How Income Taxes On Salaries Really Work

by Jon Davis 14. October 2007 12:02

Over the last six or seven years, I've painstakingly perused the facts and details of what it is that makes the federal income tax applicable to the salaries of average Americans. For some time I was caught up in the "tax honesty movement" that was the following of Bob Schulz, Joe Banister (a former IRS criminal investigator who discovered that the income tax as it is being imposed was being unlawfully applied and that the IRS themselves were the criminals), among others. I quit my job and went independent for several years, in large part (but not entirely) so that I could sit down and just focus on learning and understanding what's really going on, without concerning myself with the repercussions of potentially perjering myself by signing a Form W-4.

A Form W-4 identifies a person as an "employee", and willfully signing one legally binds a natural person to the role of an "employee". An "employee" is a legal term. The term is defined in 26 USC § 3401 as "... an officer of a corporation".

That's not the entire definition, but it is the part that applies. What the "tax honesty movement" proponents incorrectly assumed, and what I eventually began questioning and demanding an answer to (and didn't receive), was that this "officer of a corporation" somehow meant a "public officer", as in, the President of the United States, or a military officer, or an elected representative. This assumption proved bogus; I found no tie-ins to this rather generic verbiage with that interpretation.

In fact, the failure of the "tax honesty movement" community to answer this question resulted in my decision to go back and look for a W-2 job again, since I wasn't cutting it on my own and practically every well-paying software development or consulting opportunity out there was a W-2 job.

Since then, I've been trying to make sense of the mess that the withholdings system is and how liability applies. As posted on the mailing list I moderate, and as I concluded and documented, for the most part, over the last few years, here are my repeated conclusions:

  1. Federal currency is a federal government fiction. Money in its current form is not a barter exchange, it is created from nothing and set into motion by people who use it. Paper money, digital bank dollars, it is all government-created fiction. As is documented by The Creature from Jekyll Island, money is created from thin air. The principle of "Render undo Caesar what is Caesar" applies, because even on a basic dollar bill, the names "United States of America" and "Federal Reserve" are spelled out, just as the face of Caesar was printed on the coin in Jesus's day.
    • What the proponents of the "tax honesty movement" suggest is that "We The People are the caesars" because we are a democracy or somesuch. This is nonsense; that logic only applies to barter exchanges between natural persons who are careful not to associate themselves with federal taxing jurisdiction.
    • The question becomes, is it just for a people's government to impose an existence or receipts tax upon its own constituents directly? Of course it isn't. But then, the use of federally created currency is a privilege, not a right.
    • I only make this point to set aside the arguments about common law rights. This does not discuss what was taxed, but only that the federal government has the common law right to impose a tax on the income of federal currency, which is put into check by common law limits on federal scope and by the Constitution.
  2. Taxing jurisdiction is limited to federal jurisdiction. The rights of the constituents are reserved by the Constitution. The Sixteenth Amendment does not expand the scope of taxing jurisdiction. In order for the federal government to impose a direct tax upon its constituents' incomes, the constituents must already throw themselves into federally taxing jurisdiction.
    • What the proponents of the "tax honesty movement" suggest in error is that federally taxing jurisdiction is limited to the political and peacekeeping activities of the government.
  3. Corporations are extensions of both state and federal government. They are legal fictions. They have become so pervasive in modern society that people don't really know how to accomplish anything as a group anymore, be it a church or other non-profit organization, or a for-profit group of people, without filing incorporation papers and then going out and seeking an EIN from the IRS.
    • "Upon the other hand, the corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It receives certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to [201 U.S. 43, 75]   act as a corporation are only preserved to it so long as it obeys the laws of its creation."  HALE v. HENKEL, 201 U.S. 43 (1906)
      http://laws.findlaw.com/us/201/43.html 
    • While corporations are chartered by the state, they are federally recognized legal entities. Were this not so, federal circuit courts and the Supreme Court would be incapacitated from allowing state-chartered corporations to represent themselves in their courtrooms, since each state could have its own definition of a "corporation".
    • With state-chartered corporations being federally recognizeable, federal laws that generically reference "a corporation" are not limited to the corporation that the United States is. ("United States" is the proper noun of the legal entity of the federal government.)
  4. An employee is an officer of a corporation. All you need to do to be an "officer of a corporation" is to be identified as a part of the corporation, to represent the corporation, or to sit in an office building and be told what to do by the corporation. The federal government has identified a list of qualifications of what makes someone an "employee" as opposed to an independent contractor, which covers things like whether the worker can dictate his own schedule, provides his own tools, etc. There is a fine line between a "casual employee" and an "independent contractor", but it's not entirely a question of paperwork but of whether the corporation is treating the natural person as one of its own "gears".
    • "But individuals, when acting as representatives of a collective group, cannot be said to be exercising their personal rights and duties nor to be entitled to their purely personal privileges. Rather they assume the rights, duties and privileges of the artificial entity or association of which they are agents or officers and they are bound by its obligations." UNITED STATES v. WHITE, 322 U.S. 694 (1944)
      http://laws.findlaw.com/us/322/694.html
  5. Signing a Form W-4 legally and immediately causes all personal rights to be relinquished and all laws applying to an "employee" to be activated. You cannot validly sign a Form W-4 without signing in the correct signature blank, and said blank is clearly labeled, "Employee's Signature". This form falls under the jurisdiction of 26 USC § 3402, and "employee" of "Employee's Signature" falls under the jurisdiction of § 3401.
  6. The employer is liable for the employee's income tax. This is the kicker, the reason why I'm posting this. The "tax honesty movement" proponents argue that workers who file Form W-4 should tell their bosses not to withhold anything because they're natural people and exempt from taxing jurisdiction. The reality is that they are employed, and the employer is obligated to withhold. 26 USC § 3403 reads, "The employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter, and shall not be liable to any person for the amount of any such payment." This is a one-two punch: first it holds the corporation liable for the employee's income tax withholdings, then it forces the employee (and thereby the natural person who signed Form W-4 identifying himself as an "employee") to allow the withholdings to occur.
    • The income tax in a W-4 scenario is applied upon the corporation, which both the employer and the employee are party to. The employer is held liable because the corporation is liable, and the corporation is liable because it is a government-created fictional legal entity.
    • The employee becomes liable, in a sense, because the employee is a "component" (a gear) of the corporation.
    • The natural person is not liable, but the natural person cannot demand the non-taxed, agreed-upon salary amount because the natural person signed the Form W-4 identifying himself as an "employee", which causes §3403 to apply: "The employer shall be liable for the payment of the tax required to be deducted and withheld under this chapter, and shall not be liable to any person for the amount of any such payment."
  7. The income tax is imposed before the natural person is paid. When I get my paycheck, I receive my paycheck with taxes already withheld. The question becomes, who paid the tax? The common assumption is that I did. The reality is that the employer did, because only the employer is identified by law (26 USC § 3403) as being liable for the tax.
    • Q: If the natural person is getting paid less than the agreed-upon salary, why can't he just sue the company?
      A: Because the employee filed a Form W-4, which forces the natural person into the jurisdiction of the tax withholding laws of 26 USC § 3401-3406, and as such the natural person, being an employee because he signed Form W-4 identifying himself as an "employee", has his hands tied from holding the employer liable for the withholdings. §3403: "... and [the employer] shall not be liable to any person for the amount of any such payment [of taxes withheld]."
    • Q: If the taxes are imposed upon the employer, rather than upon payment to the natural person, then when a natural person later files a Form 1040 to receive a partial refund, why does the IRS recognize liability for the withholdings less exemptions?
