A REASONABLE REQUEST FOR CHANGE
Our Nation entered a time of untold financial need, created by The Great Depression of the early 1930s, plus World War II beginning in the early 1940s. The cost of recovery placed a tremendous burden upon our system of taxation, straining the Constitutional boundaries and trampling on a very essential aspect of that Document, which was designed to protect We the people from government overreach in the area of “Life, Liberty and the Pursuit of Happiness”.
Congress must do what Congress must do, but, does that “must do” supersede and make void the clear language of our Constitution? If so then the Constitution has lost all meaning and becomes nothing but a blank piece of paper for Congress to write upon as they see fit..
The subject of an “income tax” has always been distasteful, for it reaches into the very Life blood of human existence and extracts money for the support and expansion of Government. Some see that as a necessary evil, or for the greater good, while others consider it down right evil. Whereas, that choice is our to make, we still have to deal with it, or petition our Government to change it.
The United States Constitution was in part written to protect the people from government overreach in the taxation of human existence, while recognizing the need to fund that Government and promote the “general welfare” of the States. This dual purpose created a fine line between the two, but was necessary for the founding fathers to reach consensus on how to govern our Country. I see some good, some bad and some ugly sides of the issue. To that end:
I would prefer to see the cost of human life excluded from the operation of the “income” Tax. That exclusion provides a clear separation between a tax levied upon people (life) from a tax levied upon what people buy, sell or use to acquire the money necessary to pay the Tax.
Congress was granted the power to lay and collect taxes to fund the necessary operation of the Federal Government, but, that power was constrained by two mandates. First: any direct, capitation or other direct Tax must be charged to the States, based upon their respective populations. Second: all other Taxes must be uniform throughout the United States.
The 16th Amendment provides:
“The Congress shall have power to lay and collect taxes on income, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Note the specific wording of that Amendment. Whatever “income” is held to mean, it must be derived from some type of source or sources (monetary receipts). Income, under the 16th Amendment, can not be the source (receipts) and the “income” derived from those receipts.
Personal, living and family, expenses (the cost of human life) are specifically excluded from being deducted from those receipts by the wording of the Statute. Why? In my opinion. Because, the income tax is not a “capitation, or other direct” Tax. Therefore, those expenses would not be of concern to the “taxpayer”, in computing his 16th Amendment “income” subject to the Tax..
So what is the “income”, allowed to be taxed without apportionment under the 16th Amendment? Here is my answer
Things change, sometimes they are beyond our control, other times to assert control over us, again a fine line exists between the two. The purpose of my writing is to bring to light those changes, in relation to the taxation of “income”, so that we may be better informed in the decisions we make on those we elect to govern us.
Let me start by pointing out that the taxation of “income” did not start with the 16th Amendment, nor did the 16th Amendment change the Constitutional mandates provided by that document to protect the rights of human existence (Life, Liberty and the pursuit of Happiness).
To level the playing field let me quote from two U.S. Supreme Court rulings regarding the 16th Amendment handed down shortly after The Amendment was ratified and became part of our Constitution.
Eisner v. Macomber (1919) 252 US 189 Mr. Justice Pitney delivered the opinion of the court:
“The 16th Amendment must be construed in connection with the taxing clauses of the original Constitution and effect attributed to them before the Amendment was adopted. … As repeatedly held, this did not extend the taxing power to new subjects, but merely removed the necessity which otherwise might exist for an apportionment among the States of taxes levied on income. .. This Amendment shall not be extended by loose construction so as to repeal or modify, except as applied to income, those provisions of the Constitution that
require an apportionment according to population for direct taxes upon property real and personal. This limitation still has an appropriate and important function and is not to overridden by the courts.
Bromley v. McCaughn (1929) 280 US 124 Mr. Justice Stone delivered the opinion of the court.
“The general power to ‘lay and collect taxes, duties and excises’ conferred by Article 1, section 8 of the Constitution and required by that section to be uniform throughout the United States, is limited by section 2 of the same Article, which requires ‘direct’ taxes to be apportioned, and section 9, which provides that ‘no capitation or other direct, tax shall be laid, unless in proportion to the census’ directed by the Constitution to be taken.”
“Whatever, may be the precise line which sets off direct taxes from others, we need not now determine. While taxes levied upon or collected from persons because of their general ownership of property may be taken to be direct (court cases cited) this court has consistently held, almost from the foundation of the government, that a tax imposed upon a particular use of property or the exercise of a single power over property incidental to ownership, is an excise which need not be apportioned…”
To add light as to the meaning of “direct” taxes Justice Stone proceeded to clarify the opinion”
“It is true that in each of these cases the tax was imposed upon the exercise of one of the numerous rights of property, but in each case is clearly distinguishable from a tax which falls upon the owner merely because he is owner, regardless of the use or disposition made of his property.”
