1. GROSS INCOME
General: how you characterize tax is important.
Tax code is a means of social policy (e.g.- singles taxed more than married).
Tax is ultimate national power ($1.5 trillion); all other powers flow from it.
No constitutional problem for 70 years; why? Taxing power is critical to government.
Quirk disapproves of IRS imposing tax on salaries less than $30,000. Alternatives are national sales tax or consumption tax.
E. Definition of Income: Income is an undeniable accession to wealth, clearly realized, over which a TP has control.”
F. §63: taxable income defined: gross income minus the deductions by this chapter (other than standard deduction). Rates apply here.
1. 63© Standard deduction
a. $4000 (approximately) for single person
b. $7000 (approximately) for married (joint)
2. §151 personal deduction
a. $2000 for single ($2700 adjusted for inflation); $5000 total combining §§61 and 151; the rest is inflation adjustment (see parenthetical).
3. Rule: combination of standard and personal deductions is threshold of when to file. (standard + personal = filing floor; if below, then don’t file) If you make more than $6400, you must pay taxes.
4. Rate table: 28% for single making $22,100; 7.5% social security on employee, and 7.5% on employer. 8% goes to the state. Total of 51% on 22,100 – very high.
5. the top 20% of the population makes $50K or more and pay 75% of the total amount of income taxes collected.
6. Quirk says this indicates that there is no need to tax people making less than $30,000.
7. In 1939, 1 in 33 people paid income tax. Now, ½ of the population pays income tax. Not a wealth redistribution anymore.
8. Article I, §9 of Constitution forbids a direct tax except in proportion to population (no direct tax on property). SC only had 1/10 of the people in nation, so only had to pay 1/10 of tax. Wealth doesn’t follow population now.
a. Pollock: government couldn’t impose income tax because it’s a direct tax.
b. 16th Amendment passed (1913) in reaction to Pollack allowing the government to impose income tax, but still said you can’t impose a tax on wealth or property.
9. Points of lecture:
a. We are heavily taxed country (Quirk hates taxes!)
b. Financial political impasse because of aging population (p55 of Supp); debt bomb goes off around year 2000 (debt is $6 trillion now; in 1970, debt was $380 billion)
c. Only solution was to raise taxes and lower benefits. Need people’s consent though. Social security is a problem that can’t be solved.
d. (Quirk really hates social security).
10. Jefferson – Earth belongs to the living. The new generation shouldn’t have to pay for past’s foolish spending. Have to compromise to get people to pay for another group’s program. Debt casts burden on future generations. Paying $50-60 million an hour in interest.
11. See chart on p9 of Supp. The point i
rates apply here)
a. Standard deductions
b. Personal deductions
4. §151(d) – allowance of deductions for personal exemptions – exemption amount of $2000 ($2700 adjusted for inflation).
H. Value of deduction vs. value of credit
1. Value of deduction – in order to tell how valuable a deduction is, you must know the tax rate (e.g.- $15 million to charity has a 50% rate, so tax on $7.5 million comes out of pocket.
2. Value of credit – saves you dollar for dollar; comes off actual taxes to be paid.
3. See p79 for difference between credit and deductions. Deductions are computed as saving tax that would otherwise be paid.
4. Marginal rate – top rate of each dollar over taxed.
I. Form of receipt: Old Colony Trust Co. v. Commissioner (p66)
1. Facts: employer paid employee’s income taxes pursuant to K for salary + commissions only, not his total income from all sources (that includes employer’s payment of taxes for employee)
2. TP’s arguments are that Commissioner can’t impose a tax on a tax, and, alternatively, that the payment was a gift.
3. Rule: if someone pays your obligation, it is as if you had received the money as income.