America: From Freedom to Fascism (part 1)

Rebuttal / debunked:

I finally watched Aaron Russo's movie "America: From Freedom to Fascism". My understanding is that there are several versions of this movie floating around. The one I watched is labeled the "Authorized director's cut", and contains a "last minute" addition of a Lou Dobbs report on the Security and Prosperity Partnership (discussed infra).

This rebuttal will focus primarily on the tax issues because (a) they are the major portion of the movie and (b) it's the area I'm most interested in. I'll include a good bit on the Federal Reserve issues as well, but most of that has been discussed in prior threads.

The PATRIOT ACT issues are not fully explicated in the movie, but are more asserted as evidence of a generally sinister government. I have my own issues with certain aspects of the PATRIOT ACT, but, as there are no specific issues raised in the movie, I don't think it appropriate to raise them here.

There is also some discussion of the REAL ID Act. This discussion, I think, is valuable. Again, I have issues with this particular act beyond what Russo discusses, but I won't raise those issues here.

Finally, in a full disclosure, some of this analysis is lifted or adapted from things I have written previously, primarily on this site. So it might look familiar.

On to the meat.

Tax Part I: The 16th was never ratified

Russo does not really explain this argument. He makes the unsupported allegation that a cadre of bankers bribed the Secretary of State (rather amusingly named Philander Knox) to falsely certify the ratification, and then moves on. The only support he gives for the failure to ratify is a statement from U.S. District Court Judge James C. Fox in 2003: "If you...examined [the 16th Amendment] carefully, you would find that a sufficient number of states never ratified the Amendment." A bit of googling reveals that this quote is from a hearing (not a court opinion) for a temporary restraining order in the case of Sullivan v. USA. Several websites promised the transcript, but all the links were dead. The closest I could find was a tax protestor website which gave me this somewhat expanded version of the quote: " "I think if you were to go back and try to find and review the ratification of the 16th amendment, which was the Internal Revenue, income tax, I think if you went back and examined that carefully, you would find that a sufficient number of states never ratified that amendment. ... Yet nonetheless, I'm sure no court's going to say that the 16th Amendment permitting income tax is void for any reason". This is more an expression of the futility of the argument than an actual determination that the 16th was never ratified. Additionally, it is (as noted above) not a judicial determination of law. It is a judge making an offhand, non-binding statement during a hearing. It's not a finding of law.

There has been a finding of law regarding the ratification, in the case of U.S. v. Thomas (a 7th Circuit case from 1986, which the Supreme Court declined to review). Unfortunately, I was unable to locate a free online source for the text of this case, however, in looking at this issue for a previous thread, I verified the following quote which can be found a bunch of places online:

...Thirty-eight states ratified the sixteenth amendment, and thirty-seven sent formal instruments of ratification to the Secretary of State. (Minnesota notified the Secretary orally, and additional states ratified later; we consider only those Secretary Knox considered.) Only four instruments repeat the language of the sixteenth amendment exactly as Congress approved it. The others contain errors of diction, capitalization, punctuation, and spelling. The text Congress transmitted to the states was: "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 of the instruments neglected to capitalize "States," and some capitalized other words instead. The instrument from Illinois had "remuneration" in place of "enumeration"; the instrument from Missouri substituted "levy" for "lay"; the instrument from Washington had "income" not "incomes"; others made similar blunders.


