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Appendix W
Memos on Downes vs Bidwell
Page W - 1 of 12
The Federal Zone:
Reader's Notes:
Page W - 2 of 12
Appendix W
MEMO
TO: Edward A. Ellison, Jr., J.D.
John William Kurowski
FROM: Mitch Modeleski, Founder
Account for Better Citizenship
DATE: March 24, 1992
SUBJECT: "Direct Taxation and the 1990 Census"
your essay in Reasonable Action newsletter,
Save-A-Patriot Fellowship, July/August 1991
I was very gratified to see such a thorough and
authoritative treatment of "direct taxation" in the July/August
1991 issue of the Reasonable Action newsletter. My research
continues to convince me of the extreme constitutional importance
of the apportionment rule for direct taxes levied by Congress
within the 50 States of the Union. I am writing this memo to
share with you some of my thoughts on the subject, and to offer
my challenge to a few points which are not necessarily beyond
dispute. Please understand that I am in general agreement with
most, but not all of your essay. Permit me to play "devil's
advocate" as I focus on some issues which deserve greater
elaboration and substantiation.
The so-called 16th Amendment remains highly relevant to this
subject, for a number of important reasons. First of all, since
1913, several federal courts have attempted to isolate the
precise effects of a ratified 16th Amendment. Unfortunately for
us, when all of these cases are assembled side-by-side, the
rulings are not consistent. We are forced to admit the existence
of separate groups of court decisions that flatly contradict each
other. One group puts income taxes into the class of indirect,
excise taxes. Another group puts income taxes into the class of
direct taxes. One group argues that a ratified 16th Amendment
did not change or repeal any other clause of the Constitution.
Another group argues that a ratified 16th Amendment relieved
income taxes from the apportionment rule. Even experts disagree.
To illustrate the range of disagreement on such fundamental
constitutional issues, consider the conclusion of legal scholar
Vern Holland:
... [T]he Sixteenth Amendment did not amend the
Constitution. The United States Supreme Court by unanimous
decisions determined that the amendment did not grant any
new powers of taxation; that a direct tax cannot be
relieved from the constitutional mandate of apportionment;
and the only effect of the amendment was to overturn the
theory advanced in the Pollock case which held that a tax on
income, was in legal effect, a tax on the sources of the
income.
[The Law That Always, page 220]
Page W - 3 of 12
The Federal Zone:
Now consider the opposing view of another competent scholar.
After much research and much litigation, author and attorney
Jeffrey A. Dickstein offers the following concise clarification:
A tax imposed on all of a person's annual gross receipts is
a direct tax on personal property that must be apportioned.
A tax imposed on the "income" derived from those gross
receipts is also a direct tax on property, but as a result
of the Sixteenth Amendment, Congress no longer has to enact
legislation calling for the apportionment of a tax on that
income.
[Judicial Income and Your Income Tax, pages 60-61]
The following Appellate ruling is unique among all the relevant
federal cases for its clarity and conciseness on this question:
The constitutional limitation upon direct taxation was
modified by the Sixteenth Amendment insofar as taxation of
income was concerned, but the amendment was restricted to
income, leaving in effect the limitation upon direct
taxation of principal.
[Richardson vs United States, 294 F.2d 593 (1961)]
[emphasis added]
Granted, this is not a decision by the Supreme Court, but the
decision is useful because it is so clear and concise, and also
because it is very representative of that group of rulings which
found that a ratified 16th Amendment relieved income taxes from
the apportionment rule. By inference, if income taxes were
controlled by the apportionment rule prior to the 16th Amendment,
then they must be direct taxes (according to one group of
rulings).
Recall now that 17,000 State-certified documents have been
assembled to prove that the 16th Amendment was never ratified.
Congress has already been served with several official complaints
documenting the evidence against the 16th Amendment, pursuant to
the First Amendment guarantee for redress of grievances.
Congress has now fallen silent. I am the author of one of these
complaints (see The Federal Zone, Appendix J). Relying on one
group of rulings, the Pollock, Peck, Eisner and Shaffer decisions
leave absolutely no doubt about the consequences of the failed
ratification: the necessity still exists for an apportionment
among the 50 States of all direct taxes, and income taxes are
direct taxes.
