| Ever wonder how politicians like Harry Reid can say, with a straight face, that the United States income tax is a “voluntary” tax? Here is a video of Mr. Reid explaining how the US tax system is voluntary. Mr. Reid is no dummy. He knows what he is talking about. He is speaking the truth. He is just not telling the whole truth. The whole truth, which Mr. Reid will not share with us plebes, is there that the US income tax system is a voluntary system, but it begins with employers “voluntarily,” under the threat of draconian federal fines and imprisonment, saying false things about their employees. If you are an employer and refuse to lie about your employee to the IRS , you could be imprisoned. That is how voluntary it is.

To truly understand Mr. Reid’s voluntary system, it is important to first recognize that the Internal Revenue Code is a statute. Statutes are positive, man-made, law. In evaluating the rights and obligations of individuals under positive, man-made statutes, words and definitions are vitally important. For example, if the definition of “employee” in the Code was “green bananas,” and you are an employer who has 40 hard-working, honest employees but no green bananas on your payroll, you have no employees as defined by the Code. To employ a more nuanced example, if the Code defined employee as “a person of American Indian descent,” only the poor Native American on the payroll would be an employee as defined by the Code. The other 39 non-Native American employees would not be Code-defined employees.

The IRS, through its 3 million-word Code, successfully compels employers to “voluntarily” withhold income from their employees and pay it to the federal government and further compels them to file year-end W-2 and 1099 statements claiming that their employees’ income derives from federally taxable activities. Even though millions of employers do this every quarter, the question remains, are all these employees “green bananas” (individuals whose income derives from federally taxable activities) as defined by the Code? The Code of course provides a powerful incentive, fines and imprisonment, if employers fail to tell the IRS that their employee is a green banana subject to the federal income tax.

So here’s how Mr. Reid’s voluntary system works. The withholding provisions that apply to workers are found in chapters 21 and 24 of the Code. For instance, in chapter 24, Section 3402, entitled “Income tax collected at source,” requires all “employers” who pay “wages” to “employees” to withhold a percentage of those wages and send them to the federal government. Section 3402 requires all “employers” paying “wages” to withhold from those wages a percentage of those wages as determined by Treasury Secretary (and failed tax protestor) Timothy Geithner:

§ 3402. Income tax collected at source

(a) Requirement of withholding

(1) In general

Except as otherwise provided in this section, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary.

If, after reading the foregoing section, an employer is not sufficiently persuaded to deduct money from his employee’s paycheck and send it to the federal government, the Code provides a panoply of incentives. Section 7201 threatens to fine (up to $500,000) and imprison (up to 5 years) any employer who willfully tries to evade “or defeat” any tax imposed by the Code. That’s right, defeat. If an employer reads the Code and willfully fights to “defeat” it with things like truth and sound arguments, it could be a crime. Land of the free? Home of the brave? More like, speak up and they will throw you in the clink. In addition, section 6662 threatens to fine an employer who underwithholds or fails to withhold.

So the Code provides employers with strong incentive to tell the IRS that their employees are “employees” as defined by the Code and that their wages are “wages” as referenced in section 3402. So what, you might ask. What is untruthful about any of that? Or you may be one of those who thinks that all tax protestors, including the brave and intelligent Irwin Schiff, father to Austrian economist and candidate for Senate Peter Schiff, are simply skinflint crackpots. They should just shut up and pay their fair share to abet the killing of Third World brown people and bail out silk-stocking Wall Street bankers. After all, everyone knows that we are all obligated to pay federal income taxes and also knows that things like roads, bridges and police did not exist before the 1913 Fabian Socialist income tax.

Here is the rub. The most relevant, most important definitions of “green bananas” (the people whose activities are subject to the withholding called for in 3402), the definitions of “employee” and “wages”, are also contained in chapter 24, subtitle C of the Code, in section 3401. Here is where an employer can discover whether any of their employees are actually “employees” as referenced in section 3402, and whether these employees’ pay actually qualifies as the “wages” subject to the withholding mandated under section 3402:

(a) Wages

For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash;

The definition of wages begs the question, “who is an employee”? The answer is also found in section 3401:

(c) Employee

For purposes of this chapter, the term “employee” includes an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia , or any agency or instrumentality of any one or more of the foregoing. The term “employee” also includes an officer of a corporation.

Pretty narrow definition. Clearly doesn’t include any free market employee. Strange, but true. Read More

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