M. Randolph Hamilton
There is no difference between capital gains and income for those who fall under the jurisdiction of the IRS and the federal government. Remember, not everyone is required to pay income tax. But for those of you who do live in a federal territory there are a couple of important things you should know when filing your tax return.
The first thing hat you should know is the legislature cannot legislate law that is contrary to the US Consttution. You should keep in mind however, that the US Constitution does not apply to those who reside in a federal territory, because you live in the United States in which the State is the sovereign instead of the people like those of us who reside in one of the fifty states.
The second thing you should know is the legislature cannot overrule by passage of law a Supreme Court ruling if the Supreme Court defines a thing in law without addressing that specific thing.
What is income?
The first thing we should look at when determining what income is is current Supreme Court rulings defining income. The term income is not defined anywhere in the internal revenue code. We therefore have to depend on Supreme Court rulings to define income. In Eisner v Macomber, 252 U.S. 189 we find;
"As repeatedly held, this did not extend the taxing power to new subjects, but merely removed the necessity which otherwise might exist for an apportionment among the states of taxes laid on income."
This means that the 16th amendment did not extend the taxing powers to new subjects. Sovereign people of the united states of America are not federal subjects. We also find;
"A proper regard for its genesis, as well as its very clear language, requires also that this amendment shall not be extended by loose construction, so as to repeal or modify, except as applied to income, those provisions of the Constitution that require an apportionment according to population for direct taxes upon property, real and personal. This limitation still has an appropriate and important function, and is not to be overridden by Congress or disregarded by the courts."
Here we see that the Supreme Court confirms that the federal governments authority to lay a direct tax on "property, real and personal." We also see the the US Congress does not have the authority to override any portion of the Constitution by legislation. We should also note;
" In order, therefore, that the clauses cited from article 1 of the Constitution may have proper force and effect, save only as modified by the amendment, and that the latter also may have proper effect, it becomes essential to distinguish between what is and what is not 'income,' as the term is there used, and to apply the distinction, as cases arise, according to truth and substance, without regard to form. Congress cannot by any definition it may adopt conclude the matter, since it cannot by legislation alter the Constitution, from which alone it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised.
The fundamental relation of 'capital' to 'income' has been much discussed by economists, the former being likened to the tree or the land, the latter to the fruit or the crop; the former depicted as a reservoir supplied from springs, the latter as the outlet stream, to be measured by its flow during a period of time. For the present purpose we require only a clear definition of the term 'income,' "
Income may be defined as the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle Case, 247 U.S. 183, 185, 38 S. Sup. Ct. 467, 469 (62 L. Ed. 1054).
Brief as it is, it indicates the characteristic and distinguishing attribute of income essential for a correct solution of the present controversy. The government, although basing its argument upon the definition as quoted, placed chief emphasis upon the word 'gain,' which was extended to include a variety of meanings; while the significance of the next three words was either overlooked or misconceived. 'Derived-from- capital'; 'the gain-derived-from-capital,' etc. Here we have the essential matter: not a gain accruing to capital; not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital, however invested or employed, and coming in, being 'derived'-that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal- that is income derived from property. Nothing else answers the description.
The same fundamental conception is clearly set forth in the Sixteenth Amendment-'incomes, from whatever source derived'-the essential thought being expressed with a conciseness and lucidity entirely in harmony with the form and style of the Constitution.
What the justices are saying here is the 16th amendment has to be interpreted with respect to the limiting clauses of Article I in regards to proportional direct taxes and income is in fact gain separated from the capital. Your labor is your property and therefore cannot be taxed. The IRS would have to somehow show that you are receiving an excess over and above the fair market value for your labor to show that that portion of your wages above the going rate is gain and therfore taxable. That would be a trick.