No Need for Energy Subsidies

For a guy who claims to believe in limited government, President Bush is awfully good at dangling subsidies and threatening coercion when he wants to encourage or discourage something. That’s the lesson to take from his State of the Union Address.

Look at what he said about energy....

Read the rest of this week's op-ed, "No Need for Energy Subsidies," at The Future of Freedom Foundation website.

Cross-posted at Liberty & Power.

Lost Articles

The Constitution says that to be elected to the U.S. Senate, a person has to be 30 or older, a citizen for at least nine years, and a resident of the state from which the candidate is elected.

Alas, it says nothing about knowing American history.

Read the rest of this week's TGIF column at the Foundation for Economic Education website.

Cross-posted at Liberty & Power.

A More Progressive Tax

The Treasury Department (pdf) says George II's proposed limited tax deduction for medical insurance will make the income tax more progressive.

I thought he favored the flat tax.

Hat tip: TaxProf Blog

Cross-posted at Liberty & Power.

These Are the Scoundrels In Charge

From today's Washington Post:

Attorney General Alberto R. Gonzales has raised some eyebrows in legal circles because of the following exchange last Thursday with Sen. Arlen Specter (R-Pa.) at a meeting of the Judiciary Committee over the writ of habeas corpus. The Latin term, roughly interpreted as "you have the body," refers to the centuries-old right of prisoners to challenge their confinement.

Gonzales : The fact that the Constitution -- again, there is no expressed grant of habeas in the Constitution. There's a prohibition against taking it away.

But it's never been the case. I'm not aware of a Supreme...

Specter : Wait a minute. Wait a minute. The Constitution says you can't take it away except in case of rebellion or invasion. Doesn't that mean you have the right of habeas corpus unless there's an invasion or rebellion?

Gonzales : I meant by that comment, the Constitution doesn't say every individual in the United States or every citizen is hereby granted or assured the right to habeas. Doesn't say that. It simply says the right of habeas corpus shall not be suspended except . . .

Specter : You may be treading on your interdiction and violating common sense, Mr. Attorney General.

Standoff Brewing in Plainfield?

Modified January 21

A standoff is brewing in Plainfield, New Hampshire, between income-tax protester Ed Brown and federal law-enforcement officers continues. While Brown is wrong when he says the government has no law on the books that imposes an income tax on Americans (see US Code Title 26), he is right if he believes taxation violates his natural rights. One can only hope this confrontation ends peacefully.

Here's the background from the Concord Monitor:

The jury deciding Ed and Elaine Brown's federal tax evasion trial found the couple guilty on all counts yesterday.

Elaine Brown, who the prosecutor said owed more than $625,000 in unpaid taxes, was in court to hear the verdict. Her husband, who decided to stop attending his trial last Friday, remained barricaded in the couple's fortified home in Plainfield.

Both Browns were found guilty of conspiring to defraud the government, conspiring to conceal large financial transactions and concealing large financial transactions. Elaine Brown was also found guilty of five counts of tax evasion and eight counts of failure to pay employment taxes for the staff of her Lebanon dental practice. Elaine Brown was convicted of seventeen felonies. Ed Brown was convicted of three felonies.

The Browns will be sentenced April 24. According to Assistant U.S. Attorney Bill Morse, the prosecutor, the Browns' sentences will probably fall between three and five years each, and may include the forfeiture of property. The IRS will also begin civil procedures to collect back taxes, interest and penalties, he said.

"I just hope this case sends a message to other people who might consider relying on frivolous tax protester theories," Morse said.

Throughout the trial, the Browns argued that they stopped paying taxes because they believed the law didn't require them to pay. During their opening statements and in cross examination, both Browns said they did not believe the federal government had jurisdiction over them and that they did not believe ordinary labor could be taxed.

"The arguments they put forth have been routinely dismissed," Morse said yesterday. "The government is going to prosecute people who do not pay their taxes."