Federal courts did not hesitate to identify the effects of a
ratified 16th Amendment. Now that the evidence against its
ratification is so overwhelming and incontrovertible, the federal
courts are unwilling to identify the effects of the failed
Page W - 4 of 12
Appendix W
ratification. These courts have opted to call it a "political"
question, even though it wasn't a "political" question in the
years immediately after Philander C. Knox declared it ratified.
I personally find it hard to believe that the federal courts are
incapable of exercising the logic required to isolate the legal
effects of the failed ratification. Quite simply, if a ratified
16th Amendment had effect X, then a failed ratification proves
that X did not happen. What is X? Their "political"
unwillingness to exercise basic logic means that the federal
courts have abdicated their main responsibility -- to uphold the
constitution -- and that we must now do it for them instead.
That is just one of the many reasons why I wrote and published
The Federal Zone in the first place. I believe I have succeeded
in accurately situating the issue of the 16th Amendment inside a
much broader context. What is that much broader context?
Let me begin my answer to that question by first quoting
from your essay, in the section entitled "Documenting the Truth":
The Constitution still grants to the Congress the power of
laying an "apportioned" direct tax but notwithstanding the
advent of the 16th Amendment all "direct" taxes must be
apportioned. There is no exception to this rule.
[emphasis added]
In a strictly normative sense, I would certainly agree that
this is the way it should be. But, in a practical and empirical
sense, is this really the way it is? I say no. In exercising
its exclusive authority over the federal zone, Congress is not
subject to the same constitutional limitations that exist inside
the 50 States. For this reason, the areas that are inside and
outside the federal zone are heterogeneous with respect to each
other. This difference results in a principle of territorial
heterogeneity: the areas within (or inside) the federal zone are
subject to one set of rules; the areas without (or outside) the
federal zone are subject to a different set of rules. The
Constitution rules outside the zone and inside the 50 States.
The Congress rules inside the zone and outside the 50 States.
The 50 States are, therefore, in one general class, because all
constitutional restraints upon Congress are in force throughout
the 50 States, without prejudice to any one State. The areas
within the federal zone are in a different general class, because
these same constitutional restraints simply do not limit Congress
inside that zone (see The Federal Zone, chapters 12 and 13).
I would never ask you to accept this principle of
territorial heterogeneity simply on faith. There is solid case
law to substantiate it. You may recall, it is the Hooven case
which officially defined the three separate and distinct meanings
of the term "United States". This same definition can also be
found in Black's Law Dictionary, Sixth Edition. The Supreme
Court ruled that this case would be the last time it would
Page W - 5 of 12
The Federal Zone:
address official definitions of the term "United States".
Therefore, this ruling must be judicially noticed by the entire
American legal (and paralegal) community. In my opinion, the
most significant holding in Hooven has to do with territorial
heterogeneity, as follows:
... [T]he United States** may acquire territory by conquest
or by treaty, and may govern it through the exercise of the
power of Congress conferred by Section 3 of Article IV of
the Constitution ....
In exercising this power, Congress is not subject to the
same constitutional limitations, as when it is legislating
for the United States***. ... And in general the guaranties
[sic] of the Constitution, save as they are limitations upon
the exercise of executive and legislative power when exerted
for or over our insular possessions, extend to them only as
Congress, in the exercise of its legislative power over
territory belonging to the United States**, has made those
guarantees applicable.
[Hooven & Allison Co. vs Evatt, 324 U.S. 652 (1945)]
[emphasis added]
I have taken the liberty of adding asterisks ("**","***") to the
above, in order to identify which meaning of "United States" is
being used in each occurrence of the term. Computer users prefer
the term "stars" over "asterisks" because it has fewer syllables.
Return now to your statement that "there is no exception to
this rule" that all direct taxes must be apportioned. Using the
Hooven case and others as our guide, it is more accurate to say
that all direct taxes must be apportioned whenever they are
levied inside the 50 States of the Union. On the other hand,
direct taxes need NOT be apportioned whenever they are levied
outside the 50 States of the Union, and inside the areas of land
over which Congress has exclusive legislative jurisdiction. The
authorities for this exclusive legislative jurisdiction are
1:8:17 and 4:3:2 in the U.S. Constitution. You may disagree with
this interpretation of the term "exclusive", and that is your
right, but in doing so you are disagreeing with the Supreme
Court. Evidently, this was not the first, nor the last time the
high Court has differed with the Framers of the Constitution.