"Thomas insists that because the states did not approve exactly the same text, the amendment did not go into effect. Secretary Knox considered this argument. The Solicitor of the Department of State drew up a list of the errors in the instruments and--taking into account both the triviality of the deviations and the treatment of earlier amendments that had experienced more substantial problems--advised the Secretary that he was authorized to declare the amendment adopted. The Secretary did so.
"Although Thomas urges us to take the view of several state courts that only agreement on the literal text may make a legal document effective, the Supreme Court follows the "enrolled bill rule." If a legislative document is authenticated in regular form by the appropriate officials, the court treats that document as properly adopted. Field v. Clark, 143 U.S. 649, 36 L.Ed. 294, 12 S.Ct. 495 (1892). The principle is equally applicable to constitutional amendments. See Leser v. Garnett, 258 U.S. 130, 66 L.Ed. 505, 42 S.Ct. 217 (1922), which treats as conclusive the declaration of the Secretary of State that the nineteenth amendment had been adopted. In United States v. Foster, 789 F.2d. 457, 462-463, n.6 (7th Cir. 1986), we relied on Leser, as well as the inconsequential nature of the objections in the face of the 73-year acceptance of the effectiveness of the sixteenth amendment, to reject a claim similar to Thomas's. See also Coleman v. Miller, 307 U.S. 433, 83 L. Ed. 1385, 59 S. Ct. 972 (1939) (questions about ratification of amendments may be nonjusticiable). Secretary Knox declared that enough states had ratified the sixteenth amendment. The Secretary's decision is not transparently defective. We need not decide when, if ever, such a decision may be reviewed in order to know that Secretary Knox's decision is now beyond review."

This passage determines that the Sixteenth was validly adopted, among other reasons, because the Supreme Court follows the "enrolled bill" doctrine. This concept has been explicated several times by the Supreme Court.

Leser v. Garnet ruled, among other issues, that "As the Legislatures ... had power to adopt the resolutions of ratification, official notice to the Secretary, duly authenticated, that they had done so, was conclusive upon him, and, being certified to by his proclamation, is conclusive upon the courts." Leser v. Garnet also stated that the rule in Field v. Clark was applicable. Field v. Clark was not a case surrounding an Amendment. Instead, it dealt with a statute which, subsequent to its passage, was challenged as being different from that passed by Congress. The Court ruled that "...the authentication of an enrolled bill, by the official signatures of the presiding officers of the two houses and of the president, as an act which has passed congress, and been approved by the president..." cannot be undone by evidence that the bill should have been different. Applied to the amendment process, the ruling in Leser states that once a legislature has notified the Secretary of State that ratification has occurred, it can't be rescinded or challenged.

Even more damning, Coleman v. Miller involved a challenge by a state as to its own ratification of an Amendment. Coleman v. Miller reached a similar result, when the Court refused to set aside the ratification (although the Amendment itself never passed). It also noted that, insofar as the Constitution deferred to Congress the power to "run the show" in the Amendment process, the Court would be very reluctant to set aside any Congressional action. Although the Court specifically declined to rule on the "justicability" of the issue (Article III courts generally cannot decide "political questions" such as the manner in which a statute was negotiated or arrived at), that clearly underlies their hesitancy.

The rule, in short, is that once a bill is certified enrolled, there is no means by which anyone can then countermand that certification. The states, as the entities ratifying (and, specifically, not individuals) need to make clear an objection at the time the Secretary of State releases the list. Otherwise, game over.

Note that Mr. Russo never really goes into the argument surrounding the ratification, however, it seems likely that he is using the argument found in the book "The Law that Never Was", that states that several states made minor revisions to the Amendment before ratifying it, and that some did not ratify it by a formal act of legislature. These issues, too, have been addressed.

The Constitution (deliberately) does not set forth the manner in which states are to ratify an amendment. All it says is that Amendments are valid "...when ratified by the legislatures of three fourths of the several states, or by conventions in three fourths thereof, as the one or the other mode of ratification may be proposed by the Congress." For most proposed amendments, including he one at issue here, Congress generally proposes the former.

That doesn't get us there, though. The legislature has the power, but it's not clear (from the Constitution) how they exercise the power. The Constitution itself was subject to a very particular process, specifically at the demand of the founders, as to the manner in which it was ratified. However, that specific process was not extended to future amendments.

