Bearing False Witness

by Bill Butler

Exclusive to STR

November 10, 2009  

Ever wonder how politicians like Harry Reid can say, with a straight face, that the United States income tax is a “voluntary” tax?   Here is a video of Mr. Reid explaining how the US tax system is voluntary.  Mr. Reid is no dummy.  He knows what he is talking about.  He is speaking the truth.  He is just not telling the whole truth.  The whole truth, which Mr. Reid will not share with us plebes, is there that the US income tax system is a voluntary system, but it begins with employers “voluntarily,” under the threat of draconian federal fines and imprisonment, saying false things about their employees.  If you are an employer and refuse to lie about your employee to the IRS , you could be imprisoned.  That is how voluntary it is.   

To truly understand Mr. Reid’s voluntary system, it is important to first recognize that the Internal Revenue Code is a statute.  Statutes are positive, man-made, law.  In evaluating the rights and obligations of individuals under positive, man-made statutes, words and definitions are vitally important.   For example, if the definition of “employee” in the Code was “green bananas,” and you are an employer who has 40 hard-working, honest employees but no green bananas on your payroll, you have no employees as defined by the Code.  To employ a more nuanced example, if the Code defined employee as “a person of American Indian descent,” only the poor Native American on the payroll would be an employee as defined by the Code.   The other 39 non-Native American employees would not be Code-defined employees.   

The IRS, through its 3 million-word Code, successfully compels employers to “voluntarily” withhold income from their employees and pay it to the federal government and further compels them to file year-end W-2 and 1099 statements claiming that their employees’ income derives from federally taxable activities.  Even though millions of employers do this every quarter, the question remains, are all these employees “green bananas” (individuals whose income derives from federally taxable activities) as defined by the Code?  The Code of course provides a powerful incentive, fines and imprisonment, if employers fail to tell the IRS that their employee is a green banana subject to the federal income tax.  

So here’s how Mr. Reid’s voluntary system works.  The withholding provisions that apply to workers are found in chapters 21 and 24 of the Code. For instance, in chapter 24, Section 3402, entitled “Income tax collected at source,” requires all “employers” who pay “wages” to “employees” to withhold a percentage of those wages and send them to the federal government.  Section 3402 requires all “employers” paying “wages” to withhold from those wages a percentage of those wages as determined by Treasury Secretary (and failed tax protestor) Timothy Geithner:  

§ 3402. Income tax collected at source

(a) Requirement of withholding

(1) In general

Except as otherwise provided in this section, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary.  

If, after reading the foregoing section, an employer is not sufficiently persuaded to deduct money from his employee’s paycheck and send it to the federal government, the Code provides a panoply of incentives.  Section 7201 threatens to fine (up to $500,000) and imprison (up to 5 years) any employer who willfully tries to evade “or defeat” any tax imposed by the Code.  That’s right, defeat.  If an employer reads the Code and willfully fights to “defeat” it with things like truth and sound arguments, it could be a crime.  Land of the free?  Home of the brave?  More like, speak up and they will throw you in the clink.   In addition, section 6662 threatens to fine an employer who underwithholds or fails to withhold.  

So the Code provides employers with strong incentive to tell the IRS that their employees are “employees” as defined by the Code and that their wages are “wages” as referenced in section 3402.   So what, you might ask.  What is untruthful about any of that?  Or you may be one of those who thinks that all tax protestors, including the brave and intelligent Irwin Schiff, father to Austrian economist and candidate for Senate Peter Schiff, are simply skinflint crackpots.  They should just shut up and pay their fair share to abet the killing of Third World brown people and bail out silk-stocking Wall Street bankers.  After all, everyone knows that we are all obligated to pay federal income taxes and also knows that things like roads, bridges and police did not exist before the 1913 Fabian Socialist income tax.  

Here is the rub.  The most relevant, most important definitions of “green bananas” (the people whose activities are subject to the withholding called for in 3402), the definitions of “employee” and “wages”, are also contained in chapter 24, subtitle C of the Code, in section 3401. Here is where an employer can discover whether any of their employees are actually “employees” as referenced in section 3402, and whether these employees’ pay actually qualifies as the “wages” subject to the withholding mandated under section 3402:    

(a) Wages

For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash;  

The definition of wages begs the question, “who is an employee”?  The answer is also found in section 3401:  

(c) Employee

For purposes of this chapter, the term “employee” includes 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. The term “employee” also includes an officer of a corporation.  

