· Page 131 Supp. – Constitution’s take on Taxes
§ Article 1: No direct Tax – Problem with creating income tax
§ Led to 16th Amend.
§ Congress shall have the power to lay and collect taxes on INCOME – from whatever source derived
§ Allowed the creation of income tax to redistribute money
· Income tax collects 1.1 trillion
§ Corp Tax – 200 billion
§ S.S – 771 Billion
§ Excise – 87 billion
· Total: 2.2 Trillion taken in
· We spend 2.6 trillion = deficit! – The government is borrowing money, not paying as they go.
· 2 main supports for the federal gov’t: 1) Income Tax 2) Social Security Tax
· Income Tax = Progressive
§ As you earn more you pay a higher percentage
§ Those under $20K pay northing, they get money back
· S.S. Tax = Regressive
· Where does the money come from?
§ Page 3 Supp – Distribution of Federal Individual Income Tax Liability
§ Progressive Tax – 2.2% (highest income) of the population ($200K and above) pay 42.7% of the taxes
§ 8.0% of the population ($100-$200K) pay 24.1% of the income taxes
§ So, over ½ of the income taxis paid by 10% of the population
§ Page 4 Supp – Distribution of all Federal Tax Liability (including S.S. – a regressive tax).
§ The poor people pay more in S.S. tax than the wealthy people, but less in income taxes – so it ends up being a relatively flat tax.
· Section 1 in Code Book = Progressive Tax
· Flat Tax = One rate – everyone pays the same
· Regressive Tax (Like S.S. – caps at $87K) –
Chapter 2: Gross Income
· Old Colony Trust Co. v. Commissioner
§ Facts: Company agreed pay the president’s personal income tax. The president then only claimed his net salary, not considering the income tax that the company paid for him.
§ Issue: Whether the tax payer, having induced a third person to pay his income tax or having acquiesced in such payment as made in discharge of an obligation to him, may avoid the making of a return thereof and the payment of a corresponding tax? No.
· The income tax paid by the co. is income even though the president did not receive cash but merely a benefit. IT was bargained for in exchange for the president’s work upon valuable consideration. They were income
§ Black Letter Rule: Gross income is not limited to situations in which cash is actually received by the tax payer.
o Broad definition.
· § 101-150 – enumerated list of what is considered to be “not income”
· What is income?
· To whom is it income?
· What is the value of the non-money income
· § 262 – Personal, living, family expenses
o No deduction allowed for these expenses
o Telephone line is a personal expense
· How to escape paying income:
o Gift – not income
o Tools of the Trade – not income
§ If you were a food critic – cost of the meal is a tool of the trade
o No Cost –
§ President argued this applied to the family when he was flying – if there is an empty seat when he is flying – what diff does it make if someone comes along?
· What if you caught Barry Bonds 600th home run ball – is this income?
Glenshaw Glass Case: Source of income is irrelevant – all income become questions become simple enrichment – all gains are taxable – whether traceable to labor,