AUGUST 2017

AUGUST  2017
FACING DOWN THE RULERS OF WALL STREET A HUNDRED YEARS AGO. THEY ARE BACK.

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Friday, April 03, 2009

HUNTING THE BIG UMBER BIRD

I know very little about Charles Pollock. I know he lived in Boston in the 1890’s. I know he worked in a bank. And I know that he was narcissistic. I know this because in 1894 Charles fought a lawsuit all the way to the Supreme Court which resulted in the temporarily landmark case of Pollock verses the Farmers’ Loan & Trust Company. It was that case which made Charles the hero of the modern anti-tax movement. But in all honesty, I find that particular obsession celebrates, to borrow a description from Tom Wolf, “…the logician who flies higher and higher in ever-decreasing circles until, with one last, utterly inevitable induction, he disappears up his own fundamental aperture and emerges in the fourth dimension as a needle-thin umber bird.” (“From Bauhaus to Our House”)
The U.S. government had been taxing income since 1861, as permitted in the Constitution under Article 1, Section 2 ("Representatives and direct Taxes shall be apportioned among the several states…") and Article 1, Section 8 ("The Congress shall have Power To lay and collect Taxes,…"). But in 1862 Supreme Court Chief Justice Roger Taney (above), the author of the Dredd Scott decision which had helped to bring on the civil war, was incensed that money was actually being taken out of his paycheck to help pay for that war. But Taney’s objections also struck a cord with those who might not like slavery but who just didn’t think they deserved to be paying taxes. And they were often powerful people. In 1872 the income tax laws were repealed.For the next twenty years the Federal government struggled along supported by import duties alone, which amounted to less than 2% of the nation’s gross domestic product, but which were still up to 48% of the value of any individual product. This protected domestic companies and allowed them to keep their prices high. The problem was (and is) that tariffs thus raised the price of consumer goods while allowing the wealthy, who spent a low percentage of their income on food and shelter, to accumulate vast, untaxed fortunes. Congressman William Jennings Bryant of Nebraska labeled high tariffs as “socialism for the rich”. “They weep more because fifteen millions are to be collected from the rich than they do at the collection of three hundred millions upon the goods which the poor consume.”Between 1871 and 1891 sixty separate bills were introduced in congress to reestablish an income tax. The Republican Party, the party of power at the time, beat all of them back. And then in 1893 a new tariff reform bill was introduced by Democratic Rep. William Wilson of West Virginia. The bill was primmarily designed to lower the import duties on foreign iron ore, coal, lumber, wool and sugar that entered this country. It also included a minor amendment, introduced by Rep. Benton McMillan (above), from Tennessee, which read, “That from and after the 1st day of January, 1895, there shall be levied, collected, and paid annually upon the gains, profits, and income of every person residing in the United States, derived from any kind of property, rents, interest, dividends, or salaries…a tax of 2 per cent on the amount so derived over and above $4,000” (equiv. of $88,400 in 2008 dollars) during any five year period.
Nobody paid much attention to Mr. McMillan’s amendment because so many income tax measures had been introduced so many times before, and none of them ever came to anything. Besides, the trusts put their trust in their secrete weapon.His name was Senator Arthur Gorman of Maryland, and he helped opponents of the Wilson bill to attach more than 600 amendments which reinstated almost all of the import duties. With the “Tariff reduction” bill thus gutted, no one believed that President Grover Cleveland, who had campaigned on a lower tariff platform, would ever sign the bill into law. And he didn’t. He simply let the bill become law without his signature. At least the tariffs had been marginally lowered. And that was how America returned to an income tax; briefly.The act required all stock companies to pay the tax for individuals before distributing any dividends to them. And when he received his notice from the Farmers' Loan & Trust Company (because he owned all of ten shares of stock in Farmers’ Loan & Trust) Charles Pollock contacted Wall Street lawyer Joseph Choate, who filed a lawsuit against the bank claiming the income tax was unconstitutional. The Massachusetts courts disagreed, as did the Federal courts. But somehow Charles Pollock found the money to appeal his lawsuit all the way to the United States Supreme Court, which to everyone’s surprise agreed to hear the case immediately.On April 8, 1895 the court ruled, 5-4, in favor of Mr. Pollock, saying in essence that the source of income mattered; salary could be taxed but income from property – rent, interest on savings or dividends paid on stock - were not “apportioned” by population, and thus the government was denied the power to tax.
The dissenting opinions were devastating. Justice Brown wrote that “This decision involves nothing less than the surrender of the taxing power to the moneyed class…Even the specter of socialism is conjured up to frighten Congress from laying taxes upon the people in proportion to their ability to pay them.”
And Justice Harlan argued that the court's majority opinion, “…declares that our government has been so framed that,...those who have incomes derived from the renting…or who own invested personal property, bonds, stocks and investments...have privileges that cannot be accorded to those having incomes derived from the labor of their hands, or the exercise of their skill, or the use of their brains.”It would take 11 years before the will of the people could overcome the power of the “moneyed classes”. In 1909 President Howard Taft proposed a Constitutional amendment to allow an income tax, and on July 12, 1909 the 16th amendment passed the Congress and was submitted to the states. It was brutally blunt and short. It reads in total, “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.”Alabama took less than a month to vote for the 16th amendment. Kentucky, South Carolina, Illinois, Mississippi, Oklahoma, Maryland, Georgia and Texas all passed it in 1910. Twenty-three states followed in 1911, three more in 1912, and six more in 1913. It was with the vote of the New Mexico legislature, on February 3, 1913, that made the 16th amendment the law of the land. Six states either rejected the amendment or never took it up, but that did not matter. The Constitution only requires that two-thirds of the states approve of an amendment to make it law. And so, when some lunatic or confidence man tries to sell you a magical scheme to avoid paying taxes, you can now explain that, by placing the source of support for the government in the people’s hands, income taxes place the power there as well.The relevancy of this narcissist tale to your life may become clearer when you realize that the Farmers Loan and Trust Company named in the lawsuit was established in 1822 in New York City. On June 1st 1929 they changed their name to City Bank Famers Trust, and in 1976 they changed their name again. This time they shortened it to Citibank.
This is the same Citibank that has recently swallowed at least 320 billion of taxpayer (meaning your) bailout dollars. Oh, as of 1894 Charles Pollock was an employee of Farmers Loan & Trust in their Boston branch. And it seems likely he sued his own employer with their connivance. Looking at history it seems to me that the limits to which the rich will go to avoid paying their fair share of government has been endless.
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