      A: When a natural person identifieds himself with the W-2 when sending Form 1040, he has already assumed association with the corporation which is under federal taxing jurisdiction. The employer is liable, but the employee is under the complete and total control of the employer; being one corporation, they are legally one and the same. By being an employee, the natural person is an agent of the corporation, and the government can do whatever it wants with its own legal fictions. The withholdings are technically just the pulling of money out from one pocket (the employee's wages) and into the other (the IRS).
    • Q: Can't a natural person disclaim being an "employee" when contacting the IRS to receive a refund?
      A: Sure, but then if the natural person signed a Form W-4 identifying himself as an employee then he already perjured himself.
  8. It's not a "sin" to file a Form W-4 or for taxes to be withheld. For a few years, I believed it to be perjury, and a sworn lie and therefore a sin, to file a Form W-4 because I was only looking at the first part the definition of "employee", which reads, "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.". When I examined the other part of the definition, "The term 'employee' also includes an officer of a corporation," and that this qualified me, I realized that it was "safe" to file a Form W-4 and to go ahead and have taxes withheld. Since then, though, some religious kooks among tax protesters have accused me of being hell-bound and a proponent of Satan because I pay the income tax. While such rediculous silliness would not normally be worthy of being heard or for that matter spoken of, the fact that I have a Christian background and that I participated in the discussions with the "tax honesty movement" and agreed and still agree that the IRS engages in highly deceptive collection tactics, leads me to pronounce that I don't believe it to be a sin to select the easier of two victimizations. It is better to pay an income tax on a high salary than to not pay income tax on very scarce opportunities. The real question is whether it is a lie to admit tax liability, which would be a sin. It took me some time to consider it, but I have concluded that it is not a lie in the case of a W-2 employee, because I believe that I qualify as "an officer of a corporation" by playing an employee's role in a corporation.
  9. Income taxes are only "patriotic" when they are applied to the priviledges of the taxing society. This is simply an issue of scope. What if mom gives her little boy Bobby a sandwich? The sandwich has cash value of $1. What federal government privilege applies in that transaction? None. What if some Japanese company gives a Japanese employee a paycheck, what taxing jurisdiction does the United States have in that transaction? None. Federal taxing jurisdiction only applies to federally taxable activities, and there is no shame in engaging in a life that is not federally taxable.
    • Income taxes do not pay for roads, and they do not build weapons for militaries. That stuff is paid for with other taxes. Rather, the wasteful expenditures that Congress invents is paid for with money that is created out of thin air. Said created money is established by way of bank loans issued by a private banking cartel. The income tax pays interest on these loans. But technically, there is no limit to the amount of cash Congress can spend on whatever they want because of the blank check they have with the bank.
  10. It is still possible and reasonable to be tax-free. The income tax as it is imposed today is still ethically wrong and it is only applied legally by way of discriminating paper trails, not by broad federal taxing authority. This is not to say that income taxes in themselves are ethically wrong (see #1 above), but rather I'm saying that the imposition of the tax as it is usually applied today is ethically wrong. It's not the practice of taxing but the method and the reason--the method being coercion, willful confusion, brainwashing, and propogation of false premises, and the reason being to only pay interest on the virtual bank loans to the private banking cartel that the Federal Reserve is, said loans being the method by which federal currency is created. Ethics aside, the only ways to live free of federal income taxes are to:
    • 1099-based consulting does not work because it invokes a Tax ID (the sharing of your social security number), which the corporation or individual that pays out will use to report you as a receipt of income paid out. This is a technically incorrect situation since compensation for valued work is a fair equal exchange (not income), but it is reported nonetheless, and the reporting is voluntary by you by your giving out a tax ID (a social security number).
    • Perform barter exchanges, privately, with people who have no intention of reporting the exchanges with the IRS. Trading books for food, fixing someone's roof in exchange for them letting you live under it, these kinds of things are cashless activities and are not taxable.
    • Working for hire is a form of a barter exchange, unless you're engaging in the priviledge of being an employee of a corporation. However, see #1.
    • Never use a social security number in the context of anything that can result in the receipt of federal currency or can be recognized by government as having cash value.
    • Stock exchanges, IRAs, bank savings accounts, bonds, social security, these are activities that are directly associated with the federal government or Federal Reserve.
    • Real estate is hairy because there are some very significant local laws pertaining to licensing, loans, and all kinds of hairy paperwork, but theoretically with great care it may be possible to live independently by helping people buy and sell real property without involving federal taxing jurisdiction.
  11. The real question is, Is it worth it? Most of society settles for adhering to the brainwashing that the tax system consists of. It is very difficult to make a living without settling for engaging in taxable activities. For some time, as a Christian I had my doubts that perhaps following through as such was submitting to the Beast, that using the social security number was the equivalent of having the mark of the beast in one's right hand (the card, the pen) or on one's forehead (remembering the number). Perhaps I'm going to hell for this, I don't know. But I do know that the only way out is to live like the other 80-90% of the world's population--to be without a bank account, to live in a world where this kind of paperwork and these issues are not in the scope of the simple act of trying to survive. Short of throwing everything out and leaving the country to live some kind of life of poverty, though, I see no realistic way of surviving in this society comfortably and with peace of mind without submitting to the income taxation system.

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About the author

Jon Davis (aka "stimpy77") has been a programmer, developer, and consultant for web and Windows software solutions professionally since 1997, with experience ranging from OS and hardware support to DHTML programming to IIS/ASP web apps to Java network programming to Visual Basic applications to C# desktop apps.
 
Software in all forms is also his sole hobby, whether playing PC games or tinkering with programming them. "I was playing Defender on the Commodore 64," he reminisces, "when I decided at the age of 12 or so that I want to be a computer programmer when I grow up."

Jon was previously employed as a senior .NET developer at a very well-known Internet services company whom you're more likely than not to have directly done business with. However, this blog and all of jondavis.net have no affiliation with, and are not representative of, his former employer in any way.

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