Pretty narrow definition.  Clearly doesn’t include any free market employee.  Strange, but true.  In future pieces I will discuss the history and development of the Code.  

So you see, when Mr. Reid says that the income tax system is voluntary, what he means is that employers, after reading section 3402 and perhaps reading the narrow definitions of wages and employees in section 3401, and finally reviewing the draconian sanctions under sections 7201 and 6662, “voluntarily” send a portion of their employees’ paychecks to the IRS and further provide the IRS with W-2’s and 1099’s reporting that their employees (regardless of whether or not they are in fact employed by the federal government or otherwise engaged in any federally taxable activities) have earned taxable wages.  The poor free market employer is therefore coerced by the IRS into falsely informing the IRS that his free market employee is an employee as defined by section 3401(c).  This is how Mr. Reid’s voluntary system starts, with a false employer statement that effectively throws employees down an IRS rabbit hole where the fundamental rights contained in the Fourth Amendment and Fifth Amendment do not exist.  Innocent employees, unschooled in statutory construction, uneducated in the history of law, logic and often grammar, are faced with the choice of fighting an 800 pound gorilla or living a life of quiet desperation.  Those who do fight, like Irwin Schiff, end up political prisoners at 81 years old, having done nothing but attempt to expose a coercive and violent fraud.   

Libertarians and Austrian economists are not surprised to learn that the current withholding system, clearly theft based on coerced false statements, was the WWII brainchild of Chicago school monetarist Milton Friedman along with members of the Federal Reserve-cheerleader Brookings Institution, the US Senate and the US Treasury.   

The issue gets even more interesting, however, because the Rubik’s Cube-complex Code contains thousands of definitions, even some broader, all-encompassing definitions of “employer” and “employee,” particularly in section 3121, Subtitle C, Chapter 21 relating to FICA and FUTA insurance withholding.  See, e.g. 26 U.S.C. § 3121(b) (employer defined for purposes of FICA and FUTA taxes) and § 3121(d)(2) (employer defined for purposed of FICA and FUTA taxes).  Even these broad definitions, however, harmlessly fall to the floor like the angry bullets aimed at Neo in the Matrix when met with other definitions, also in section 3121, that appear to be purposely drafted to miss their target:     

(e)  State , United States , and citizen

For purposes of this chapter—

(1) State

The term “State” includes the District of Columbia , the Commonwealth of Puerto Rico , the Virgin Islands , Guam , and American Samoa .

(2)  United States

The term “ United States ” when used in a geographical sense includes the Commonwealth of Puerto Rico , the Virgin Islands , Guam , and American Samoa .  An individual who is a citizen of the Commonwealth of Puerto Rico (but not otherwise a citizen of the United States ) shall be considered, for purposes of this section, as a citizen of the United States .  

26 U.S.C. § 3121(e).   Applying all of the definitions contained in sections 3121, it is clear that FICA and FUTA insurance taxes apply to each and every and all kinds of employment relationships, but only in Samoa .  Nowhere does section 3121 define or reference any of the 50 States.  You can search the Code for yourself here.   

It is therefore fair to say that Mr. Reid’s income tax is a voluntary system that begins with employers lying about their employees and their taxable income and further that the insurance withholding (FICA and FUTA) provisions in the Code have no “geographical” application within the 50 sovereign states and that non-government, free market employers within the 50 States who pay FICA and FUTA withholding to the IRS do so “voluntarily” in spite of the very clear and very narrow definition of both “State” and “United States” contained in section 3121.   Just being patriotic, I guess.    

Wow, that Irwin Schiff sure is a nutbar, huh?   Who would be so silly to go to prison for revealing a truth that could crash the empire and set free future generations?    

But don’t try this at home, kids.  Peter Hendrickson, author of Cracking the Code, tried to present these arguments in a criminal trial in Michigan in October of 2009.  The judge in Mr. Hendrickson’s case refused to allow Mr. Hendrickson to provide the jury with access to the actual statutes so the jury could read the law themselves.  The judge apparently believes that the plain language of these statutes might confuse the jurors.    

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