in argument to support it...
Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916);
and cannot be otherwise construed, since to do so would cause:
...one provision of the Constitution [to] destroy

another; that is, [it] would result in bringing the
provisions of the Amendment [supposedly] exempting a
direct tax from apportionment into irreconcilable conflict
with the general requirement that all direct taxes be
apportioned." Id;
42
and yet continue to find the unapportioned income tax

Constitutional. The tax didnt need any of these changes in
order to be Constitutional, because it didnt become anything it
hadnt previously been upon the advent of the 16th
Amendment.
It still is not, and cannot be, a tax on
undistinguished, unspecialized activities (or the revenue
produced thereby).
This point bears repeating, due to the pervasiveness of
tax-agency-cultivated misunderstanding about the 16th
Amendment: All these observations by the Supreme Court are
simultaneously true and in harmony with each other because
the limited nature of the tax has never changed, the 16th
Amendment notwithstanding; in fact, these observations CAN
ONLY be simultaneously true and in harmony with each other
because the limited nature of the tax has never changed:
[T]he settled doctrine is that the Sixteenth Amendment

confers no power upon Congress to define and tax as
income without apportionment something which
theretofore could not have been properly regarded as
income. Taft v. Bowers, 278 US 470, 481 (1929)
(Emphasis added.)
In 1988, in South Carolina v. Baker, 485 U.S. 505, the

Supreme Court revisits the subject and observes that,
"The legislative history merely shows... ...that the sole

purpose of the Sixteenth Amendment was to remove
the apportionment requirement for whichever incomes
were otherwise taxable. (Emphasis added.)
The court is (again) recognizing that the 16th Amendment
operates only on those incomes which already were, and
always have been, inherently taxable under the income excise,
and which had been so taxable-- without apportionment-BEFORE the 16th amendment, until the application of the tax in
certain cases was briefly thwarted by the Pollock loophole in
1895. Howard M. Zaritsky, Legislative Attorney of the American
43
Law Division of the Library of Congress, helpfully summarizes all

of this in his 1979 Report N0. 80-19A entitled Some
Constitutional Questions Regarding The Federal Income Tax
Laws:
"The Supreme Court, in a decision written by Chief

Justice White, first noted that the Sixteenth Amendment
did not authorize any new type of tax, nor did it repeal
or revoke the tax clauses of Article I of the Constitution,
quoted above. Direct taxes were, notwithstanding the
advent of the Sixteenth Amendment, still subject to the
rule of apportionment"
***
So, what exactly DID the 16th Amendment do? It
simply closed a loophole introduced into the administration of
the federal income tax by the Supreme Court in its ruling
regarding the taxation of income from invested personal
property in the case of Pollock v. Farmers Loan & Trust
discussed above.
The Pollock ruling held that the application of the tax to
the proceeds of investments and real estate leases functioned
as a property tax rather than a federal income tax. The
reasoning was that to tax such gains-- even when the
investments and leases were in, or to, federal entities, as was
involved in the case-- is to effectively tax the stock and land
itself. Since both are personal property, such a tax was really a
property tax and not, in this respect, an excise which could be
applied without apportionment. With this ruling the court struck
down ten sections of the recently reactivated federal income
tax, which had been dormant since its last two-year
implementation had expired in 1873.
The effect of this reasoning was to relieve the RobberBaron class, which was heavily invested in money-making
federal instrumentalities such as national banks and railroads
and had numerous sweet-heart deals leasing property to the
44
feds, from the burden of the tax. This didnt sit well with the
growing and reactionary populist movement, which had little
patience with the idea that a cadre of coupon-clipping fat cats-widely, and accurately, perceived as pulling Washingtons strings
and benefiting handsomely thereby-- should escape the tax,
while revenue tariffs, by which even the poorest Americans
were affected, stood relatively high in order to make up the
loss.
The populists demanded an amendment to the
Constitution to close the loophole, and eventually succeeded
with the 16th Amendment, which declares that what is
otherwise inherently taxable under the federal income tax
cannot be shielded therefrom by a resort to the source of the
revenue involved. Treasury Department legislative draftsman F.
Morse Hubbard usefully summarizes this sole and exclusive
effect of the amendment in his 1943 testimony:
"[T]he amendment made it possible to bring investment

income within the scope of the general income-tax law,
but did not change the character of the tax. It is still
fundamentally an excise or duty with respect to the
privilege of carrying on any activity or owning any
property which produces income." (that is, income
otherwise taxable, as the Supreme Court reminds us