Note: the distinction made between a tax upon the exercise (excise tax) of a right or some form of use of that right that is made by our choices and a Tax (direct) levied upon the owner without regard to such exercise or choice.
These Judges based their opinion on the power asked for by Congress (1909) in putting forward an Amendment for ratification by the States (1913) to change the Constitution. There were two proposals made and recorded in the 1909 Congressional Record. First SJR 39, to allow a “direct” tax on income, this proposal was rejected. The second SJR 40, was to allow a tax to be levied on “incomes, from whatever source derived, without apportionment. To this proposal was offered an amendment which would have repealed the
requirement of apportionment found in Article 1, section 2 and Article 1, section 9. The amendment to SJR 40 was totally rejected and the 16th Amendment (SJR40) adopted by both the House and the Senate, without modifying the wording of original Constitution..
So what does this tell me. The 16th Amendment is neither a “direct” tax on income, or a “Capitation, or other direct tax upon human life measured by income. The purpose for the16th Amendment was to clarify to the Court, that the “income” being taxed was indirect upon the source. That is, the tax is not imposed upon the source itself (receipts), but upon the right to buy, sell or use that source (excise), measure by something ‘derived from” those receipts, as provided for under the existing taxing power granted by Article 1, section 8.
A bit of history, just to add perspective, on what took place in the taxation of “income” between 1935 and 1945.
Prior to 1939 the US Treasury Department recorded around 6 million Individual Income Tax returns being filed, By 1945 they record just under 50,000,000 “individual” tax returns filled. Wait a minute, what about the eleven million employees earning more than the $1000 exclusion in 1937?***
Were those people before 1939 dishonest? Was it because they were not required to file tax returns? Or did something else change? It seems to me that to account for the tremendous surge in tax returns, in such a short period of time, something more than just reducing the exclusion from income must have taken place.
Here is where the “good, the bad and the ugly” expose themselves in the progression from a “income” tax on prosperity to a Tax on poverty.
The good. The Great Depression collapsed the economy and put millions of people out of work, causing the President and Congress to take positive action through the New deal legislation, some of which was held unconstitutional by the Supreme Court. One of those New Deal outcomes was the institution of Social Security and Unemployment Compensation, two things the population demanded and for which they received direct benefit.
The bad. Good things cost money. Where was that money to come from? Choices are hard to make and those thin lines are easy to cross. “Taxes” alone would not begin to cover the projected costs and the existing tax revenue was already stretched to the limit by other “New Deal” programs.
Solution: Those receiving the Social Security benefit must contribute to the fund necessary to support it. That is very reasonable, sign me up. But how, considering the Constitutional mandates governing taxation, was that increased revenue going to be raised?
A value added (sales tax of 2%) was offered and considered, but whereas everyone would contribute, only a comparable few would receive any benefit. That proposal failed. Place the burden on employers. That would be easy to do under an excise tax placed upon the privilege of having employees, but that would cause greater economic hardship. The employees must contribute to their old age benefits. I agree, but how? That darn Constitution gets in the way. If we ask, they could deny paying and the benefit for the many would end up being paid for by the few.
Solution: take the money from their paycheck before they receive it. In other word, create a forced saving plan. Somewhat reasonable, but which Article of the Constitution could be used and would such a Tax cross the thin line between direct and indirect taxation?
The ugly. Excise taxes only have to be uniform, that is the same tax (subject) everywhere throughout the United States. Such “taxes” are typically associated with sales taxes and taxes levied upon the exercise of some privilege or the right to the use of some form of property. They are collected from the choices we make to buy, to sell, to use, or the privilege to use, not to exist as a human being (life). Although, even a tax upon life is Constitutional as long as it is apportioned to the States and based upon a census of population.
Solution:
Why not an “income tax” measured by the “wages” of the employees, taken directly out of their paycheck. That result would be fair. The
more you earned the more you paid and the more you received in retirement. Question: why specifically an “income” Tax? Why not a “capitation” Tax?