Elaine Brown would not answer questions yesterday. But Michael Avery, a friend who has acted as the Browns' paralegal throughout the trial, said that she was upset about the outcome and planned to appeal. Avery said that Elaine Brown felt the judge had prevented her and her husband from making a full defense by denying nearly 40 of the couple's pretrial motions and rejecting much of their proposed evidence.

"It wasn't a fair fight - that's all," Avery said. "They tied our hands behind our back."

Ed Brown, reached at home, said that he wasn't surprised by the verdict. He, like Avery, said that the judge had prevented the couple from presenting a full defense.

"The whole thing is rigged," he said.

Ed Brown has not been to court since Jan. 11 and said he has no intention of returning. In interviews over the past few days, he has said that he is readying himself for a shootout with federal officials. His hilltop home was built with 8-inch-thick concrete walls and can function without outside power or water, Brown said in an interview this summer. Several supporters have joined Brown at the house and Brown said he expects them to stay for the foreseeable future.

Morse said that he believes a bench warrant has been issued for Brown's arrest and that Brown will be in police custody before his sentencing in April.

But U.S. Marshal Stephen Monier said that his agency is in no rush to arrest Brown and has "no plans of going up there to create a confrontation."

"We're going to try to convince him to come down and submit himself to the jurisdiction of the court," Mounier said. "That's been our goal."

Bush's Doublethink

The most peculiar passage in President Bush’s much-dissected “surge” speech was this: “I have made it clear to the prime minister [Nouri al-Maliki] and Iraq’s other leaders that America’s commitment is not open-ended. If the Iraqi government does not follow through on its promises, it will lose the support of the American people.”

What could the president have meant by that? On one level it’s a waste of time to even ask the question. Bush says what he needs to say in order to justify whatever it is he wants to do. The standard isn’t truth and logic but appearance. How will it look to the American people and, presumably, historians far in the future?

But on another level it profits us to examine his words, for they measure how deeply this administration insults the intelligence of the American people. Judging by the polls, they aren’t falling for it.

Read the rest of this week's op-ed, "Bush's Doublethink," at The Future of Freedom Foundation website.

"Congressional Generosity" and the Power to Tax

Every now and then we get a glimpse into what government officials really think about our rights to life, liberty, and property. The U.S. Justice Department recently provided such a glimpse in a controversial tax case, Murphy v. IRS.

How revealing it is! Did you know that if the government abstains from taxing all your income, you should be grateful for this "congressional generosity"?

Read the rest of this week's TGIF column at the Foundation for Economic Education website.

Cross-posted at Liberty & Power.

Because I Like How It Looks

Two New Articles

I love electronic gadgets -- not just for their functionality or the toy factor, important as those things are. (Ideally, a good gadget combines both.) I also love them because, for me, they underscore the market's uncertainty and consumer orientation. I'm an unabashed high-tech-gadget market watcher.

Read the rest of this week's TGIF column at the Foundation for Economic Education website.

* * *

One of our smartest political philosophers, Will Rogers, had it right: "Be thankful we’re not getting all the government we’re paying for."

I think of that whenever I hear politicians and commentators praise bipartisanship. I also think of this saying: "Be careful what you wish for. You might get it."

Read the rest of my latest op-ed, "Bipartisanship? Bah!," at The Future of Freedom Foundation website.

Are Wages Income?

I've been reading the petition for rehearing in Murphy v. Internal Revenue Service, the significance of which I discuss here. I'll have more to say about the government's juicy petition, and the plaintiff's response, later. For now I want to bring attention to footnote 11 of the petition.

To set the context, the government is responding to the plaintiff's claim that compensatory damages for nonphysical injury (mental distress and loss of reputation) are not income, and thus not taxable, because they were intended merely to make her whole; that is, to put her back in the condition she was in before she was harmed. Since her mental well-being and reputation are not taxable, plaintiff argued, neither should her compensation be considered taxable income. In other words, there was no gain because the award was merely a "return of capital."

