Synaptic Sparks

Direct Tax On Labor

As explained on the Constitutional Issues Of Taxation page: 

As shown on the Labor Is Property page: 

Therefore, a tax on labor is a direct tax on capital.

The Supreme Court has this to say about changing the form of capital:

Starting from this point, the learned Solicitor General has submitted an elaborate argument in behalf of the government, based in part upon theoretical definitions of 'capital,' 'income,' 'profits,' etc., and in part upon expressions quoted from our opinions in Flint v. Stone Tracy Co. and Anderson v. Forty-Two Broadway, with the object of showing that a conversion of capital into money always produces income, and that for the purposes of the present case the words 'gross income' are equivalent to 'gross receipts'; the insistence being that the entire proceeds of a conversion of capital assets should be treated as gross income, and that by deducting the mere cost of such assets we arrive at net income.
In order to determine whether there has been gain or loss, and the amount of the gain if any, we must withdraw from the gross proceeds an amount sufficient to restore the capital value that existed at the commencement of the period under consideration.
When the act took effect, plaintiff's timber lands, with whatever value they then possessed, were a part of its capital assets, and a subsequent change of form by conversion into money did not change the essence.

DOYLE v. MITCHELL BROS. CO. , 247 U.S. 179 (1918)

This example shows the withdrawing of a sufficient amount from the gross receipts to restore the capital value:

Example 1:
  $110 gross receipts
-$100 less deduction - capital restored
   $10 net receipts
x  20% tax rate
    $2 tax due

$110 gross receipts
 -  $2 minus tax
 $108 receipts after tax
-$100 less capital expended
     $8 income.

This example shows a sufficient amount not being withdrawn:

Example 2:
  $110 gross receipts
     -$0  capital not restored
  $110 gross receipts
x  20% tax rate
   $22 tax due

$110 gross receipts
- $22 minus tax
  $88 receipts after tax
-$100 less capital expended
  -$12 capital value diminished

The following points also fall out of the Supreme Court citation shown above:

Recall that the Supreme Court stated:

[T]axation on income was in its nature an excise entitled to be enforced as such unless and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxation was adopted to prevent, in which case the duty would arise to disregard form and consider substance alone, and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it.

BRUSHABER v. UNION PACIFIC R. CO., 240 U.S. 1 (1916)

In other words substance takes precedence over form. Calling a direct tax an excise or income tax does not make it so if the substance of the tax is to tax the capital. In such a case that income or excise tax is actually a direct tax.

In example 2 above, without a deduction for capital expended, the tax is a tax on the gross receipts with an attendant diminution of the capital value. As such it is a direct tax on capital - property.

This is why taxing compensation for labor is a direct tax on labor.

The "experts" will assert that everything you are paid in compensation for your labor is taxable because you have "zero cost basis" in your labor.

In other words, they are claiming that because you didn't spend any money to become the owner of the labor you are selling for money, the entire amount of the compensation is taxable. 

Using the same format as example 2 above with labels changed as applicable, this is what the "experts" are asserting with their  "zero cost basis" assertion:

Example 3:
  $110 gross receipts
     -$0  labor not restored
  $110 gross receipts
x  20% tax rate
   $22 tax due

$110 gross receipts
- $22 minus tax
  $88 receipts after tax
-$110 less labor expended
  -$22 labor value diminished

Remember: Labor is property is capital. And in this example there is no withdrawing of an amount sufficient to restore the capital.

Let us call the bare minimum you need to support yourself without tax your "current" amount of labor or pay. Let us call the bare minimum you need to support yourself with a tax, your "new" amount of labor or wage. Using a 20% tax rate, this is how the formula used to make the conversion is derived:

New = Current + 20% of New
20% of New = .2New
New - .2New = Current
.8New = Current
New = Current ÷ .8

If you work 32 hours a week to support yourself: New = 32 ÷ .8 = 40
If you earn $288 a week (32 X $9 = $288): New = $288 ÷ .8 = $360
If you work 4 days a week: New = 4 ÷ .8 = 5

How is this different from the following situation?

You work five days a week to support yourself. You show up for work one day and a government tax collector is waiting for you. He tells you the tax on your compensation has been revoked and instead of paying 20% of your revenue, you must spend 20% of your working week doing so for the government, for free. Twenty percent of five days is one day. You are required to go with the tax collector and do the work he assigns to you one day a week.

If you only need to work four days to support yourself, a 20% tax on your labor (energy, time, and life), or a 20% tax on the gross revenue of your four days of work, means you now must work an extra day.

It does not matter if the tax is on your compensation for labor or if the tax is on your labor, either way you examine it, this tax is a direct tax on property.

And either way you examine it, you work 8 hours without compensation.

Amendment 13, Section 1, U.S. Constitution

Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Remember from previous pages you learned: 

The Supreme Court's citation and examination of what a direct tax is, as shown on the Constitutional Issues Of Taxation page, is again presented for your review.

Albert Gallatin, in his Sketch of the Finances of the United States, published in November, 1796, said: 'The most generally received opinion, however, is that, by direct taxes in the constitution, those are meant which are raised on the capital or revenue of the people; by indirect, such as are raised on their expense.
Mr. Hamilton also argued: 'If the meaning of the word 'excise' is to be sought in a British statute, it will be found to include the duty on carriages, which is there considered as an 'excise.' ... An argument results from this, though not perhaps a conclusive one, yet, where so important a distinction in the constitution is to be realized, it is fair to seek the meaning of terms in the statutory language of that country from which our jurisprudence is derived.' 7 Hamilton's Works (Lodge's Ed.) 333.

If the question had related to an income tax, the reference would have been fatal, as such taxes have been always classed by the law of Great Britain as direct taxes.

Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429 (1895)

compensation n. 1. The act of compensating or the state of being compensated. 2. Something, such as money, given or received as payment or reparation, as for a service or loss.

reparation n. 1. The act or process of repairing or the condition of being repaired. 2. The act or process of making amends; expiation. 3. Something done or paid to compensate or make amends.
Source: American Heritage Electronic Dictionary

There is a reason why it's called "compensation for labor".