The Income Tax Code, at that time, was placed upon “individuals”, meaning sole proprietor human beings. As such, the Statute did not provide a definition of “wages”, or at least one that could reach the all inclusive meaning of “wages” i.e “all renumeration” (gross receipts). The Internal Revenue Code, under the Individual Income Tax, Chapter 1 stated: “gains, profits, and income derived from, salaries, wages and compensation for services, i.e. that which had been “derived from” business receipts. In other words, the sole proprietor (individual) could not pay himself, as a hired laborer, “wages”, thereby avoiding the “income Tax” on his Net income. Such “salaries, wages or compensation for services are derived from the receipts of the business or commercial activity.
Solution: Provide a separate section in Chapter 1 of the Tax Code specifically for Social Security Old Age Taxes (contributions) and define “employees” and “wages” as “all renumeration paid to the employee for their services to their employer”. That seemed to solve the problem for Congress in 1935 and justified to them the imposition of a second income tax based on “gross income ”, specifically levied upon the “wages” (all renumeration) of the employees entitled to the benefits provided by the New Deal legislation.
Must have sounded reasonable then, but, I am not quite sure it was within the Constitutional prerogative to do so, as it effectively changed the definition of “income”, under the 16th Amendment. Thereby mixing commercial net income (derived from a source) with the all renumeration (the source) of the hired laborer to form a new definition of Income, opening the door to our present “income” Tax.
Unfortunately good things seem to lead to bad things when Congress is under pressure for more revenue, as happened in 1939 to 1944.
The good. The New Deal legislation was in full swing and the economy was recovering from the Great Depression. The Country was back to work and the future looked bright. The people felt secure in their New Deal benefits and life was beginning to be good again. Tax revenue was still a problem but manageable with a few minor changes in the Income Tax Code. Then we entered World War II, not a good thing for us or the world, but it did improve the economy with more employment.
The bad. More money was needed than the current “income Tax” Statute (not the Social Security income Tax) could provide in order to finance the war and cover the New Deal programs.
Solution. Lower the personal exemption, the exclusion (of life) from “income” thereby increasing the number of “individuals” filing tax returns. Note.. This increase in tax returns was not caused by the 11 million employees already being taxed on their Income from “wages”, but they soon will be.
In 1940 that increase helped but was not even enough to cover the New Deal programs. In 1941 they lowered the exclusion again, this time to a level well below the cost of living (life) for the majority of the Country. That too was still not enough money to cover the revenue needed for the New Deal and war expenses.
Enter 1942 and the ultimate solution for the on going revenue problem caused by the New Deal spending and WWII.
Solution:
Lower the exclusion even further and offer another voluntary contribution plan called the Victory Tax. OK, it is voluntary, not mandatory (at least at this point) Well that helped, the people stepped up and bought war bonds through voluntary
deductions from their paychecks.
Oh, wait a minute. That “Victory” tax was to be temporary and be terminate at the end of the war. and those bonds were to be used as a credit against the net income tax of Chapter 1, they might possibly owe by the end of the year. However, this Victory Tax did not accomplish Congresses goal of expanding the reach of the 16th Amendment to the “wages” of the hired laborer.
Solution; Make the employer responsible for collecting the net income (derived from) tax money out of the employees all renumeration (paycheck) and giving that money to the government. Just like the Social Security contribution system of 1935.
Humm, not quite sure about the constitutionality of that arrangement. But, as far as I can find that question was not presented to the Supreme Court by a covered employee and the employers did not have a complaint to stand on, being the tax was an excise levied upon the privilege of having employees.
So I ask: how does Congress intend to accomplish the goal of collecting an excise Tax upon the employee, measured by all renumeration, under the same excise (income) tax placed upon the business individual, measured by Net income? Are the two measurement the same? Or the two subjects the same? Not in my book, unless Life itself is a business taxable by an excise tax.
The tax form (1040) was too complicated for most “individuals”, let alone employees to navigate and it only dealt with net income, not gross income, or all renumeration.
Solution. Create a simple to use tax form (1040A) and provide an easy to use Tax table (Supplement T) correlating employee wage income (all renumeration) to the amount of tax required by the commercial Net income tax system. That seems simple enough. How easy could it get, if you were an “individual” under Chapter 1?
Interesting: The term “individual” is not defined within Title 26 (the tax code). What is defined is the term “person”**** and that definition leaves out the “natural person” (human being). WHY?
Because it is a tax imposed upon the privilege of doing business, not a tax imposed upon the natural person exerting the privilege.
The ugly. Things are beginning to sound a little fishy and the stench is becoming noticeable. Along comes 1943 and the Current Tax Payment Act. Changes were needed to conform the “all renumeration” definition of the employee’s wages to the net income of his employer’s business in order for it to come within the wording of Chapter 1 Income Tax on “Individuals”, without making it obvious to the Court that a potential Constitutional problem existed between the two definitions of income, as well as the two subjects being taxed..