There have been a couple cases which describe the manner in which an amendment needs to be ratified. Hawke v. Smith dealt with an attempt by an Ohio resident to enjoin the legislature of Ohio from endorsing an amendment to the constitution because an amendment to the Ohio constitution would have required a state wide referendum on that endorsement. The court rejected the suit, and in so doing, clarified certain provisions surrounding state ratification of amendments:

"The argument to support the power of the state to require the approval by the people of the state of the ratification of amendments to the federal Constitution through the tedium of a referendum rests upon the proposition that the federal Constitution requires ratification by the legislative action of the states through the medium provided at the time of the proposed approval of an amendment. This argument is fallacious in this-ratification by a state of a constitutional amendment is not an act of legislation within the proper sense of the word. It is but the expression of the assent of the state to a proposed amendment"

...


Article 1, section 4, plainly gives authority to the state to legislate within the limitations therein named. Such legislative action is entirely different from the requirement of the Constitution as to the expression of assent or dissent to a proposed amendment to the Constitution. In such expression no legislative action is authorized or required.

(Emphasis added)

So, there is no requirement that a formal resolution be passed by the legislature. All that is required is that the legislature assent to the passage of an Amendment. Note also that the Supreme Court decided this as a matter of Federal, specifically Constitutional law. The only entity that can dictate the manner in which assent is given is Congress, and then only between the two manners provided in the Constitution. I believe there was some discussion of an Amendment which would, itself, provide that Amendments could be ratified by popular national vote, but it was determined that that would destroy the independence of states.

Tax Part II: Not just invalid, but ineffective

After a brief segue in which Mr. Russo gives us a small taste of things to come (hint: evil bankers!), he goes on to say that, not only was the 16th Amendment never adopted, but the law that was enacted due to the Amendment is ineffective to do what the government wants it to do. Logical query at this point: If the 16 th Amendment was instituted by bribery, why would the evildoers waste that bribe by then causing an ineffective law to be passed?

I had anticipated the celebrated "861" argument which has landed Wesley Snipes on the wanted list. Generally, the "there is no law..." argument leads to that statement, and, in fact, many of the people quoted in the movie have gone on record as supporting the 861 argument. However Mr. Russo surprised me by never making that argument. Instead, he (and his interviewees) reference several Supreme Court decisions (because, as I was gratified to see, they agree that the Supreme Court is always correct with regard to the Constitution). These are discussed momentarily.

First, there is a significant amount of discussion regarding the IRS's refusal to show the tax protestors "the law" which requires them to pay tax. Also referenced is at least one ad that offered a reward for anyone who could locate "the law". This is a common tax protestor tactic (and nearly always leads directly into the 861 argument).

There is a supposedly damning press conference in which IRS Commissioner Joe Banister appears to avoid a question as to what the law is, however, the clip is very clearly edited, as the question is asked of a completely different person.

"The law" is, in fact 26 U.S.C. Section 1. This law has been put before the tax protestors interviewed in the movie, who then reject it as non-responsive due to the 861 argument, or other reasons (which appear to be what this movie is banking on). Neither argument is correct....26 U.S.C. Section 1 does just what it purports to do: Imposes a tax on individuals.

The actual argument appears to begin with a mention of Stanton v. Baltic Mining Co., a 1916 Supreme Court case. Stanton depends largely upon the ruling in Brushaber v.Union Pacific RR, also a 1916 Supreme Court case, and which is mentioned several times in the movie.

Brushaber is famous among people who took tax classes in law school (like me) for being incredibly difficult to follow. It held, briefly, that there are two types of tax: Direct and indirect. Direct taxes are subject to the requirement of "apportionment", that is, being distributed equally among the states according to their census. Indirect taxes are not. Prior to the 16 th Amendment, the "income" tax that existed at that point was ruled to be a direct tax, and subject to apportionment. Brushaber held that the 16th removed that requirement.

This is what causes the "no new powers of taxation" discussion. Congress could (and did) tax incomes prior to the 16th Amendment. The manner in which that tax could Constitutionally be imposed was changed by the 16 th, however.