some four-and-a-half decades later in the South
Carolina v. Baker decision...)
Remember, as soon as Lincolns 1862 act was passed,

income acquired a fixed, limited and specialized definition for
purposes of federal tax law (without which it would have been
ruled unconstitutional for lack of apportionment in several cases
arising before Pollock). Thus:
The 1894 act that Pollock challenged only sought to tax
income so defined.
The Supreme Court ruling in that case only addressed
the application of the tax to income so defined.
The 16th Amendment only removed the apportionment
45
requirement to income so defined-- and only that part

of it comprising gains from invested personal property
and real estate, because it was only that form of
income that the Pollock court had concluded couldnt
be taxed other than by apportionment. All other forms
of income have always been able to be taxed without
apportionment, because of the particular legal character
of the receipts which qualify for the tax and which were
(and are) the only variety which the tax attempts to
reach.
That is why the court can say that direct taxes remain subject to
the rule of apportionment even after the amendment; that the
provisions of the amendment conferred no new power of
taxation; that the amendment does not extend the taxing power
to new or excepted subjects; that the sole purpose of the
amendment was to remove the apportionment requirement for
whichever incomes were otherwise taxable; and that the
income tax remains Constitutional even though capitations still
require apportionment.
(A few lower courts have made confusing-- or confused- declarations over the years to the effect that the 16th
Amendment authorized a direct tax without apportionment.
What they mean is that in the context of the Pollock courts
reasoning, the amendment removed the apportionment
requirement from what is really a property-- and therefore
inherently direct-- tax, because thats what the Pollock court
saw the tax on dividends to be.
However, since the property tax involved only applies
to gains which otherwise qualify as income by virtue of their
federal connections, such declarations are misleading when
offered without context. Property which is taxable directly
under the new protocol is not just any property, but only that
producing benefits from a voluntarily-undertaken federal
linkage. Thats why we dont all get federal property-tax bills
every year. In reality, the 16th Amendment resulted in an
46
unapportioned direct tax only on receipts which are within the

class of those IN-directly taxed.)
_____________________________________________
PART THREE
Were going to conclude this introduction to the truth about the

income tax with a look at how general American understanding
of all of the foregoing was lost over the course of the twentieth
century, but also at how the means of individually correcting
misapplications of the income tax are inherent within the very
structure of the tax itself...
So how did all of this slip away from the American
consciousness? Slowly, for one thing. At no time prior to 1942,
eight decades after the federal income tax was first introduced,
did more than 8% of American households ever file federal
income tax returns in any given year. In most of those years,
the percentage was far lower than even that small figure. As
recently as 1936, only 3.9% of the entire American population
filed returns, according to the Treasury Departments Division of
Tax Research (Division Staff Memo: Collection at Source of the
Individual Normal Income Tax, 9 January, 1941).
Nonetheless, by 1943, thanks to the distractions of a
world war, the exhortations of Donald Duck ( see
www.losthorizons.com/NewSpiritExcerpt.wmv and ask yourself:
how many MANDATORY obligations must be sold to the public
by cartoon animals?), and the adoption of a vague and
confusingly-worded temporary measure called The Victory
Tax, the percentage of households sending in payments
declared to be of income taxes rose to 38. That same year,
the Treasury Department introduced its masterwork: The
Current Tax Payment Act of 1943, by which the practice of
withholding tax deposits from wages, which had been a
feature of the very first federal income tax acts but had been
abandoned early in the 20th Century, was re-introduced. The
47
new version was a rare work of lawyerly art, and contributed