There are now two tax bases implemented by the same Tax Code, three if you include Social Security, each with a different definition of the term “income” The regular income tax being upon commercial net income (Chapter 1”Individuals”) and a “Victory Tax on Net income” being based on the all renumeration (wages) of employees (Part 2, Subchapter D) and the net income ( derived from salaries, wages and compensation for services) of individuals. I have trouble understanding that concept, but then it is called an “income” tax, right?
Time out. Maybe I should bring into this equation a new aspect:
Withholding of income taxes at the source was not new in 1943, it was in place under the previous Revenue Acts and was imposed on compensation for service, salaries and wages as well as interest, dividend, rents and royalties of non-citizens. However, the dual basis for the new “income” tax created confusion and complicated the process of collecting the tax from employees. In order to make the collection of the income tax simpler, the requirement for withholding was removed from Part 1, Chapter 1 Net income and placed in Part II, subchapter D and the employer made responsible for withholding the money from the paycheck (source) of the employee. Note: neither the employer or the employee has a choice in collecting the “income Tax” at the source.
From the Senate Report Number 221, Current Tax Payment Act of 1943 on May 10, 1943 Mr. George, from the committee on Finance, submitted this following Report. H.R. 2570. Pay close attention to his statement.
“Under the Victory Tax withholding provisions the liability for withholding is placed upon the person having control of the payment of wages. Section 1622, like the House bill, specifically designates the “employer” as the person required to withhold and collect the tax. This is a clarifying change. A clerical amendment in the House bill eliminated the provision in section 466 (a) which RESTRICTS the withholding to wages INCLUDABLE in gross income. The same change is made in the present bill. This limitation, which was designed to EXCLUDE from withholding the amount of any wage payment EXEMPTED under the law from the tax imposed by chapter 1 of the code, is rendered unnecessary by the changes made in the definition of “wages”.
(Note. In 1940 the term “Wages” was not specifically defined under Chapter 1 NET INCOME, it is still not defined under the current Income Tax Code. The definition of “wages” is found in the Social Security Act. What they changed was the meaning of “income derived from salaries, wages and compensation for services” by importing into the Income Tax Act the definition of “wages” under the Social Security Act which states: “All renumeration paid to the employee for their services rendered to their employer”
What? Did Congress just make the employee’s all renumeration (i.e. wages) equivalent to his employer’s commercial/ business net income? Yes, that is what they did and in the process changed all human life (natural person) into a business entity “individual”(person) specifically for the purpose of “excise” taxation Under Article 1, section 8.
Interesting, I thought the Court in Bromley vs Mccaughn (280 US 124) said that the “16th Amendment confers no power upon Congress to define as income without apportionment something which theretofore could not have been properly regarded as income.” I guess they forgot to tell Congress they did not have the power to define human life as a business person either.
This was in 1943 long after the 16th Amendment was ratified and now we have two different definitions of income, placed upon two different subjects. The first, the well established net income (gains and profits) definition which existed from the beginning of our Country imposed upon a privilege. And the second, the new gross income (all renumeration) or wages of the employee, definition, imposed upon the employee. Could both definitions of income and subject matter have been contemplated under the 16th Amendment, even though the employees wages (all renumeration) were excluded from the “income tax” by wording of the Statute in 1909?.
The Supreme Court in 1919, through the Eisner case 252US189 provided the definition of “income” under the 16th Amendment: “the
gain derived from capital, from labor, or from both combined”.
As such it limits the meaning of “income” to a commercial or business “income” application based upon accounting methods (Treasury Regulation 45 1918, amended April 17,1919*), not human life. It is levied upon the exercise (excise tax) of the Right to engage in business and commercial transactions for profit, in its varied forms. Congress, in1942, made the hired laborer an “Individual entity” (person), engaged in commercial and business transactions, therefore subject to excise taxation, not the 16th Amendment, in order to accomplish their agenda of expanding the 16th Amendment to new subjects in order to increase tax revenue.
Interesting, but not the end of the story. Up until now it can be argued that the income tax imposed and collected from the employe’s pay check is optional, in that the 1040A tax return, based upon the Supplement T tax table is optional. The employee could choose to do the long form and pay the tax under the net income provisions of chapter 1, if they had net income to report. Or they could use Supplement T tax table and pay the tax under the gross income provisions. In either case you were required to pay your taxes, so much for “optional”.
