With “tax season” upon us we speak with independent researcher and US income tax historian Pete Hendrickson on this week’s Real Politik. Mr. Hendrickson is the only American citizen who has received a full refund of all income, Medicare and Social Security taxes withheld throughout his working life. He argues that over the past 75 years the income tax and to whom it applies has became vastly misunderstood by most of the US citizenry. This was the result of a major public relations campaign during World War II and the subsequent growth of a federal bureaucracy and tax-preparation industries in the post-war era.
Hendrickson is the author of three books, Cracking the Code: The Fascinating Truth About Taxation in America (2003), Upholding the Law and Other Observations (2006), and Was Grandpa Really a Moron? Critical Inquiries for a New American Century (2009). His website is losthorizons.com.
Contrary to popular perception, Mr. Hendrickson is not a tax protester. Nor is he a proponent of abolishing the Internal Revenue Service or “Ending the Fed.””I may be the income tax’s greatest admirer,” he notes.
People who don’t understand the real nature of the tax are very much in favor of those things and it’s understandable why they are. But it is a product of misunderstanding. The income tax is a benign tax. It’s a good tax. It’s a very desirable tax. We need to restore the application of that tax to the objects that are actually subject to it under the law. Once that happens we will resume a relationship with the tax and with the government as a whole that the American public enjoyed up until the early 1940s, and one in which we were both prosperous and much, much freer than we are today.
Indeed, the crux of Hendrickson’s observations centers on a huge misunderstanding of the nature of the US income tax. This began to dawn on him while re-reading the Constitution on the 1976 bicentennial. “In that particular year I spent special time on it because of the occasion,” he recalls, “and was struck at that time by the inconsistency in the prohibition on non-apportioned capitations in particular–and other direct taxes–and what the income tax appears to be, the way in which the income tax is typically administered. As the tax is generally understood by most folks it is every bit a direct tax and in fact a capitation [an undifferentiated tax on revenue or the activity that produces it], and yet it is not apportioned. The two things didn’t make any sense.”
I looked at the Supreme Court’s declaration on the nature of the 16th Amendment, which said very, very clearly and specifically that the 16th Amendment did not repeal or otherwise compromise the apportionment requirements in Article 1, Section 2. That didn’t reconcile the problem for me. It simply made clear that the problem existed and merited further study, and over the course of the years I undertook that study.
In 2000 when the law was digitized and thus searchable it became possible to better fathom and understand the gargantuan compendium of code. Searching with the aid of the computer, “rather than leaf through page after page of those three-and-a-half-million words of the code version … Afterwards it was completely different, and very accessible, and at that point suddenly it became clear. In the end I was able to reconcile entirely what had been an apparent incongruity between the apportionment requirement and the income tax as it actually is applied.
“There is actually no incongruity there. The tax has simply been broadly misunderstood. That misunderstanding has been exploited, I’m sorry to say, to a very great degree and without the least bit of scruple, by ever-revenue hungry governments, and most Americans have been paying a huge, huge tax burden that they simply do not owe, and they’re doing it because of their ignorance of the nature of the law … In fact they actually cooperate in the process and declare themselves to be subject to a tax that doesn’t actually apply to their earnings or activities.”
Prior to the 1940s fewer than ten percent of the US population filed an income tax return. Yet during World War Two major media figures such as Walt Disney and public relations maestros like Edward Bernays were deployed to convince the American public of their “patriotic duty” to participate in the process.
“The perfect storm of misunderstanding caused people to somehow imagine that the apportionment requirement was eliminated,” Hendrickson argues, “and Congress had been authorized by our grandparents generation over the years (and my grandparents’ generation back in 1913) to reach in to the pockets of every American in the country and take whatever Congress wanted.”
That’s the reason for the title of my third book, Was Grandpa Really a Moron. Grandpa would had to have been a moron to do this. In fact, a majority of our parents would had to have been morons to do this. There isn’t a person on the planet today that would agree to or authorize that kind of tax. The notion that we’re supposed to take in and believe at this point is that our grandparents were that moronic and do exactly that. The whole idea is ridiculous. Our grandparents were far more suspicious of government than today’s generation is. They were far better educated. They were extremely prosperous, and very free, and they liked everything they had. The idea that someone just said, “Hey, let’s chuck the structure that has provided all this for us, and replace it with one where we essentially have a totalitarian relationship with the state–and that they agree to that-is just actually absurd on its face.
Since 2003 when the previews of Hendrickson’s first book, Cracking the Code, appeared online he has experienced incessant harassment and attempts by the Internal Revenue Service and Department of Justice to suppress the book.
In addition to being the first American in history to get a complete refund of everything withheld from me, including Social Security and Medicare I also, I believe, am the first in history to thwart IRS and DOJ efforts to shut someone down on an accusation of promoting an abusive tax shelter. I did it four times. On each of the occasions this effort was pursued the government was obliged to ask for dismissals in court of its own actions.
Most recently the US government has taken these tactics to a new level, initiating a campaign against Hendrickson’s wife, Doreen Hendrickson, in an attempt to have her sentenced for contempt of court for refusing to perjure herself. That case is presently pending.