enormously to the ongoing erosion of general understanding of
the nature of the tax-- already well advanced at that point,
thanks to the extended passage of time since the initial adoption
of the vast bulk of the relevant law. In short, the understanding
of the limits of the federal income tax also slipped away from
American consciousness organically.
We have suffered heavily for our carelessness ever
since, to the tune of trillions of dollars of wealth improperly
extracted from us over the years. The fact that the tax is
limited as it is, and doesn't actually apply to most receipts,
doesn't mean that it does not, or cannot, affect most
Americans. In fact, there is an elaborate bureaucratic and legal
structure in place which inadvertently leads to the application of
the tax outside its proper scope, by encouraging everyone
making payments to others to substantively allege that the
payments were connected with the conduct of a taxable activity,
whether this is actually true or not.
By way of this structure, most UN-taxable receipts
become presumptively taxable in the eyes of the law, and the
recipients become presumptively required to file a tax return
and pay a resulting tax. Of course, false presumptions can be
corrected, and in this case, a quirky idiosyncrasy of the relevant
law provides that the means by which an inaccurate
presumptive transformation of untaxable receipts into taxable
receipts is corrected itself involves the filing of a tax return.
Although this appears strange-- even contradictory-- at
first glance, it really is not. Every legal action involves an
allegation and an answer. The only way to prove that there is
nothing to be answered for is by the making of the answer-however much that dynamic has the character of a "Catch-22".
There is simply no other way for the law to work, since to make
no rebuttal in the face of an allegation is to admit to what is
alleged, by default. So, Congress, recognizing the need, has
specified that the making of the same type of tax return used to
48
acknowledge the receipt of income when, and to the degree

that, allegations to that effect are true is also the formal means
of rebutting such allegations when they are not:
And be it further enacted,that any party, in his or her

own behalf,shall be permitted to declare, under oath
or affirmation, the form and manner of which shall be
prescribed by the Commissioner of Internal Revenue,...
...the amount of his or her annual income, liable to be
assessed, and the same so declared shall be received
as the sum upon which duties are to be assessed and
collected. Section 93 of The Revenue Act of 1862.
Knowing how these allegations are made, the details of
the related provisions and specifications made by Congress, and
the underlying principles of law involved in properly answering
them requires a careful and thorough reading of Cracking the
Code- The Fascinating Truth About Taxation In America.
However, a general sense of these things, and of the manner in
which the exploitive and obnoxious structure needing to be proactively addressed each year by most Americans came to be,
can be had by reading the little parable in the following chapter.
49
from

Critical Inquiries for a New American Century
by
Peter E. Hendrickson
Bobs Bicycles
or
Getting Free Of The "Income" Tax Scheme Is As Easy As

Falling Off A Bike
To get an idea of how today's "income" tax scheme

works, try this little exercise:
Keeping in mind the Constitutional limitations on the
federal taxing power that weve just discussed in the last
chapter, think of the federal government like a guy named Bob,
who lives down the street from you in a town that is really big
on bicycles. Bikes get used for commuting, deliveries, shopping,
etc.. In fact, other than walking, bicycles are the exclusive form
of transportation in your town.
Your neighbor Bob has a by-the-mile bicycle-renting
business-- "Bob's Bicycles". Bob's Bicycles is far and away the
biggest business in town.
Part of Bobs success is because he does a lot of
contract business. However, Bob doesn't just get paid by riders
who have signed an agreement with him, or even just those
using Bob's bikes. Bob gets something every time anybody in
50
Bobs Bicycles
town does any riding at all, through an odd combination of

circumstances that took many years to come together.
Here's how it happened...
Bob's Bicycles was launched long ago by the great
grandfather of the present Bob (Bob IV). Great Grandpa Bob
started out not only with a main location for his contract
business-- he also had the bright idea of setting up spots
around town where he parked some of his bikes for use by the
more occasional rider, on an "honor system". Anyone could
take and use one of these bikes, but they were expected to
keep track of their mileage, and send Bob a "1040 Mileage
Ridden/Rent Due Form" (and the appropriate rent),
periodically. The initial design of the form was like this:
I, ___________, rode a Bob's Bicycle a total of

_____ miles this year.
At Bob's rental rate of $.15 per mile, I owe Bob
$_____
I said that Great Grandpa Bob planned to deal with

these occasional riders on the "honor system", and that's true.
But he liked his money, too, and didn't want to miss anything
that was due him. So, after setting up the "self-serve"
locations, Great Grandpa Bob went around handing out "W-2,
1099 or K-1 Rider Reporting Forms" to every other business in
town. The forms-- accompanied by notices that if Bob didn't get
his rent from someone riding a bicycle in connection with any
business, he would sue the company involved-- said:
51
I, _______ , saw _______ riding a bicycle