"It is clear on the face of [the 16th] that it does not purport to confer power to levy income taxes in a generic sense,-an authority already possessed and never questioned, [240 U.S. 1, 18] -or to limit and distinguish between one kind of income taxes and another, but that the whole purpose of the Amendment was to relieve all income taxes when imposed from apportionment from a consideration of the source whence the income was derived"

Note that this is precisely the opposite of what the guy with the welding goggles at the beginning of the movie says. The income tax, although arguably (and I say arguably because the pre-16th ruling that said it was covered a much earlier version of the income tax) a direct tax, is not subject to the requirement of apportionment.

Back to Stanton. Stanton dealt with a similar issue, with another corporation averring that the income tax was inappropriately applied. Stanton further expounded on the rule in Brushaber: "the 16th Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged, and being placed [240 U.S. 103, 113] in the category of direct taxation subject to apportionment by a consideration of the sources from which the income was derived,-that is, by testing the tax not by what it was, a tax on income, but by a mistaken theory deduced from the origin or source of the income taxed. "

In other words, an income tax is now a particular type of non-apportionment tax. Prior to the 16th, a court could view the source of the income being taxed to determine if apportionment was required. After the 16 th, the source was immaterial ("incomes from whatever source derived"), and no apportionment is necessary.

Out of order, but the movie also mentions in passingStratton's Independence v. Howbert, which is cited by the next couple cases. However, Stratton's Independence dealt with a situation that pre-dated the 16th. It contains some discussion of the difference between capital and income (which is brought up in the next couple cases), but it's ruling is irrelevant, as the Constitution changed after the rule would be applicable.

The movie moves on to Eisner v. Macomber, which it asserts defines "income" in some unspecified, but restrictive manner. I note, amusingly, that contrary to the recent statements decrying the liberalization and globalization of the Court, this 1919 case includes several citations to foreign law. That's not relevant to this discussion, though. Macomber actually deals with the question of whether a stock dividend could be considered a "gain" for purposes of income (the court says it can't, because no income is distributed to him...he has only a share of interest in possible future income...the stock dividend dilutes his previously held stock). To impose a tax on ownership of the corporation would be a direct tax subject to apportionment. The case does, however, go a long way towards defining "income" for purposes of the 16 th. "Income may be defined as the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets.

From this case, the movie moves backwards to Doyle v. Mitchell which, somehow, Russo asserts, limits that broad definition to corporate activity. I am not sure how a 1918 case could limit one from 1919, but let's see what the case says. Doyle, yet again, defines income as "the gain derived from capital, from labor, or from both combined". It primarily turns on the distinction between capital and gain on capital (the latter is income, the former is not) but I simply do not see how it can be read to limit such gain to corporate activity. It certainly addressed the income of a corporation, but it does nothing to limit the application of income tax to corporations. The only argument I can imagine Russo making is to view each individual as analogous to a corporation, and their "earnings" as personal capital, and not a gain. This is simply not supported by the case.

I am truly not sure what Russo's argument is. None of the cases he asserts support his conclusion that there is no tax on his income. In fact, the cases hold precisely the opposite. Any gain from labor is income, and taxable without apportionment. I see no issue, and kind of see why the attorney from Morgan Lewis got frustrated with him (although, knowing that firm, Russo was probably paying upwards of $700/hr to talk with him).


Tax Part III: Miscellania

Russo rounds out his tax discussion with a few chestnuts about the power of the IRS: to wit, the "voluntary" nature of the Tax Code. This is a misunderstanding of the holding in Flora v.U.S. Flora holds, in part, "Our system of taxation is based upon voluntary assessment and payment, not upon distraint". This is a reference to the fact that taxpayers calculate their own tax and send it in rather than having the government assess it and come after them. Distraint is the power of a creditor to seize stuff from a debtor in payment of the debt. Rather than just sieze taxes, the IRS depends upon voluntary submission of taxes.

Another old favorite concludes this, the tax portion of our show: Requiring to file a 1040 violates your Fifth Amendment right against non-incrimination. This is just flat-out silly. The relevant portion of the Fifth is: " nor shall be compelled in any criminal case to be a witness against himself" Regardless of what charges could be brought based on Mr. Russo's return, the return itself is not a criminal case. There is no Fifth Amendment implication here.