A businessman owns a gas station. This gas station has three sources of revenue: Sales of gasoline, sales of automobile parts and accessories, and sales of auto repair services. The businessman sells the gasoline, accessories and auto parts for more than he bought them for. He also charges his customers more per hour for his repair services than he pays his mechanic. If the gas station is well managed, then we can expect that the businessman has derived income from the sale of gasoline, accessories, parts and labor.
For the auto mechanic it is necessary for his survival that he earn a wage. No wages equals no food, shelter or clothing.
Not so for the businessman. The businessman’s survival is not dependent on realizing a profit off his own labor. He realizes a profit off of his employees’ labor. The cost of any tax on the businessman’s profit may be passed onto the gas station’s customers. The businessman, therefore, does not pay the tax. An income tax on the net income of the businessman is an indirect tax whereas an income tax on the gross wages of the auto mechanic is a direct tax.
Another example: A truckload of cigarettes. The cigarettes themselves are property of the owner, yet there is an excise tax on the sale of these cigarettes. One can argue that this is a tax on property, yet the tax is completely constitutional as an excise tax. The tax on the cigarettes is a tax on the purchase (consumption) of them. There is no source that is diminished by the tax and the tax is avoidable.
You don’t have to smoke.
“It has been well said that, ‘The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing his strength and dexterity....is a plain violation of this most sacred property.’
~Adam Smith’s Wealth of Nations, Book I, Chapter 10.” Butchers’ Union Co. v. Crescent City Co., 111U.S. 746, 757 (1883).
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