from _______ to _______ on __/__/__
I swear this to be true to the best of my
knowledge and belief under penalties of perjury,
_________________ __/__/__
***
To begin with, everybody understood that where it says
"bicycle" on one of Bob's "W-2, 1099 or K-1 Rider Reporting
Forms" or notices, it means "one of Bob's bicycles". For one
thing, this was obvious. After all, what legitimate interest would
Bob have in getting a report about someone riding a bike that
wasn't his?
Indeed, what business would Bob have even asking for
a report about someone riding a non-Bob's Bicycle? Everyone
understood, and besides, on the back of the form, anyone who
looked would find, "When used on one of Bob's forms or
notices, "bicycle" means "one of Bob's bicycles"". So, these
forms worked well enough, to begin with.
Everyone
understood what they were for, and Bob's "honor system"
bicycles were all painted bright red, so mistakes were few.
Some mistakes DID happen though. So, Great Grandpa
Bob provided that the same reporting process used to admit
riding a "Bob's Bicycle" on the honor system would serve to
correct any errors. All that a victim of an erroneous "W-2, 1099
or K-1 Rider Reporting Form" needed to do was fill out one of
the "1040 Mileage Ridden/Rent Due" forms-- which could be
conveniently found at the "Bob's Bicycles" locations all over
town-- declaring the truth of the matter (with a specific rebuttal
or correction of the erroneous W-2, 1099 or K-1 Rider
Reporting Form assertions attached).
52
Bobs Bicycles
This might mean reporting that they had ridden '0' miles
on one of Bob's bikes that year. Or it might mean
acknowledging that they DID ride one of Bob's bikes for a
certain number of miles, just not the number reported on the
erroneous "W-2, 1099 or K-1 Rider Reporting Form". This
particular use of the "1040 Mileage Ridden/Rent Due" form led
to a little change in its design. Now it looked like this:
I, ___________, rode a Bob's Bicycle a total of

_____ miles this year.
Since Bob's rental rate is $.15 per mile, I owe Bob
$_____
Under penalties of perjury, I declare the foregoing
to be true, complete and correct to the best of my
knowledge and belief,
___________ __/__/__
(Great Grandpa Bob was a nice guy, and he was comfortable
with his "honor system". But Great Grandpa Bob wasn't born
yesterday.)
Over the years, things got a bit more complicated, just
by an unfortunate coincidence of several misunderstandings.
For one thing, Bob Jr. stopped personally distributing the "W-2,
1099 or K-1 Rider Reporting Forms", and hired a company to
take care of this for him. Now, folks who had never even met
Bob, and didn't know anything about him or his business,
started getting "W-2, 1099 or K-1 Rider Reporting Forms" in the
mail.
Along with the forms came prominent instructions
advising the recipient to, "Use this form to report the use of a
bicycle by any person". The note that, "When used on one of
53
Bob's forms or notices, "bicycle" means "one of Bob's bicycles"",

got reworded into more complex 'legalese', and buried in a
whole lot of new fine print on the back of the form.
Later, that clarifying note moved off the form entirely-first being replaced by a cryptic reference to where the
definition might be found in the "Bicycle Forms, Publications and
Policies Guide" (conveniently available at each "Bob's" location
around town), and then ultimately being dropped altogether
under the principle that knowing what the forms are for is the
responsibility of the person filling one out. Unsurprisingly, a lot
of folks misunderstood, and began filling out and sending these
reports to the address provided every time they saw anyone
riding ANY bicycle.
Another thing contributing to complications with Great
Grandpa Bob's program was Bob Jr's decision to stop painting
his "honor system" bikes bright red. Pretty soon, even folks
who remembered that "W-2, 1099 or K-1 Rider Reporting
Forms" only related to Bob's bicycles were filling them out
anytime they saw anyone riding a bike. This was only partly out
of confusion.
"Bob's" had become a very successful business over the
years, and was an important customer to every other company
in town. People were eager to please Bob, and keep in his good
graces; furthermore, although the fine print on the "W-2, 1099
or K-1 Rider Reporting Forms" had changed, those notices about
Bob suing for his money hadn't. Bob maintained a really active
PR department, and was well thought-of in the community in
general, but he also had the most aggressive collections and
legal operations in town. What with the subject of a report
having a simple means of correcting any error, and in light of
these other considerations, the simplest and safest course was
just to fill out a report whenever anyone was seen on any bike.
54
Bobs Bicycles
It wasn't long before the town's kids were growing up