The government responds that "A return of capital is excludable from income only to the extent of the taxpayer's 'basis' in the property.... Because taxpayer here does not have a basis in her 'human capital,' all damages received on account of an injury thereto are an accession to wealth."

In other words, selling labor for money is not like selling stock as far as the government (and its courts) are concerned. The "basis" of a share of stock is its original purchase price, and the tax is computed on the difference between that price and the later sale price. But the basis of labor (human capital) is zero (in the government's view). Therefore wages are all gain, and the government may tax the entire amount. As the petition puts it:

But the human capital analogy merely supports the notion that an individual might be entitled to damages for nonphysical injures in the first instance. At issue here, however, are the tax consequences of the receipt of those damages, and, in that context, tax concepts must be considered. That taxpayer may have only been returned to the status quo ante does not answer the far different question whether, for tax purposes, she received income subject to tax. . . .

Any determination to exclude such damages from income is not required by the Constitution or driven by tax considerations, but is one of policy based upon value judgments.... Such determinations are the sole province of Congress....

Here's where the footnote comes in:

The human capital concept has also been advanced to support the contention, frequently made by adherents of the tax protest movement, that wages are not income within the meaning of the Sixteenth Amendment, on the ground that wages constitute nothing more than the return of personal capital exhausted by one's labor. That argument has been uniformly rejected as frivolous. E.g., United States v. Connor, 898 F.2d 942,943-44 (3d Cir. 1990); Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986. [Emphasis added.]

As I've pointed out before, every claim the tax-denial movement makes shrivels to nothingness when examined even halfway closely. We won't get rid of income taxation by legal sleight of hand.

Rising Prices Won't Mitigate Minimum-Wage Effects

Newspaper stories about raising the minimum wage often quote people who say the employment effects of an increase will be held down because sellers will raise prices and pass the extra cost on to their customers. (See this story on the effects of Arkansas's increase last October.)

But not so fast. If prices rise, where will we consumers get the extra money to maintain our present buying patterns? (I didn't get a raise.) If prices go up at my favorite restaurant, I'll have two choices: eat there less often or spend less elsewhere. Either way, jobs are in jeopardy.

Bastiat and Hazlitt were right.

Cross-posted at Liberty & Power.

Ford, Kissinger, Indonesia, East Timor

I had no intention of prolonging the attention on the late President Gerald R. Ford. But I was reminded of something that has been given too little notice: Ford's and Kissinger's complicity in Indonesia's brutal occupation of East Timor in 1975-76. I refer anyone who is interested to "East Timor Revisited," edited by William Burr and Michael L. Evans (2001). Here's the opening:

The New Evidence

The Indonesian invasion of East Timor in December 1975 set the stage for the long, bloody, and disastrous occupation of the territory that ended only after an international peacekeeping force was introduced in 1999. President Bill Clinton cut off military aid to Indonesia in September 1999—reversing a longstanding policy of military cooperation—but questions persist about U.S. responsibility for the 1975 invasion; in particular, the degree to which Washington actually condoned or supported the bloody military offensive. Most recently, journalist Christopher Hitchens raised questions about the role of former Secretary of State Henry Kissinger in giving a green light to the invasion that has left perhaps 200,000 dead in the years since. Two newly declassified documents from the Gerald R. Ford Presidential Library, released to the National Security Archive, shed light on the Ford administration’s relationship with President Suharto of Indonesia during 1975. Of special importance is the record of Ford’s and Kissinger’s meeting with Suharto in early December 1975. The document shows that Suharto began the invasion knowing that he had the full approval of the White House. Both of these documents had been released in heavily excised form some years ago, but with Suharto now out of power, and following the collapse of Indonesian control over East Timor, the situation has changed enough that both documents have been released in their entirety.

