Allow me to begin by stating two realities for which I hold strong convictions.
First, I am a follower of Jesus Christ, not because it’s popular but because I genuinely believe He is the Son of God and became God in the flesh, the Redeemer of man, Who willingly subjected Himself to shame and punishment He didn’t deserve as a substitute and sole payment (ransom, if you will) for punishment I do deserve.
You may not agree with my faith in Christ. That’s fine. However, the reason I mention my faith is that it informs my second strongly-held conviction.
Second, I pay income taxes, not because I believe our current system of taxation is lawful or morally just but because the government that levies taxes will imprison me for evasion if I fail to comply. Personally, I believe our current system of income taxation is both unlawful and immoral but ceasing to pay taxes has consequences I’m not willing to accept.
Why do I feel income taxes are immoral?
Labor is never free. Before I provide my labor as a service, there is a personal cost. I would be unable to work if I did not eat, drink, or sleep. I need to acquire those necessities to sustain life and have the energy to work. Even if I slept under the stars, grew and consumed my own food, and drew free water from rivers or lakes, personal effort (labor) would still be required to attain them. If those items were provided to me freely, it would cost someone else to provide them. Labor is never free.
In addition to the raw cost of generating the energy required to work, the labor itself holds value because it produces something for the person to whom services are rendered. That is why, in a free society, we do not work without compensation. We exchange our labor for just and fair compensation.
These principles are found in scripture.
For the Scripture says, “You shall not muzzle an ox when it treads out the grain,” and, “The laborer deserves his wages.” (1 Timothy 5:18 ESV)
For it is written in the Law of Moses, “You shall not muzzle an ox when it treads out the grain.” Is it for oxen that God is concerned? Does he not certainly speak for our sake? It was written for our sake, because the plowman should plow in hope and the thresher thresh in hope of sharing in the crop. (1 Corinthians 9:9-10 ESV)
Not only does scripture declare “the laborer deserves his wages,” it also states the laborer should work in hope of sharing in the byproduct of that labor. Labor is never free.
At the same time, no one should expect to receive compensation without contributing labor. Otherwise, they would be receiving the benefit of another person’s labor without just and fair compensation.
This principle is also found in scripture.
For even when we were with you, we would give you this command: If anyone is not willing to work, let him not eat. For we hear that some among you walk in idleness, not busy at work, but busybodies. Now such persons we command and encourage in the Lord Jesus Christ to do their work quietly and to earn their own living. (2 Thessalonians 3:10-12 ESV)
When the government, who did not contribute to my labor, wants to levy taxes against the compensation I receive for my labor, that is paramount to theft, especially when the taxes collected are given to someone who did not contribute to my labor (i.e. spreading the wealth).
More than that, our current income tax scheme is progressive, meaning the levies increase as our income increases. That’s entirely unfair but a topic for another day.
Why do I believe income taxation is unlawful?
Both legal precedents and Federal regulations confirm that (1) profits are taxable, yet (2) wages are not profits. If we are “a nation of laws, not of men,” as John Adams so eloquently put it, then we must adhere to the rule of law. Or, as Abraham Lincoln stated:
“That is the real issue... It is the eternal struggle between these two principles – right and wrong – throughout the world. They are the two principles that have stood face to face from the beginning of time, and will ever continue to struggle. The one is the common right of humanity and the other the divine right of kings... It is the same spirit that says, 'You work and toil and earn bread, and I'll eat it.' No matter in what shape it comes, whether from the mouth of a king who seeks to bestride the people of his own nation and live by the fruit of their labor, or from one race of men as an apology for enslaving another race, it is the same tyrannical principle.” ~ Abraham Lincoln October 15, 1858 Debate at Alton
So, what do the Federal regulations governing income taxation actually say?
To get to the truth, we must first determine what taxable income is and work backward.
26 U.S. Code § 63 - Taxable Income Defined
(a) In general
Except as provided in subsection (b), for purposes of this subtitle, the term “taxable income” means gross income minus the deductions allowed by this chapter (other than the standard deduction).
(b) Individuals who do not itemize their deductions
In the case of an individual who does not elect to itemize his deductions for the taxable year, for purposes of this subtitle, the term “taxable income” means adjusted gross income, minus—
(1) the standard deduction,
(2) the deduction for personal exemptions provided in section 151, and
(3) the deduction provided in section 199A.
26 U.S. Code § 61 - Gross Income Defined
(a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(8) Alimony and separate maintenance payments;
(10) Income from life insurance and endowment contracts;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
The first item of this subsection creates a point of contention because some experts claim it conflicts with another subsection regarding performance of services.
