Hendrickson1With “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.

Interview Highlights

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.

https://www.youtube.com/watch?v=m6VkrxkFmBU

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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.

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18 thought on “Was Grandpa Really a Moron?”
  1. A truly fascinating topic. I heard Dr. Fetzer interview this guy a while back. If true, it is a bombshell that could ruin markets and careers. My step mom has had her Enrolled Agent license for a few years now and works for a small CPA firm. When I told her about this and asked her how Hendrickson and his followers could possibly manage their claims her reply was, “Someone (referring to the powers that be) must be asleep at the wheel.”

    My follow up question is: how are the IRS able to convict people for non-payment of non-federal income tax? Take Wesley Snipes for example.

    1. It has to do with the information returns you receive (e.g., 1099s and W-2s) that name you as the recipient of “taxable income.” People issuing these reports on innocent Americans who do not qualify as proper “taxpayers” do not realize they are using forms intended for federal payers only. Once you receive a 1099 or W-2 form with your name on it, a copy of which the issuer files under oath (using Form 1096) with the IRS, you are considered to be a qualified “taxpayer” because someone has sworn on a federal form that they paid you “income.”

      There are a number of trick words in the legal lingo used by the IRS (e.g., “income,” “wages,” “employee,” “employer,” “payee,” “US trade or business”). These words are used in common language often enough, but when used in connection with your taxes they are endowed with explicit and very significant meanings. It is your responsibility to rebut the reports made on you, which is explained at length in Hendrickson’s book “Cracking the Code: The Fascinating Truth About Taxation in America.” If you don’t negate or rebut the forms (information returns) sent to the IRS about you, you are stuck with paying “income tax.”

      1. Does this mean that it is actually legal to not report income paid to you as a self employed person with no business license or 1099 form?

  2. I don’t think anybody’s asleep, Rick. The powerful are worried about the implications of these actions, should they spread. With the increasing economic and power inequality, the danger is that the American people will increasingly say to American power, “you don’t represent us.” And taxation without representation is tyranny. we ain’t going to pay or support you.

    most Americans already think that America is heading in the wrong direction. So authority is trying to keep protests of all kinds as quiet as possible to dampen their spread.

  3. I recommend everyone to look at the actual court minutes for he and doreens cases. Sheds some light on the inner workings of the fed court system at the district level as well as how commonplace suppression of evidence is – especially when there is a conflict of interest, such as in this article.

    http://www.leagle.com/decision/in%20fdco%2020100610e01

    Thanks James for bringing to the forefront issues that need to be addressed at the grassroots (not astroturf) level.

  4. […] 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 More… […]

  5. Sigh. Yes, tax law is probably the most difficult area of law to understand. Why? Well, it started out simple enough, but of course everyone wants their little “carve out” provision. So you end up with an incredibly complicated Internal Revenue Code as congress continues to tinker with it by adding new provisions and modifying others to satisfy its constituents and lobbyists. When congress wants to push a certain behavior (e.g., energy efficient cars), it generally turns to the Code to provide that incentive. The federal government wanted to promote savings, so we have 401(k) and other retirement plans. The rules for these plans are, just in themselves, *extremely* complicated. It’s little wonder the Code is so complicated — it’s a symptom of our big government nudging us to take or refrain from certain actions (in part).

    Now, there are people who say the income tax is unconstitutional. The Supreme Court has held that it is not. It doesn’t matter if you agree or disagree with their interpretation of the constitution. Attorneys reasonably differ on interpretations of terms and phrases all the time. At the end of the day, the law means whatever a court says it means. If we don’t like how a court rules, we have to get legislative changes. That happens all the time.

    Now, the REAL QUESTION: was grandpa really a moron for permitting a tax on individual income? Well, yes, but he was likely an unwitting moron. The 16th Amendment was advertised to apply *only* to the richest of the rich (think Bill Gates and Warren Buffett). In other words, Grandpa Prole thought it was OK to “soak the rich.” He didn’t realize that the tax would be used against him in the future.

    So there you have it, as best as I can tell. The jealously that permitted the “soak the rich” 16th came back to bite us. Your sins will find you out. Was that the plan all along? I don’t know. Maybe. Regardless, taxes are real and legal. If you want a change, you have to force congress to stop spending and then reform our tax code. End of story.

  6. I am only part way through the interview, and wish to comment on the Social Security portion; I don’t suspect that later on they will get to what I’m about to say, but if they do, I hope this comment will not be a waste of the readers’ time.

    Lawrence Kotlikoff is an expert on the REAL national debt. He calculates it as north of $200 TRILLION, which is absolutely beyond impossible to sustain, because most of it is promises (Social Security, Medicare, public pensions, obligations to veterans, etc). These promises will not be kept, because that would be impossible. Hendrickson hints at this, and even says it, but I think it should be fleshed out a little.

