The Income Tax Required a Constitutional Amendment To Be Valid.The Estate Tax Also Requires a Constitutional Amendment To Be Valid. Both Should Be Replaced By a Federal Sales Tax of 5–10%.
The income tax required the 16th Amendment (1913) in order not to violate the Constitution’s requirement in Article 1, Section 2 of “apportionment” among the states of direct taxes. However, the 16th Amendment is not enough to render the income tax constitutionally valid. In fact, the 5th Amendment (1791) prohibits the taking of private property without just compensation. Consequently, to be completely constitutional, the income tax requires the 16th Amendment to also override the 5th Amendment’s prohibiting the taking of private property. Somehow, this has been overlooked by Congress and by the entire legal profession since 1913. Personal income is clearly private property, therefore taxing it violates the 5th Amendment, since taxing is a “taking of private property”, even if only partial.
Proof that taxing private property is unconstitutional (due to the “no taking” clause of the 5th Amendment) lies in the fact that there are no state or federal real estate taxes. There are only local real estate taxes. The reason local real estate taxes are constitutional is because they are not really “taxes” on property, rather they are “fees” corresponding to the cost of services rendered by local governments to real estate properties, such as sewers, waste removal, roads, public schools, police, fire departments, and general maintenance. So, local real estate taxes are mistakenly characterized as “taxes”, whereas they are actually fees for services rendered to real estate properties. In other words, they are not “taxes” even though they are called “taxes”. Just as there can be no state or federal taxes on real estate, there can be no wealth taxes as some Democrats propose, since they would violate the “no taking clause”.
As for the estate tax, it violates both the “apportionment” requirement of Article 1, Section 2, and the “no taking” clause of the 5th Amendment. The estate tax is therefore doubly unconstitutional, even though neither Congress nor the entire legal profession has realized that. Worse, there is compelling evidence that the legislators drafting the estate tax knew that taxing the estate as property, which estates clearly are, would be unconstitutional. That is why the estate tax law found it necessary to specifically and explicitly state that the estate tax is not a tax on property, rather it is a tax on “the transfer” of estate assets (Estate Tax, Sec. 2001(a), and Reg. 20.0–2). This was the way the legislators consciously, intentionally, and deviously circumvented the constitutional provisions of “apportionment” and “no taking of private property”.
A careful analysis of the estate tax provisions reveals extraordinary inner contradictions which the drafters either overlooked or thought no one would notice. Clearly, practically no one has noticed those contradictions since the estate tax was introduced in 1916. Those inner contradictions expose the drafters’ duplicity, and defeat the drafters’ argument that the estate tax is a tax on the “transfer” of estate assets, not on the estate itself.
You don’t have to be a lawyer to spot one glaring contradiction: the fact that the estate tax is due within nine months of the date of death, even if no estate assets have been transferred yet. If the estate tax is truly a tax on the transfer of estate assets, then all references in the estate tax law must be to the date of asset transfers, not to the date of death. Just as a sales tax is not payable until a sale takes place, a transfer tax cannot be payable before a transfer takes place. So long as an estate’s assets have not been transferred, no tax payment can be due.
Another glaring inner contradiction: the estate tax is calculated on the value of the estate assets at the time of death, not at the time of transfer. That is totally illogical and improper, as would be determining a sales tax on the dollar value of the goods while in the inventory of a seller, not on the dollar amount of the sale of the goods.
Not only is the estate tax unconstitutional, a century-long fraud on the American people, so is the gift tax. A gift is not a sale, it is not subject to a sales tax. A gift is a non-commercial, free transfer of private property. Taxing a gift of personal property is a violation of property rights. The original Constitution, prior to amendments, only contemplates capitation/poll taxes, which are direct taxes, and indirect taxes such as sales taxes, excise taxes, imposts, and duties, which are all commerce-related taxes. The original Constitution never taxes non-commercial transfers of private property, just as it doesn’t contemplate income taxes. Crucially, there are no constitutional amendments validating either the estate tax or the gift tax by overriding the “apportionment” requirement of Article 1, Section 2 and the “no taking clause” of the 5th Amendment. Consequently, both the estate and gift taxes are unconstitutional.
An objective analysis of the estate and gift tax laws reveals that our estate and gift taxes are unethical and abusive, not just in violation of the Constitution. They are confiscatory, having rates over 40%. If the estate tax is amended to make reference not to the date of death but to the dates of transfers, then at least one contradiction is removed. But since commercial transfers are taxed at rates below 10%, how can a non-commercial transfer be reasonably taxed much more heavily, at 40%?