As it turns out, the pivotal case law on this question
predates Hooven by 44 years, and predates the so-called 16th
Amendment by 12 years. In Downes vs Bidwell, 182 U.S. 244
(1901), the issue was a discriminatory tariff which Congress had
levied on goods imported from Puerto Rico (or "Porto Rico" as it
was spelled then). Congress had recently obtained exclusive
legislative jurisdiction over this territory by virtue of the
treaty of peace with Spain. The import duty was obviously not
uniform, as required by 1:8:1 in the U.S. Constitution, since it
Page W - 6 of 12
Appendix W
was levied specifically against goods originating in Puerto Rico.
In a 5-to-4 decision, the Supreme Court upheld the import duty,
even though it was not uniform, on the principle that the
uniformity rule applied only to the 48 States and not to the
areas of land, i.e. enclaves, territories and possessions, over
which Congress has exclusive legislative authority.
The controversy that surrounded Downes vs Bidwell was
intense, as evidenced by the flurry of articles that were
published in the Harvard Law Review on the subject of "The
Insular Cases" as they were called. Perhaps the most lucid
criticism of the Downes majority can be found in Justice Harlan's
dissent:
The idea prevails with some -- indeed, it found expression
in arguments at the bar -- that we have in this country
substantially or practically two national governments; one
to be maintained under the Constitution, with all its
restrictions; the other to be maintained by Congress
outside and independently of that instrument, by exercising
such powers as other nations of the earth are accustomed to
exercise.
[Downes vs Bidwell, 182 U.S. 244 (1901)]
[emphasis added]
To appreciate how alarmed Justice Harlan had become as a result
of this new "theory", consider the following from his dissent:
I take leave to say that if the principles thus announced
should ever receive the sanction of a majority of this
court, a radical and mischievous change in our system of
government will be the result. We will, in that event, pass
from the era of constitutional liberty guarded and protected
by a written constitution into an era of legislative
absolutism. ...
It will be an evil day for American liberty if the theory of
a government outside of the supreme law of the land finds
lodgment in our constitutional jurisprudence. No higher
duty rests upon this court than to exert its full authority
to prevent all violation of the principles of the
Constitution.
[Downes vs Bidwell, 182 U.S. 244 (1901)]
[emphasis added]
This theory has been documented by patriot John Knox as follows:
Page W - 7 of 12
The Federal Zone:
This theory of a government operating outside the
Constitution over its own territory with citizens of the
United States belonging thereto under Article 4, Section 3,
Clause 2 of the Constitution was further confirmed in 1922
by the Supreme Court in Balzac vs Porto Rico, 258 U.S. 300
(EXHIBIT #4) where that Court affirmed that the Constitution
does not apply outside the limits of the 50 States of the
Union at page 305 quoting Downes, supra and De Lima, supra.
That under Article IV, section 3 the "United States" was
given exclusive power over the territories and their
citizens of the "United States" residing therein.
This quote is from an unpublished brief entitled "Memorandum in
Support of Request for the District Court to Consider the T.R.O.
and Injunction by the Magistrate" by John Knox, Knox vs U.S.,
United States District Court for the Western District of Texas,
San Antonio, Texas, Case No. SA-89-CA-1308.
People will not fully appreciate a central thesis of The
Federal Zone if they believe that I agree with the minimal
majority by which Downes was decided. I don't agree with the
majority; I agree with Harlan. I have simply tried to describe,
in lucid language, how Congress is now able to pass legislation
which is not restrained by the U.S. Constitution as we know it.
This type of legislation is also known as "municipal" law,
because Congress is the municipal authority inside the federal
zone. When I visited the District of Columbia during my senior
year at UCLA as a summer intern in political science, I asked a
Capitol guard where I could find city hall. We were standing on
the Capitol lawn when he pointed to the Capitol Building and
said, "That is City Hall!"