As a side note, before I get into the “rest of the story” created by the Individual Income Tax Act of 1944. Taxes and the filing of tax returns has been part of our heritage from before the founding of our Constitution. Taxes have always been a part of life, just like death.
The good. Prior to 1942, tax returns were to be signed in front of a Notary ,under oath, that the return was truthful. In other words, the “individual” taxpayer was required to have his signature notarized by a recognized official before it was submitted to the Treasury for processing. This was to encourage compliance with the law, but in reality had no real effect on the information provided in the return. Could this be why there were only 7,652,000** “individual” tax returns filed in 1939? Where are the 11,000,000 laborers paying an Income tax on their “wages” in 1937? Answer: Employees (labor for hire) were not “individuals” under Chapter 1 Income Taxes.
The bad. The Revenue Act of 1942, H.R. 7378, Senate Report 1631 of October 2, 1942 under section (9) repealed the oath requirement and made the filing of the tax return subject to the penalty for perjury. In other words the taxpayer now became subject to criminal liability for false or misleading information on the tax return. Not in itself a bad
thing, as long as you understand what it is you claiming to be true. Maybe this is why there were 49,932,000** “individual” tax returns filed in 1945, an increase of 42,280,000 returns filed in 6 years, with no change in the 16th Amendment. Most of these 42,000,000 were already paying an Income tax under Social Security.
The ugly of uglies. “The Individual Income Tax Bill of 1944”. H.R. 4646 May 29, 1944 Public Law 315. House of Representatives Report number1365, Calendar No. 459, Senate Report number 885, Act of May 29,1944, chapter 210, 58 STAT.231
As you read, count the number of times the terms Net income and individual is used in the Individual Income Tax Bill of 1944. Red flag!
Part 1 Amendments to chapter 1 of the Internal Revenue Code
Sec. 11 Normal tax on individuals
“There shall be levied, collected and paid for each taxable year upon the Net income of every individual a normal tax of 3 percent of the amount of the Net income in excess of the credits against Net income provided in section 25 (a). For alternate tax which may be elected if adjusted gross income is less than $5,000, see Supplement T.”
Section 400 Imposition of tax
In lieu of the taxes imposed by sections 11 and 12 there shall be levied, collected and paid for each taxable year upon the Net income of each individual whose adjusted gross income for each year is less than $5,000 and who elects to pay the tax imposed by this supplement for each year, the tax shown in the following table:
Sec 402 Manner and effect of election.
‘The election referred to in section 400 shall be exercised in the manner provided in the regulations prescribed by the Commissioner with the approval of the Secretary. For cases in which election to take the standard deduction also constitutes an election to pay the tax imposed by this supplement, see section 23 (aa) (3) (D)
Sec, 6 Repeal of the Victory Tax
In general. Subchapter D of chapter 1 (relating to the Victory Tax) is repealed.
Sec 8 Adjusted Gross Income
(a) In general. Section 22 relating to gross income is amended by inserting at the end thereof the following:
(1) Definition of “adjusted gross income” as used in this chapter the term “adjusted gross income “ means the gross income minus—
(1) Trade and business deductions. The deductions allowed by sec. 23 which are attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee.
(Interesting, trade and business deductions reduces receipts (gross income) to Net Income by an accounting method, but the employee is not allowed to use such deductions to compute his Net Income.)
That list continues with several more deductions accessible by using the 1040 long form ending up at the taxable part of the income.
Here is where the confusion was designed to get more confusing in 1942.
The 16th Amendment is an excise tax levied upon the privilege to buy, sell or use capital or labor in the effort to acquire gains and profits (privilege). Therefore the tax is levied upon those gains and profits (income), derived from the money (receipts) received from the sale or use of property (capital and or labor). It is not levied upon the receipts as Income, or the individual as a natural person, but upon the privilege of earning gains and profits from business transaction , measured that which is derived from those receipts (Net Income).
The term “net Income” is an accounting term specifically tailored to the commercial and business gains and profits and the methods of accounting used. Net income is that portion of the receipts remaining after all expenses are deducted. The term “gross income” is related to annual receipts because without receipts there is nothing to deduct expenses from. The tax code does not purport to even deal with the term receipts (Income). Therefore, the receipts themselves are not the “income” subject to the tax under the Statute. In fact, receipts (all that comes in) could not be taxed without apportionment as that would be a direct tax either upon the real property or the personal property (Life) of the owner.