with the impression that Bob had some kind of legal interest in
bicycle usage in general. After all, once they got jobs, the
company they worked for would automatically fill out a "W-2,
1099 or K-1 Rider Reporting Form" and send it to Bob, even
when the kids rode their own bikes. If the rider didn't then
send in the rent, Bob's collection agency would be all over them
like ugly on an ape, with no questions asked.
By the time the grandkids of the first "Bob's Bicycles"
customers were coming up, everyone had heard stories about
riders who, having not paid Bob, were hauled into court and
accused of "bicycle rent evasion". All that ever was alleged in
these cases was that the accused rode a bicycle, and hadn't
paid Bob. It appeared that if just these things alone were
proven, dire consequences followed.
Bob, it seemed, could charge you rent for using your
own stuff, and the legal system would back him up! By then it
didn't occur to anyone-- including the defendants in these
affairs-- that when used in a Bob's-bicycles-related legal action
"bicycle" doesn't mean "any bicycle", but only means "one of
Bob's bicycles", just as it does on a "W-2, 1099 or K-1 Rider
Reporting Form". After all, by then almost no one alive could
remember back to the beginning. By then, almost no one alive
had ever read through Bob's "Bicycle Forms, Publications and
Policies Guide", which had grown over the years to thousands
and thousands of pages in length.
Further, by then Bob's Bicycles was so big, and so rich,
and so diversified, that Bob III had a hand in everything that
went on in town, and knew just how to spread all that rent
money around. He had no trouble securing the support of the
town fathers and other important and influential folks, and
those movers and shakers-- just as ignorant of the truth as
anyone else-- were happy to help Bob's PR department
encourage everyone to just "pay their rent" without question.
Paying rent to Bob became something to be done not only
55
unselfishly, but with pride. Paying rent to Bob was good for the
community!
Over the years, every "Bob" has carefully kept the
overall rent-burden tolerable. The nominal rates have often
been high, but a big list of discounts and credits has grown in
pace with the misunderstanding about who really owes rent to
Bob.
When everyone had understood, and all the business
done with Bob was knowingly voluntary, one simple rental rate
was enough, and no elaborate discounting was needed. But as
more and more people found themselves seemingly beholden to
Bob, he realized that if he tried to take the same rate from the
less-well-off that he could get away with from the well-to-do,
somebody-- faced with a bill they couldn't handle-- might just
start actually reading his "Bicycle Forms, Publications and
Policies Guide", however difficult that had been made. Then the
good thing Bob has grown accustomed to might fall apart. So,
Bob's rental rates have grown increasingly "progressive". Bob,
no dummy, is content to sacrifice on margin and make it up in
volume.
In his best move ever, Bob instituted a "payroll
deduction" program, under which the townsfolk are encouraged
to anticipate how much riding they're going to do over the year,
and then have part of their pay sent to Bob each week against
the annual rent bill they figure will result. By virtue of this
program, most folks never even really notice how much they're
sending to Bob! (Bob is still chortling over this one, decades
after thinking it up...)
Needless to say, Bob's "1040 Mileage Ridden/Rent Due"
forms have gotten rather complicated. But whole industries
have sprung up in town just to help people fill them out (for a
fee, of course). The average person doesn't directly deal with
paying Bob at all, anymore-- in fact, most get a "refund" from
Bob each year, of what had been "over-deducted" under the
"payroll deduction" program, and view it like a birthday
56
Bobs Bicycles
present. All-in-all, Bob has succeeded in creating the "perfect

storm" of misunderstanding.
Well, that's the story of Bob's Bicycles. Today,
everyone in town plans all their affairs with Bob's piece-of-theaction factored in. Indeed, big chunks of the population do
nothing but handle Bob's Bicycle-related activities. Most of the
rest can't imagine a time without the business Bob does with
their own businesses, or the charitable "giving-back-to-thecommunity" grants Bob makes out of the rent money he
collects.
Great Grandpa Bob rests; probably with a smile on his
face, 'cause the kids are doing all right. And deep within Bob's
"Bicycle Forms, Publications and Policies Guide", the longforgotten truth rests, too-- waiting for anyone wholl bother to
take it out for a spin.
So, How About You?
Who Gave You YOUR Wheels?

*****
Finally,
Complete your introduction to the truth about the income tax
by viewing the short film youll find at
'It's Time To Learn The Truth About The Income Tax'
(www.losthorizons.com/ItsTimeToLearnTheTruth.wmv)
"Although all men are born free, slavery has been the general
lot of the human race. Ignorant--they have been cheated;
asleep--they have been surprised; divided--the yoke has been
forced upon them. But what is the lesson?the people ought to
be enlightened, to be awakened, to be united, that after
establishing a government they should watch over it....It is
universally admitted that a well-instructed people alone can be
permanently free."
-James Madison
57

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