A Mysteriously Overlooked Tax Case

Addendum below

The U.S. Court of Appeals for the District of Columbia Circuit issued an important tax decision last August, but I haven't seen it discussed on any of the tax-denial websites. Tax-deniers routinely take parts of judges' opinions out of context to make their case that the courts have held that wages are not income and hence non-taxable. And the opinion in Murphy and Leveille v. IRS (pdf) has a few choices lines just begging to be taken out of context, such as:

At the outset, we reject the Government’s breathtakingly expansive claim of congressional power under the Sixteenth Amendment -- upon which it founds the more far-reaching arguments it advances here. The Sixteenth Amendment simply does not authorize the Congress to tax as "incomes" every sort of revenue a taxpayer may receive. As the Supreme Court noted long ago, the "Congress cannot make a thing income which is not so in fact."

Yeah, the deniers could have a field day with that, assured that most people won't read the full case. But some of us will--and have.

A bit of background. Marrita Murphy worked for the New York Air National Guard. She complained to the U.S. Department of Labor that, in violation of "whistle-blower" rules, she was blacklisted by her employer after she informed state authorities about environmental problems at air national guard base. Her complaint succeeded, and her case went to an administrative law judge for determination of compensatory damages. She was awarded $70,000 -- $45,000 for "emotional distress or mental anguish" and $25,000 for "injury to professional reputation."

On her 2000 tax return, she included the $70,000 as gross income and as a result paid an additional $20,665 in taxes. She then sought a refund of that money (plus interest; you go, girl!) on the grounds that § 104(a)(2) of the Internal Revenue Code states, "gross income does not include . . . damages. . . received . . . on account of personal physical injuries or physical sickness."

The IRS told her to take a hike.

Instead, Murphy filed suit. The U.S. district court backed the IRS.

To cut to the chase, the court of appeals sided with Murphy, holding that although her compensatory damages were not for physical injury (which the IRS concedes would be excluded from gross income), the IRS's refusal to exclude compensation for nonphysical injuries is unconstitutional "because compensation for a non-physical personal injury is not income under the Sixteenth Amendment if, as here, it is unrelated to lost wages or earnings."

If that's not clear enough, the judges went on to say:

Murphy’s compensatory award [for nonphysical injuries] in particular was not received 'in lieu of' something normally taxed as income; nor is it within the meaning of the term 'incomes' as used in the Sixteenth Amendment. Therefore, insofar as § 104(a)(2) permits the taxation of compensation for a personal injury, which compensation is unrelated to lost wages or earnings, that provision is unconstitutional. [Emphasis added.]

Thus implying that taxing compensation that is releated to lost wages, and hence the wages themselves, is indeed constitutional.

Q.E.D.

Addendum, Jan. 7, 2:25 p.m. CST

In the comments Thomas Bell helpfully refers to an update I missed. Thanks! Here's the skinny from Wikipedia:

The Department of Justice asked for a rehearing en banc (i.e., a hearing before all the members of the Court, rather than before only the panel of three judges who made the original decision).

The original three judges then agreed to rehear the case themselves, and also vacated the August 2006 judgment. The matter has been set for a hearing (before the three judge panel) for April 23, 2007, at which time the appellant (the government) "must raise all issues and arguments in the opening brief."

The August 2006 Murphy decision was mandatory precedent only in the District of Columbia. If significant components of the vacated 2006 decision are reinstated after the April 2007 rehearing, this could have a significant effect on litigants in employment, tort, and defamation suits, and in related areas of law where emotional distress and loss of reputation claims are possible.

This is interesting, but apparently not quite accurate. I've read elsewhere that the original three-judge panel will rehear the case, not the full compliment of the circuit's appellate judges. This seems to be unusual, indicating that the judges may be acknowledging they overlooked something. If the judges reverse themselves, it will be a win for the IRS.

Bear in mind, however, that what is not at issue is whether wages are taxable income. That was never the issue in the case. All that is in dispute is whether compensatory damages that do not replace lost wages are taxable. So a loss for the IRS does nothing to help the tax-denial movement.