Gross Income is also an accounting term confining the term “income” to the “gains and profit” aspect of business and commercial transactions. Gross “income” is the combined total amounts of “gains and profits” (Wealth) derived from the various receipts of business transactions. This explains why business expenses are deductible and “personal, living and family expenses (human life) are not deductible, in the computation of “income”..
To comprehend the meaning of the optional “adjusted gross income” you must return to to the Revenue Bill of 1941 H.R. 5417, Senate Report 673 Part 1 of September 2, 1941.
3) Returns where gross income is $3000 or less. In order that persons in the lower-income tax bracket, particularly those brought in by the reduction of the personal exemption, may be caused a minimum of difficulty in filling out their returns, the optional use of the simplified return is provided where the gross income of the taxpayer does not exceed $3000. If the taxpayer elects to use this simplified plan the amount of the tax may be readily ascertained by reference to the table contained in the bill. This simplified return may be used only where the taxpayer’s income is derived solely from salaries, wages, compensation for services, dividend, interest, rent annuities or royalties. If the taxpayer elects to use this method, no deductions or credits against net income are allowed. In lieu of these deductions and credits, the tax provided in the table represent a reduction of 10 percent of the tax that would otherwise be payable without such deductions or credits. This 10% reduction has been found to be the effect of the average amount of deductions taken by persons in the lower income brackets.. It should be kept in mind that the use of the simplified return is at the option of the taxpayer and he elects each year whether to use this method or file under the general provisions.
There is a further clarification provided on page 24 in the section titled “Detailed discussion of the provisions of the bill”
Sec 102 “optional Tax on Individuals with certain gross income of $3000 or less.
“the amount of tax imposed in the various blocks is the average of the tax imposed by sections 11 and 12 on the lower and upper limits of the blocks, reduced by 10 percent as an allowance in lieu of the deductions from gross income.”
Note: Sections 11 and 12 are in Chapter 1 income tax and pertain to the Net income definition of the income tax, not to the gross income definition for applying the “income” tax table (Supplement T). In other words, to conform the “all renumeration” basis of the Tax table to the Net income basis of the income Tax they had to “allow” a reduction of 10 percent of the Tax, in lieu of actual expenses and deductions.
Interesting, “all renumeration” (employee wages) are converted to commercial and business net income, not by an accounting method but by the good graces of Congress. Another Red flag.
Wait a minute I thought Congress did not have the power to define something as income that was not theretofore regarded as income, before the adoption of the 16th Amendment.
I do not have an answer to that. That is a legislative issue, to be decided by the Courts, if and when they are asked to do so. As I said. I would rather Congress increase the amount of the exclusion (human life) from “income” to a point that the question of what is or is not a direct tax measured by income, constitutes.
All I am trying to get across is: At this point and in this time of great social, financial and political devision in our Nation, in order to protect ourselves from any more government overreach into the Creator’s gift of “Life, Liberty and the Pursuit of Happiness”, We the People must be informed and take an active part in selecting those who we elect to govern us. Too much power on either side, or both sides, of the isle in Congress is what led to our current financial (39 trillion dollars debt) and social devision.
* Treasury Regulation 45, 1918
“The tax imposed by this statute is upon income. In the computation of the tax various classes of income must be considered: (a) Income (in the broad sense), meaning all WEALTH which flows in to the taxpayer other than as a mere return of capital. It includes the forms of income specifically described as “gains and profits”, including gains derived from the sale or other disposition of capital assets. … (b) Gross income, meaning income (in the broad sense) less income which is by statutory provision or otherwise exempt from the tax by the statute. See section 213. (C) Net income, meaning gross income less statutory deductions. The statutory deductions are in general, though not exclusively, expenditures, other than capital expenditures connected with the production of income. … Though taxable net income is wholly a statutory conception it follows, subject to certain modification as to exemption and as to some of the deductions, the lines of commercial usage. Statutory “net income” is, subject to these modifications, commercial “net income”. This appears from the fact that ordinarily it is to be computed in accordance with the method of accounting regularly employed in keeping the books of the taxpayer.”
**NINETY YEARS Of INCOME AND TAX STATISTICS, 1916-2005
IRS.gov/Pub/irs-SOI/16-05intax.pdf
*** Statistical Abstract of the United States 1939 #15 Social Security Table 391, page 352
****Title 26, subtitle F, chapter 79 Definitions
Note: these are all entities by which human beings conduct commercial and business activities. The term “Individual” is not separately defined in Title 26. The term “individual” is therefore confined to the meaning single owner business or commercial enterprise, not “natural person” or human being as in definitions outside of Title 26.