    Here is a Zerohedge article about it: http://www.zerohedge.com/news/2013-09-11/lawrence-kotlikoff-us-fiscal-gap-200-trillion-our-country-broke

    In essence, the meaning of the $200 trillion debt is that that is what the future promises the federal government has made are worth TODAY; every year that number grows substantially, because as Hendrickson says, there is no treasure in the treasury. That is, in order to keep those promises the treasury would need to possess, right now, $200 trillion worth of investments, and it would all have to compound at 5% annually, forever. Which is not the case, and cannot be the case because there are no such investments in existence: the number is too big.

    In the interview, he points out the absolute dependence a majority of the population has on Social Security and Medicare. James brought up the familiar “third rail” comparison. Well, politicians (who created the impossible situation) won’t touch it because they don’t want their careers “electrocuted,” but all that means is that all those dependent citizens are going to fry. Guaranteed.

    This is a prime example of the nature of the state being evil. A government big enough to make everyone dependent on it is guaranteed to destroy the people who trusted it. As Hendrickson points out, the system is built on the actuarial and population growth conditions that prevailed in the 30s (Social Security) and 60s (Medicare). 16 workers paying in for every retiree, half of whom will see very few checks because they start coming in around the time the average person dies. It’s now down to less than 2-1, and everyone lives longer. And some moron decided to buy the oldster vote (I think it was in the 70s) by increasing the payouts at the rate of inflation–something I am only part way through the interview, and wish to comment on the Social Security portion; I don’t suspect that later on they will get to what I’m about to say, but if they do, I hope this comment will not be a waste of the readers’ time.

    Lawrence Kotlikoff is an expert on the REAL national debt. He calculates it as north of $200 TRILLION, which is absolutely beyond impossible to sustain, because most of it is promises (Social Security, Medicare, public pensions, obligations to veterans, etc). These promises will not be kept, because that would be impossible. Hendrickson hints at this, and even says it, but I think it should be fleshed out a little.

    Here is a Zerohedge article about it: http://www.zerohedge.com/news/2013-09-11/lawrence-kotlikoff-us-fiscal-gap-200-trillion-our-country-broke

    In essence, the meaning of the $200 trillion debt is that that is what the future promises the federal government has made are worth TODAY; every year that number grows substantially, because as Hendrickson says, there is no treasure in the treasury. That is, in order to keep those promises the treasury would need to possess, right now, $200 trillion worth of investments, and it would all have to compound at 5% annually, forever. Which is not the case, and cannot be the case because there are no such investments in existence: the number is too big.

    In the interview, he points out the absolute dependence a majority of the population has on Social Security and Medicare. James brought up the familiar “third rail” comparison. Well, politicians (who created the impossible situation) won’t touch it because they don’t want their careers “electrocuted,” but all that means is that all those dependent citizens are going to fry. Guaranteed.

    This is a prime example of the nature of the state being evil. A government big enough to make everyone dependent on it is guaranteed to destroy the people who trusted it. As Hendrickson points out, the system is built on the actuarial and population growth conditions that prevailed in the 30s (Social Security) and 60s (Medicare). 16 workers paying in for every retiree, half of whom will see very few checks because they start coming in around the time the average person dies. It’s now down to less than 2-1, and everyone lives longer. And some moron decided to buy the oldster vote (I think it was in the 70s) by increasing the payouts at the rate of inflation–something Hendrickson did not mention. As for Medicare, its perverse structure has made the cost of health care spiral out of control, alongside the technological advances which tend to be very expensive.

    This is a prime example of why the only rational political position is libertarianism. Politicians playing Santa Claus are a menace. They are the most destructive force in the world. That a people whose origins trace back to Magna Carta can so easily be made to forget that truth is a sobering insight. Our people have come to believe that government is beneficent, even as it is systematically destroying them. Someday, in the next few years, they will know what was done to them–because the charade will no longer be possible to maintain.

    The question is, will they have the courage to blame themselves for their monumental foolishness?

    1. What if the systematic growth of govt to the point it “enslaves” the citizenry and destroys itself is actually a natural progression that is unavoidable no matter what? Hasn’t history taught us this is the case? Therefore, isn’t anarchy the only morale political position?

      1. Yes.

        There is nothing we can do about it. It has an inevitability about it. It’s what happened to Rome, although much slower. Everything has been speeding up.

        The problem we face, when we compare our condition with that of Rome, however, is the ultra-urbanization of the world in our time. Almost all agriculture is now factory farms. When Rome collapsed, the feudal system naturally emerged as agrarian peoples kept working the land, as strong men protected them in a mutually beneficial arrangement. City folk made their way to the provinces and found a new way of life, almost naturally.

        The collapse this time is going to be catastrophic.

