Income Tax
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Comments on Aaron Russo's America: Freedom to Fascism Movie producer Aaron Russo, whose screen credits include successful, well-known Hollywood films such as Trading Places, put together a film called America: Freedom to Fascism, which discusses two main themes: income tax and the Federal Reserve System. With regard to each theme, the movie embraces far-out, fantastical conspiracy theories. The movie is available for free viewing on the Internet. Some comments on the income tax aspects of the movie follow below. But first, a basic, general point. Don't take your legal advice from Aaron Russo. That would be like taking medical advice from Tom Cruise. Not a good idea. These men are entertainers. Both of them are very good at what they do. Tom Cruise is a fine actor. I particularly liked his performance in Rain Man. But that does not make him a doctor. Americans have the good sense to understand this. Most people realize that Mr. Cruise is sadly mistaken with regard to theories of mental health care. He has rejected conventional psychiatry and embraced bizarre theories that appear to have something to do with his religion (the Church of Scientology). I think most people understand that, if someone you loved had a mental health problem, you would want to get advice from a competent doctor, not from a confused actor like Mr. Cruise. The same reasoning applies to Mr. Russo. To have produced a successful Hollywood movie like Trading Places is a considerable achievement. But that does not mean that Mr. Russo knows the first thing about how to figure out what the law is. America: Freedom to Fascism shows that he certainly has no clue about the income tax laws. If you want to know what the law is, go to a legal expert, not a movie producer. Income tax fallacies in America: Freedom to Fascism America: Freedom to Fascism contains a long series of wholly mistaken arguments about the legal duty to pay income taxes. Most prominently, it relies on the false assertion that "there is no law" that requires most Americans to pay income taxes. It repeats this tired, incorrect claim again and again. Commentary on the movie's arguments follows below (roughly in the order in which the arguments appear in the movie). The Sixteenth Amendment was not ratified The film opens with a brief reference to the claim that the 16th Amendment (which authorized the income tax) was not ratified. This incorrect argument is covered on my web page here. Ordinary people haven't seen the income tax law In an introductory segment, Russo interviews ordinary people on the street and asks them if they have ever seen the actual law that requires them to pay taxes. They say no (or don't answer). Well, of course they haven't seen the income tax law. Most people are not lawyers. Most people have never seen any actual law. Most people wouldn't know where to look for any actual law even if they wanted to. And even most lawyers don't spend their time looking up the actual statutes that we all obey in our everyday lives. Have you ever seen the actual, written laws that prohibit murder, robbery, or arson? Have you seen the actual, written law that requires you to drive on the right side of the road? I bet if you asked 100 random people whether they have ever seen these laws, at least 99 of them would say no. Does that mean that these laws don't exist? Does that mean it's a fraud to tell people that they can't murder each other or burn down buildings? Of course not. Whether ordinary people have seen the actual statutes about anything is irrelevant. All that matters is whether the statutes exist, and the tax statutes do: Former IRS employees say you don't have to pay taxes Russo interviews some former IRS agents who have joined the tax protestor movement. Any big government agency with tens of thousands of employees will at some point employ some foolish people. The fact that some former IRS agents are tax protestors is not persuasive. The IRS refuses to show people the law Some of the former agents Russo interviews say that the IRS has "refused" to say which laws require people to pay taxes. Russo pursues this point at length throughout the film, but it's false. The IRS has specified the relevant laws in its publication "The Truth About Frivolous Tax Arguments," which is posted on the IRS website. I like my own explanation of the laws better, but the IRS explanation gets the job done. It may be true that the IRS doesn't do as good a job as it should of responding to inquiries about this point. If I were in charge of the IRS I would certainly have a standard form answer that I sent to everyone who asked to see the laws that require payment of income taxes, which would clearly and courteously lay out exactly what the laws are. Apparently, if the tax protestors are to be believed, the IRS doesn't do this. But the answer is on the agency's website for anyone to see. And again, here it is on my website:
The income tax is unnecessary Russo shows some people making arguments that the income tax is a bad and unnecessary way for the government to raise money. These are policy arguments that have nothing to do with the legal question of whether current statutes require the payment of income taxes. "Tax experts" say you don't have to pay income taxes Russo shows interviews with people he refers to as the "tax experts." I didn't recognize everyone he showed, but he included Larken Rose and Irwin Schiff. Considering that they have both been criminally convicted of tax crimes, I think it's fair to say that they—and by implication the other people that Russo interviews—are not "tax experts." If Russo wants to interview some people who actually know something about the income tax code, there are professors available at every law school who would be happy to speak to him on camera—heck, I'd be happy to do it myself. (Mr. Russo, if you read this, call me anytime.) The Sixteenth Amendment conferred no new power to tax Mr. Russo's "tax experts" loudly and proudly quote some vintage Supreme Court opinions that say that the Sixteenth Amendment "conferred no new power of taxation." This is true, but tax protestors misinterpret the significance of this point. The Sixteenth Amendment did not give Congress a new power to tax, but it relieved the existing power to tax incomes from the previous requirement that the tax be "apportioned" among the states in accordance with the census. Therefore, the income tax is now constitutional. More detail on this point can be found here. "Income" includes only corporate gains; "income" does not include wages; "income" is not defined. Some "tax experts" in the film claim that the term "income" does not include wages, but only covers gains from corporate activity. This absurd argument is covered here. Mr. Russo himself complains that the term "income" is not defined in the tax code. This point is addressed here. The Commissioner doesn't know the law! Mr. Russo interviews a former IRS Commissioner who, it must be conceded, puts in a rather poor performance. It is disappointing that he didn't do a better job answering Mr. Russo's questions. But note these points: • An IRS Commissioner is not required to have the answer to every ridiculous tax protestor argument ready at all times. He has more important things to worry about -- running a huge government agency and thinking about real, important tax questions, for example. Answering every absurd argument that anyone might make would, rightfully, have a lower priority. If you interviewed the head of NASA and suddenly demanded that he prove that the moon landings weren't faked, I expect you would get a similar brush-off. These important officials have real work to do. • The former Commissioner interviewed by Russo has been out of office for decades. He was Commissioner from 1965-1969. He probably doesn't remember every statutory citation for the laws he enforced nearly 40 years ago. • It appears that Mr. Russo didn't give the former Commissioner advance notice of the questions he would be asking -- at one point, the former Commissioner says that he was caught unprepared. Even though Russo offers to come back, I can understand why the former Commissioner wouldn't want to waste his time addressing ridiculous arguments. • According to a New York Times article published July 31, 2006, the former Commissioner has asserted that Mr. Russo used editing that twists his views and creates a false impression. (Russo denies this.) • The article also states that an IRS spokesman sent Mr. Russo the correct citations to the specific sections of Title 26 that impose the duty to pay income taxes, but Mr. Russo rejected them because he believes that Title 26 is not law. Mr. Russo's view is an absurd misconsception -- Title 26 is law passed by the United States Congress. Details on this point can be found here. As noted above, if I were the Commissioner, I would have a standard, clear, courteous answer to the question, "what law requires people to pay income taxes?" that I would distribute to anyone who asks. I agree that the government owes everyone the answer to this simple question. But, as noted above, the IRS does give the answer on its website. So it's there, even though not everyone at the IRS (including the Commissioner) has the answer at their fingertips at all times. And, once again, here's the answer on my website:
Occasionally tax protestors win cases Mr. Russo claims that tax protestors sometimes win cases against the IRS, and he spends a particularly tedious amount of time interviewing a juror in one such case. It is true that, on rare occasions, the IRS loses a criminal case against a tax protestor. Part of the reason for this is that the crime of tax evasion requires a showing that the defendant willfully failed to pay taxes, which means that the defendant must be shown to have known that he was required to pay. So if the defendant really believed he wasn't required to pay, his failure to pay is not a crime. But this doesn't change the fact that the law required the defendant to pay, and the IRS can still collect the taxes owed plus interest and hefty penalties even if it doesn't succeed in putting a particular protestor in jail. For more detail on this point, see here. Also, criminal cases get tried before lay juries, which sometimes get confused and misunderstand the law. Mr. Russo presents one juror who very confidently and smugly says that there is no law requiring people to pay income taxes. Her unfortunate ignorance does not change what the law actually is. All she, or anyone else, needs to do to see the law is to click here. IRS moves too agressively against innocent people Mr. Russo presents several stories in which the IRS allegedly moved highly aggressively against people who, according to the film, did nothing wrong. I am sure that the IRS takes improper