The Downes decision sent many shock waves through the
American legal community, as evidenced by the deep concern that
is expressed by author Littlefield in "The Insular Cases", 15
Harvard Law Review 169, 281. He points out how the dissenting
minority were of a single mind, while the assenting majority
exploited a multiplicity of conflicting and mutually incompatible
themes. Just one vote turned the tide. Littlefield's words jump
off the page like grease popping off a sizzling griddle.
Accordingly, I now believe that we must go back further than
1913 to isolate the major turn in the tide of American
constitutional integrity and continuity. Medina in The Silver
Bulletin traces the fork to the tragic American Civil War --
the counter revolution -- when Lincoln was murdered by a
Rothschild agent, clearing the stage for resurrecting the
federalists' heartthrob -- a central bank. For example, in the
context of everything we now know about territorial
heterogeneity, to the extent that it was a "municipal" statute
for the federal zone, the Federal Reserve Act was constitutional
under the rubric of the Downes doctrine.
Page W - 8 of 12
Appendix W
The consequences of this doctrine have been profound and
far-reaching, just as Harlan predicted. One of Lyndon Johnson's
first official acts was to rescind JFK's executive order
authorizing the circulation of $4.5 billion in interest-free
"United States Notes" instead of interest-bearing "Federal
Reserve Notes". It is a shame that Oliver Stone did not cover
this motive in his movie JFK. All we need to do is connect the
dots, and the picture will emerge, clear as day.
Specifically, Title 26 is a municipal statute and, as such,
it is not subject to the apportionment rule. The territorial
scope of Title 26 is the federal zone; the political scope of
Title 26 is the set of "persons" who are either citizens and/or
residents of that zone: "U.S.** citizens" and "U.S.** residents".
The term "U.S.**" in this context refers to the second of the
three Hooven definitions, namely, the territory over which the
sovereignty of Congress extends, i.e. the federal zone.
Incidentally, the flat tax provisions in Title 26 do conform to
the uniformity rule because the tax rate is uniform across the 50
States (see A Ticket To Liberty, by Lori Jacques).
Since involuntary servitude is now forbidden everywhere in
this land, it is possible under law to acquire citizenship in the
federal zone at will via naturalization, even if one is a natural
born Sovereign State Citizen by birth. It is also possible to
abandon citizenship in the federal zone at will, via
expatriation. In this context, it is revealing that the Internal
Revenue Code has provisions for dealing with "U.S.** citizens"
who expatriate to avoid the tax. Similarly, Americans are free
to reside wherever they want, under the law. If you choose to
reside in the federal zone, you are liable for the income tax, by
definition (see 26 U.S.C. 7701(b)(1)(A) and 26 C.F.R. 1.1-1(b)).
Finally, if you are a "nonresident alien" with respect to the
"United States**" as those terms are defined in Title 26 and in
Title 42, you are only liable for taxes on income which is
effectively connected with a U.S.** trade or business, and on
income which derives from U.S.** sources. All other income for
nonresident aliens is excluded from the computation of "gross
income" as defined (see 26 U.S.C. 872(a)).
I hope this discussion has provided you with some valuable
feedback concerning the 16th Amendment, direct taxes, the
apportionment rule, Title 26 and The Federal Zone. You have, no
doubt, heard several references to the "secret jurisdiction"
under which the IRS has been operating. I now believe that this
jurisdiction is no longer totally a secret; it issues from
1:8:17 and 4:3:2 in the Constitution. Contrary to the statement
quoted above from your essay, there are exceptions to the
apportionment rule for direct taxes, and there are exceptions to
the uniformity rule for indirect taxes. Inside the federal zone,
Congress is free to do pretty much whatever it wants, per the
Downes doctrine. Inside the federal zone, it is a legislative
democracy, with majority rule. If you want to change the rules,
then change the majority. Our best hope for changing those rules
Page W - 9 of 12
The Federal Zone:
rests, therefore, in changing the membership in the House and
Senate. As a Sovereign State Citizen, however, I am not subject
to those rules, primarily and most importantly because the
Constitution created the legislature and We Sovereigns created
the Constitution. A Sovereign is never subject to his own
creation, unless he volunteers himself into that status, for
whatever reason (e.g. the security of socialism aka Social
Security).