Con Men and True Believers

The flaw in the tax-denial movement is not that it's too radical but that it's not radical enough. The true believers in the movement think that if only the government would play by its own rules, tax justice would reign. (I suspect the sincerity of the leaders of the movement; hence the title of this post.) But this is balderdash. The government's rules are rigged in favor of power and against liberty. When government rules, such as the Constitution, can be interpreted in favor of liberty, they can just as easily be interpreted against it. Have you noticed that the Constitution hasn't stopped government from growing? That's the nature of rules. They can't interpret and enforce themselves, and those who get to interpret and enforce them officially are the people with an interest in maximizing power and minimizing liberty. (See this post for links to more on this topic.)

So beware whenever someone talks about the need for government to follow its own rules. There lies trouble.

Two New Articles

The least appreciated form of tyranny in the United States goes by the names "redevelopment" and "government-business partnership." While everyone knows about the threat of development-oriented eminent domain, thanks to the 2005 Supreme Court decision in Kelo v. New London, local tyranny goes much deeper than the "mere" taking of property in order to give it to another private party. A case out of Port Chester, N.Y., illustrates the danger.

The rest of this week's TGIF column is at the Foundation for Economic Education website.

* * *

Over the last several days former President Gerald R. Ford has been repeatedly praised for “healing” the nation in the aftermath of Richard Nixon’s Watergate scandal. Democrat, Republican, and solemn pundit alike paid extravagant tribute to the man who, in their view, saved the American people from “disaster.”

But is that what Ford really did? . . .

“The long national nightmare is over,” Ford said. But it wasn’t a nightmare for the American people. It was a nightmare for the power elite. Their very legitimacy was in peril. The debt to Ford for restoring their legitimacy is owed by those who hold and aspire to power, not by those who suffer under it.

Read the rest of this week's op-ed, "What Exactly Did Gerald Ford Heal?," at The Future of Freedom Foundation's website.

Cross-posted at Liberty & Power.

Thoughts on the Opening Day of Congress

• In modern America a woman can rise to the top of the exploiting class. Is that something to celebrate?
  

• "No man’s life, liberty, or property are safe while the Legislature is in session." --New York Surrogate Gideon J. Tucker, 1866

Saddam on the Gallows

Christopher Hitchens has a good Slate piece here on the hanging of Saddam Hussein. I normally don't agree with Hitchens on the Iraq war, but I endorse his position in this article.

A sample:

The disgusting video of Saddam Hussein's last moments on the planet is more than a reminder of the inescapable barbarity of capital punishment and of the intelligible and conventional reasons why it should always be opposed. The zoolike scenes in that dank, filthy shed (it seems that those attending were not even asked to turn off their cell phones or forbidden to use them to record souvenir film) were more like a lynching than an execution....

To watch this abysmal spectacle as a neutral would be bad enough. To know that the U. S. government had even a silent, shamefaced part in it is to feel something well beyond embarrassment.

We See What We Want to See

The maudlin nonsense continues to flow in connection with Gerald Ford's funeral. Columnist Mike Barnicle was all over MSNBC today telling what he called a revealing anecdote about Ford. Dining with House Speaker Tip O'Neill shortly after assuming the presidency, Ford said that his new higher salary would do wonders for his pension. Barnicle says this shows Ford to be a "grounded" regular guy. I suspect that had Richard Nixon said that, Barnicle would be saying that it showed Nixon to be the greedy bastard we always knew him to be.

Scenes from a State Funeral

There they were, watching as the casket bearing former President Gerald R. Ford was taken to Air Force One for the trip to Grand Rapids, Michigan: former congressmen, former House staffers, current congressmen, and other dignitaries.

Intoned MSNBC commentator Chris Matthews: "They are the foothills of Mount Rushmore."

Gag me with a spoon.

Cross-posted at Liberty & Power.

Okay, He Was a Nice Guy!

During the the long state-worship service we call a funeral for a dead president, endless pundits and politicians have commented on what a good guy Jerry Ford was; how he was a wonderful neighbor, and so on. Okay, I buy it. I buy it! As someone once said, it's not the man I disrespect but the office.

Happy New Year!

Let's hope it's a good one for liberty and a bad one for power.