        I like to imagine what it would have been like had the Constitution never been ratified, and the government under the Articles of Confederation never overthrown. How nice, because the incompatibility of the Yankees and the Cavaliers would have seen a split very early, and none of the many governments that would eventuate could have grown powerful enough to destroy liberty. No Louisiana Purchase; thus, no removal of the Choctaw Indians. No war against Mexico.

        Thus, no War to Prevent Southern Independence, and thus no genocide of the Plains Indians.

        We can dream, but then we wake up to what really happened. All of that happened because institutions are larger than the sum of their parts, and have a will to grow. To reuse Jeff Goldblum’s comment in Jurassic Park, they find a way. The best possibility never happened.

        Yes, anarchy is the only moral political position, but we are trapped in an imperfect world. That’s the problem with ultra libertarians, “anacho-capitalists”: they expect that the impossible can be implemented.

        I advise that we understand what SHOULD be, while acknowledging what IS. Even if we can’t change what IS, we should have a clear-eyed opinion about it. That is, be realistic. Not have our heads in the sand, as most people do, and not dream impossible dreams.

        I think that is in fact the strength of MHB. We examine horrible realities, knowing that they are real, and should not be happening, and also know we do nothing to make them not happen. But we wish to understand what is being done to us.

        1. Yeah, but……..have you ever seen a bureaucracy shrink? Have you ever heard of a government saying “that’s enough laws, you have no further need of us”?

          Further, why do people want to force their agendas onto everyone else through government? Why do people look to governments for solutions?

          There are but a few things in a core group of societal needs that require government. Anything beyond that is a self-destroying time bomb. In our current situation, that is decidedly according to plan, not out of natural atrophy..

          They want government to be so intrusive and disgusting that the eaters demand a change. They have one already prepared, and it isn’t anarchy. We see glimpses of it from time to time. Agenda 21 being a notable one.

          It isn’t “us” ushering these things into existence. They are selling these concepts on a massive scale. Few even realize the extent of it. Every aspect of our lives are effected by it.

          You see, they can’t lose. When it all collapses they will be ready to step in and “restore order”. Their order. It will all be for your own good.

  7. I really don’t think it matters at this point if you can get out of paying the tax. Time grows short and what is left of the constitution will be gone. As a citizen of the world you will be hit with taxes as you press “pay” on your smart phone. The IRS will become irrelevant in its current form, and people will cheer its demise, but not to worry, like lophatt says, the next system has already been built. That is why I don’t waste too much time prepping. What is the sense in prepping to survive in a world that will be swept away in favor of a new one. Someone said in another post that this is the first time the next civilization has actually been planned(probably Patrick, sorry I can’t remember which one to even look it up in as I have been catching up after vacation), and that is a profound difference in societal evolution. Taking what we will become out of natures(yes God’s) hands is going to be a huge mistake, and a painful existence for those not born of it. I fear we will be judged harshly for just letting it happen.

  8. Listen, I am sure this guy is absolutely correct. There have been many people over the past, what? 50+ years who have fought the income tax in almost exactly the same way. The modus operandi of the feds is to allow some leeway for a time, yes, even sending out refund checks. Then they shut it down, have a show trial that is completely rigged by a corrupt judge–but I repeat myself–and throw as many people in jail as possible with all the attendant publicity. Like Leona Helmsley and Martha Stewart, they are examples to scare the rest of us into staying in line.

    Irwin Schiff, Peter’s father, was one such forefather of Hendrickson. He showed that the income tax wasn’t owed very quickly by comparing how alcohol taxes vs. income taxes are described in the IRS code table of contents. That’s right, you don’t even have to read the ponderous wording. Just look at the table of contents. He said that the statement signed on the 1040 is a Miranda warning. He and his followers got refunds, too. Irwin Schiff is now in jail, serving what has to be a life sentence considering his age. He has been tortured, as well, it’s called the diesel treatment. Look it up.

    The reason the libertarians and “patriot” movement stay away from promoting these “the income tax is not valid” arguments is that it has blown up in their faces many times before. When the promoter goes to jail, the general public says, “Good, he was a criminal for not paying taxes. I’ve got to pay mine. He should pay his.”

    He who has the guns makes the rules. It simply doesn’t matter how unfair. We live in an abject police state with 90% of our neighbors in support. When I stop to truly contemplate the situation, I’m always reduced to tears.

  9. I authored a blog, http://tona13.blogspot.com, in which I discuss the original 13th Amendment, the Titles of Nobility Amendment. In doing so, I also discuss the 16th Amendment, and what I posit is that at the infamous 1910 meeting at Jekyll Island, the government and heads of corporations colluded to put the tax burden upon We The People.

    I believe Pete is on the right track, and the government would have so much more to gain from corporations paying their fair share…of course, that would mean that they lose their power over us.

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