For your edification, the following is a list of Harvard Law
Review articles which discuss the insular cases in some detail:
Langdell, "The Status of Our New Territories"
12 Harvard Law Review, 365, 371
Thayer, "Our New Possessions"
12 Harvard Law Review, 464
Thayer, "The Insular Tariff Cases in the Supreme Court"
15 Harvard Law Review 164
Littlefield, "The Insular Cases"
15 Harvard Law Review, 169, 281
Page W - 10 of 12
Appendix W
MEMO
TO: Godfrey Lehman
FROM: Mitch Modeleski
DATE: March 2, 1992
SUBJECT: Downes vs Bidwell
Thank you for the materials on 1:8:17. That was then. This is
now:
1. The issue as to whether there are different meanings to
the term "United States," and whether there are three
different "United States" operating within the same
geographical area, and one "United States" operating outside
the Constitution over its own territory, in which it has
citizens belonging to said "United States," was settled in
1900 by the Supreme Court in De Lima vs Bidwell, 182 U.S. 1,
and in Downes vs Bidwell, 182 U.S. 244. In Downes supra,
Justice Harlan dissenting stated as follows:
The idea prevails with some -- indeed it found
expression in arguments at the bar -- that we have in
this country substantially and practically two national
governments; one to be maintained under the
Constitution, with all its restrictions; the other to
be maintained by Congress outside and independently of
that instrument, by exercising such powers as other
nations of the earth are accustomed to exercise.
He went on to say on page 823:
It will be an evil day for American liberty if the
theory of a government outside of the supreme law of
the land finds lodgment in our constitutional
jurisprudence. No higher duty rests upon this court
than to exert its full authority to prevent all
violation of the principles of the Constitution.
[Downes vs Bidwell, 182 U.S. 244, emphasis added]
2. This theory of a government operating outside the
Constitution over its own territory with citizens of the
United States belonging thereto under Article 4, Section 3,
Clause 2 of the Constitution was further confirmed in 1922
by the Supreme Court in Balzac vs Porto Rico, 258 U.S. 300
(EXHIBIT #4) where that Court affirmed that the Constitution
does not apply outside the limits of the 50 States of the
Union at page 305 quoting Downes, supra and De Lima, supra.
That under Article IV, section 3 the "United States" was
given exclusive power over the territories and their
citizens of the "United States" residing therein.
Page W - 11 of 12
The Federal Zone:
This quote is from an unpublished brief entitled "Memorandum in
Support of Request for the District Court to Consider the T.R.O.
and Injunction by the Magistrate" by John Knox, Knox vs U.S.,
United States District Court for the Western District of Texas,
San Antonio, Texas, Case No. SA-89-CA-1308.
People will not understand a central thesis of The Federal Zone
if they believe that I agree with the minimal majority by which
Downes was decided. I don't agree. I have simply tried to
describe, in simple and lucid language, how Congress is now able
to pass legislation which is not restrained by the Constitution
as we know it.
The Downes decision sent many shock waves through the American
legal community, as evidenced by the deep concern that is
expressed by author Littlefield in "The Insular Cases", 15
Harvard Law Review 169, 281. He points out how the dissenting
minority were of a single mind, while the assenting majority
exploited a multiplicity of conflicting and mutually incompatible
themes. Just one vote turned the tide.
Accordingly, I now believe that we must go back further than 1913
to isolate the major turn in the tide of constitutional integrity
and continuity. Medina in The Silver Bulletin traces the fork to
the Civil War -- the American counter revolution -- when
Lincoln was murdered by a Rothschild agent, clearing the stage
for resurrecting the federalists' heartthrob -- a central bank.
The consequences were profound. One of Lyndon Johnson's first
official acts was to rescind JFK's executive order authorizing
the circulation of $4.5 billion in interest-free "United States
Notes" instead of interest-bearing "Federal Reserve Notes". All
we need to do is connect the dots, and the picture will emerge,
clear as day.
For your edification, see the following:
Langdell, "The Status of Our New Territories"
12 Harvard Law Review, 365, 371
Thayer, "Our New Possessions"
12 Harvard Law Review, 464
Thayer, "The Insular Tariff Cases in the Supreme Court"
15 Harvard Law Review 164
Littlefield, "The Insular Cases"
15 Harvard Law Review, 169, 281
Page W - 12 of 12