enforcement actions sometimes. This is a shame. It is also irrelevant to the question of whether the law requires people to pay income taxes. And now for something completely different . . . let's bash the Federal Reserve! After almost an hour of absurdly incorrect arguments about the income tax, Mr. Russo switches to arguments about the Federal Reserve system. Thank goodness, it's not my job to address those (dealing with one set of ridiculous arguments is enough work), but I will just mention a couple of Mr. Russo's more outlandish points. First, his opening shot. Russo asks "Why in the world would the American Government borrow money and pay fees on it, when it has the authority to make the money itself, interest free?" This question demonstrates that Mr. Russo's ignorance of the monetary system matches his ignorance of income tax law. If the government met its needs for money by just printing more, the result would be massive inflation. Yes, the government could pay off the entire national debt by just printing more money. But the resulting inflation would be enormous. Money is like anything else: if a lot more of it becomes available, its value goes down. Ironically, Mr. Russo complains bitterly about inflation a little later in the film. If you don't like inflation, you should want the government to meet its financial needs by borrowing rather than by printing arbitrary amounts of money. (Of course, better still would be for the government to spend less so that it doesn't have to borrow, but that's another story.) Russo also spends a lot of time complaining that paper currency is devalued or valueless. He says that our paper currency is "no different than Monopoly money." He shows a real $20 bill and a $20 Monopoly bill on the screen and says that these are just "pieces of paper" with "the same amount of backing . . . none." If Mr. Russo really thinks a U.S. $20 bill is worth the same as $20 in Monopoly money, the solution is simple: send all those real twenties to me. I promise to replace any number of real, United States $20 bills with an equal number of Monopoly twenties. And that offer goes for anyone else, too. (The offer is good for as long as Monopoloy sets with at least 20 twenties are manufactured and sold for less than $100 retail.) What's that, Mr. Russo? You're not going to send me your real twenties? Hmm, I guess you must think they're worth more than Monopoly twenties. Immediately after that, Russo says "the dollar today is actually worth about four cents." That's a direct quote. That's his voice speaking in the film, and he puts a picture of four pennies up on the screen. Again, if he really believes that, I firmly promise to give him four pennies for every real, U.S. paper dollar he cares to give me. Heck, I'll give him five pennies, so he'll turn a profit. And that offer goes for anyone else too (and is good for as long as the U.S. penny is in circulation and is worth 1/100 of a dollar). Please take me up on it, preferably in large quantities. Americans losing their freedoms Mr. Russo spends the rest of the film complaining about incursions on America's freedoms that result from the Patriot Act, secret government wiretapping, limitations on habeas corpus, other powers asserted by the President and the federal government, RFID technology, computerized voting, the IMF, the WTO, and other matters and organizations. Some of his points are quite real and worthy of concern; others are silly or overstated. It's a pity that the real concerns are wrapped up in a film that contains so much absurd nonsense that it's difficult to take any of it seriously. CONCLUSION Aaron Russo has made a misleading, irresponsible film filled with utterly incorrect statements about the income tax. Don't be fooled. If you choose to believe and act upon his absurd conclusion that most Americans don't have to pay income taxes, you could end up paying extra to the government in interest and penalties and you could land yourself in jail. I assume that a successful Hollywood producer like Aaron Russo has easy access to legal advice. If he really wanted to find out whether there is a law that requires people to pay income tax, all he needs to do is ask a real lawyer to research the matter. About an hour of research in the U.S. Code (or two minutes on Google) is all that would be necessary. Instead, he fills his film with interviews of convicted criminals and other absurd fringe characters who repeat outlandish falsehoods. Why would Mr. Russo do this? I can't be certain of his motives. I presume he's not doing it just for the money. I assume he has plenty of money, and if he wants more there must be more lucrative things he could do than turning out a ridiculous piece of nonsense like this movie. A story in the New York Times (July 31, 2006) reports that "Mr. Russo has more than $2 million of tax liens filed against him by the Internal Revenue Service, California and New York for unpaid federal and state taxes." If that is true, perhaps this film grows out of Mr. Russo's anger at the IRS for its enforcement of tax laws against him. Perhaps it's just his way of getting revenge by causing trouble for the government. I don't really know his motives. But I do know that Mr. Russo's conclusions about the income tax laws are completely wrong. One last time:
-- Jonathan R. Siegel, Professor of Law, George Washington University Law School |
Update: Aaron Russo died
August 24, 2007. |