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Direct/Indirect Cases ... Context and Commentary

As long as the Steward Machine Case is kept within its context, the decision rendered by the Supreme Court makes perfect sense. The case was about "privileges" associated with the operation of "business," not that every conceivable activity was "business".

Excise taxes had always been levied upon the "gains and profits" derived from the operation of business, whereas, excise taxes upon the "privilege" of employing others in the operation of that "business" had never been attempted. The court simply concluded that both fell within the operation of an excise.

For a better understanding of what the court was saying read "Taxing the Exercise of Natural Rights" by John M. Maguire, Harvard Legal Essays, 1934. This essay was cited by the court in the Steward Machine case as authority for the imposition of excise taxes upon "business privileges," not common labor for hire [common law, master-servant relationship], as such would be seen as "poll" or "capitation" taxes.

Congress departed from the "net-income" tax in 1942 when they lowered the "personal exemption" to a point below the "wages" earned by common labor, then included those common laborers within the "net-income" tax through the new concept of "adjusted gross income". [The definition, provided by Congress, for the term "adjusted gross income" is: the net-income derived from business and professional activities, and the gross "wages" of the common law employee.] For "business owners" there is no difference between the deductions allowed by section 62 (a) (1) and those allowed by section 63 (a), such "expenses" are deducted from gross income (business receipts) above the line, i.e., in order to establish net-income subject to Subtitle A taxes. Whereas the employee's "wages" (gross receipts) are shown on the same line as their employer's net profits. Follow the entries on the 1040 tax return; line 22 is "total income". Really, what happened to the business receipts? Follow section 22 (n) through the transition from the 1939 to the 1954 Code section 62 (a), it did not change. Gross income was defined under section 22(a) of the 1939 Code as "gains, profits and income derived from", as such; it did not include the employee's gross receipts (wages) as such receipts were not "derived from" commercial and financial receipts. Congress invented the concept of "adjusted gross income" so that they could include the employee annual receipts in commercial net income, thereby making the employee's "wages" comparable to their employer's "compensation for personal service." The "withholding tax" is not a "tax," it is a collection method for "taxes" imposed under Subtitle A.

Title 15 Section Section 382. Assessment of net income taxes:
(a) Limitations
No State, or political subdivision thereof, shall have power to assess, after September 14, 1959, any net income tax which was imposed by such State or political subdivision, as the case may be, for any taxable year ending on or before such date, on the income derived within such State by any person from interstate commerce.

Title 15 Section 17:
The labor of a human being is not a commodity or article of commerce. Nothing contained in the antitrust laws shall be construed to forbid the existence and operation of labor.