The Biden Administration and the Democratic Party are proposing not only to increase estate tax rates, but also to impose the payment of taxes on unrealized capital gains by inheritors after the estate tax has already been paid. In other words, first an estate would be reduced by an estate tax of up to 40%, then once the beneficiaries receive the transferred estate assets such as stocks and real estate, they would have to pay capital gains taxes on unrealized capital gains, i.e., before they even sell the stocks or real estate. That would be sheer madness, total ignorance, or ultra-socialism bordering on confiscation. So would eliminating the “step-up” provision, whereby the capital gains tax basis of inherited assets is the value of the assets at the time of death, not the tax basis of the deceased. Without the step-up provision, to the estate tax of 40% would be added federal, state, and local capital gains taxes amounting to over 30%, meaning up to a 70% confiscation of inheritances! It must always be kept in mind that an estate is property accumulated by a person with after-tax income. Taxing estates is like double-taxation. As for the absurd proposal of some Democrats to annually tax the non-realized capital gains of living citizens, it goes against logic and fairness, it would destroy wealth and investments, and be catastrophic for the American economy. Such a proposal derives from utter ignorance of economics or from extreme leftist ideology approximating an invidious communist mentality. It is un-American.
Republicans are heartless regarding the poor, many indulge in extreme dishonesty, many embrace demagoguery and incompetence of their leadership, many are even receptive to fascism and sedition. That’s bad enough. But now we have Democrats flirting with ignorant, destructive leftist extremism. We are on a dangerous downhill slide, due to the low average level of education of our citizens and of our politicians, the culprit being the extreme mediocrity of many of our public schools and their deficient curriculum. Do we have one politician capable of identifying and explaining the major mistakes in economic, social, and foreign policy of the past 100 years, and which would have been the correct policies? No. That means all our politicians are unqualified. Heaven help us.
Both Republicans and Democrats have a low level of understanding of economics, which is why they have both been responsible for repeated, totally avoidable recessions and high unemployment over the past 50 years, with their misguided and archaic obsession with budget deficits. Today, they both ignore that so long as there is unemployment and unused production capacity, QE financing of budget deficits by the Federal Reserve is the way to go, not raising taxes. They both fail to understand that QE is not inherently inflationary, even though it is printed money by the Fed, so long as it is not excessive, bringing about excess aggregate demand. Nor is QE-financed federal debt necessarily passed on to future generations, since QE-financed Treasury bonds held by the Fed at maturity can be cancelled or indefinitely rolled over, refinanced by QE. It seems the only government official who understands all this is Fed Chairman Jerome Powell. We’re lucky to have him, otherwise we’d have a repeat of the Great Depression. But Powell stands alone, as the entire economics profession has yet to understand economics properly, including the causes of inflation and the effects of budget deficits. Statistics of the past 50 years demonstrate that inflation is not necessarily caused by budget deficits, in fact there is no consistent correlation. Yet mainstream economists, not paying close attention to statistical history and not using logic, remain obsessed with the supposed perils of budget deficits. They fail to understand that just like QE, budget deficits do not cause inflation when they don’t cause excess aggregate demand, and are often very necessary, like today.
Finally, it would make sense to replace the unconstitutional federal income tax with a federal sales tax (retail and B2B) of 5% to 10%. That would eliminate tax shelters which are a misallocation of capital and therefore anti-growth, apart from unfairly benefiting the very wealthy. That would also be in line with the text and spirit of the original Constitution which only provided for sales taxes, to the exclusion of income taxes and wealth/property taxes. It would also be progressive, since high-income citizens spend much more than low-income citizens, and therefore end up paying much more in sales taxes annually. One could increase the progressivity of a federal sales tax by having the IRS send low-income citizens a sales tax rebate every year based on a low level of annual spending, such as a 5% to 10% rebate on $30,000 of annual spending. Most importantly, having a federal sales tax instead of an income tax allows the Federal Reserve to adjust its policy more accurately, i.e., it could be given the authority to raise and lower the federal sales tax rate according to economic conditions, a much more precise and effective tool than raising and lowering interest rates, which have negative side effects.
Not to be overlooked, if all our public schools were truly excellent with an enlightened curriculum and run like the best private schools (i.e., with strict discipline, lots of homework/study-hall, and individual attention given to students with academic or psychological difficulties), our citizenry would be much better educated and much more economically productive. As a result, government social expenditures would decline and tax revenues would increase dramatically in one generation, and tax rates would plummet. An enlightened high school curriculum would include a 4-year course on psychology accompanied by “group therapy” and “good parenting” workshops; a course on logic and critical thinking; a course on ethics and empathy; a course on the United Nations Universal Declaration of Human Rights accompanied by the world history of human rights violations; a course on the major mistakes in economic, social, and foreign policy over the past 100 years and which would have been the correct policies. If all our public schools were truly excellent with an enlightened curriculum, poverty, addiction, violence of all sorts, abusive behavior, racism, unwanted pregnancies, and crime would practically disappear in one generation. Instead, as a nation, for decades and decades we have been running many extremely mediocre public schools with deficient curriculums, and wasting time arguing about abortion and gun control, bemoaning victims of mass shootings and common crime, and complaining about high taxes to deal with poverty. We have made our own bed, it’s our collective fault. It’s our collective responsibility to finally solve our social problems through having every single youth get a truly excellent education.
© Edward Sonnino 2021
September 14, 2021
Independent, Self-Funded, Write-In Candidate for New York City Mayor 2021