26 U.S. Code § 83 – Property Transferred in Connection with Performance of Services
(a) General rule
If, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of—
(1) the fair market value of such property (determined without regard to any restriction other than a restriction which by its terms will never lapse) at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, over
(2) the amount (if any) paid for such property, shall be included in the gross income of the person who performed such services in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. The preceding sentence shall not apply if such person sells or otherwise disposes of such property in an arm’s length transaction before his rights in such property become transferable or not subject to a substantial risk of forfeiture.
Here, we witness our benevolent government’s sleight of hand. For the purposes of income taxation, they don’t consider money received in exchange for services rendered the transfer of property. If the exchange of services for money was deemed an exchange of property, it would have a cost basis and a gain. According to Cornell Law School, that is not the proper use of the term property in this code section. Cornell cites the following concerning the term property in this code section:
26 U.S. Code § 1273(b)(5) – Property
In applying this subsection, the term “property” includes services and the right to use property, but such term does not include money.
If that interpretation is accurate, the government is telling us our labor has no value. There is no cost (to us) associated with the production of our labor. Our labor is free (i.e. we are slaves), so they can tax all the compensation we receive in exchange for our labor as excess gain.
In direct contrast, the concept that our labor has no intrinsic value flies in the face of longstanding legal opinion.
"It has been well said that, the property which every man has is his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of the most sacred property." - Butcher's Union Co. v. Crescent City Co., 111 U.S. 746 (1883)
If our labor is considered our most valuable property, the exchange of our labor (property) for compensation should also have – in itself – a fair market value.
"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts." Treas. Reg. §20.2031-1(b). The willing buyer-willing seller test of fair market value is nearly as old as the federal income, estate, and gift taxes themselves, and is not challenged here." - U.S. v. Cartwright, 411 U.S. 546, 551 (1973)
"Fair market value is that "price which would probably be agreed upon by a seller willing, but under no compulsion, to sell, and a buyer willing, but under no compulsion, to buy, where both have reasonable knowledge of the facts." - Pledger v. Commissioner of Internal Revenue, 641 F.2d 287, 295 (CA5 1981), quoting Newberry, 39 BTA 1123 (1939)
Now, let’s combine what we’ve covered.
If we are exchanging our property (labor) for compensation between a willing buyer (the person compensating us for our services) and a willing seller (the laborer), the exchange should be deemed a “fair market” value transaction. In that instance, the compensation we receive would be the cost basis of our labor, meaning there would be no excess gain to attribute to gross income. Without any excess gain being conveyed to gross income, there would be no gross income from which to subtract deductions to calculate taxable income.
That is what makes income tax unlawful. Unfortunately, all of this is also irrelevant, because we will not win that fight. Besides, succumbing to the will of our government overlords, specifically regarding taxation, is also scriptural.
Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God. Therefore whoever resists the authorities resists what God has appointed, and those who resist will incur judgment. For rulers are not a terror to good conduct, but to bad. Would you have no fear of the one who is in authority? Then do what is good, and you will receive his approval, for he is God’s servant for your good. But if you do wrong, be afraid, for he does not bear the sword in vain. For he is the servant of God, an avenger who carries out God’s wrath on the wrongdoer. Therefore one must be in subjection, not only to avoid God’s wrath but also for the sake of conscience. For because of this you also pay taxes, for the authorities are ministers of God, attending to this very thing. Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed. (Romans 13:1-7 ESV)
If that’s not clear enough, even Jesus paid taxes to avoid offending the institutions of religious and political governance.
When they came to Capernaum, the collectors of the two-drachma [Temple] tax went up to Peter and said, “Does your teacher not pay the tax?” He said, “Yes.” And when he came into the house, Jesus spoke to him first, saying, “What do you think, Simon? From whom do kings of the earth take toll or tax? From their sons or from others?” And when he said, “From others,” Jesus said to him, “Then the sons are free. However, not to give offense to them, go to the sea and cast a hook and take the first fish that comes up, and when you open its mouth you will find a shekel. Take that and give it to them for me and for yourself.” (Matthew 17:24-27 ESV)
Then the Pharisees went and plotted how to entangle him in his words. And they sent their disciples to him, along with the Herodians, saying, “Teacher, we know that you are true and teach the way of God truthfully, and you do not care about anyone’s opinion, for you are not swayed by appearances. Tell us, then, what you think. Is it lawful to pay taxes to Caesar, or not?” But Jesus, aware of their malice, said, “Why put me to the test, you hypocrites? Show me the coin for the tax.” And they brought him a denarius. And Jesus said to them, “Whose likeness and inscription is this?” They said, “Caesar’s.” Then he said to them, “Therefore render to Caesar the things that are Caesar’s, and to God the things that are God’s.” When they heard it, they marveled. And they left him and went away. (Matthew 22:15-22 ESV)
The final verdict? Whether I like it or not, I am subject to income taxation because I am subject to the government who creates and enforces the laws.