Facts Refute Filmmaker’s Assertions on Income Tax in ‘America’
By DAVID CAY JOHNSTON — Published July 31, 2006

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Aaron Russo, the producer of films like “Trading Places” and “The Rose,” promotes his new film, “America: From Freedom to Fascism,” which opened Friday, as having had its international premiere before a packed audience “during the Cannes Film Festival.”

The film was not on the program at Cannes, however, not even for screenings made under the festival’s aegis without being in the awards competition. Mr. Russo, the film’s director, writer and producer, just set up an inflatable screen on a beach. Photographs posted at one of Mr. Russo’s Web sites depict an audience of fewer than 50 people spread out on a platform on the sand.

Hyping films with fanciful claims is nothing new in Hollywood. But examination of the assertions in Mr. Russo’s documentary, which purports to expose “two frauds” perpetrated by the federal government, taxing wages and creating the Federal Reserve to coin money, shows that they too collapse under the weight of fact.

Still, at free showings the film has drawn long lines of people eager to watch a documentary that feeds on the estrangement many Americans feel from their government, especially those who believe they played by the rules and yet see their finances strained or broken. Many of the reviews in major newspapers have accepted as having some factual basis the film’s main contention, that the government illegally extracts income taxes, even though every court that has ever ruled on these issues has upheld the constitutionality of the income tax.

The film’s appeal, Mr. Russo said during a phone interview last week, is not left or right, but concentrated among those who see the United States evolving into a police state ruled by an oligarchy that has tricked Americans into paying taxes.

Not mentioned in the film is that Mr. Russo has more than $2 million of tax liens filed against him by the Internal Revenue Service, California and New York for unpaid federal and state taxes. Mr. Russo declined to discuss the liens, saying they were not relevant to his film.

Early in the film Mr. Russo, the narrator, asserts that every president since Woodrow Wilson and every member of Congress has perpetrated a hoax to tax people’s wages and issue them dubious currency. All of the federal income tax revenue, the film says, goes to these bankers to pay interest on the national debt, even though by the broadest measure the federal government’s interest payments are less than 40 percent of the individual income taxes, according to an examination of every federal budget since 1995.

The film opens by calling the 16th Amendment and its subsequent income tax and the Federal Reserve the product of a “silent coup d’état” in 1913 by “international bankers.” In the style of low-budget television documentaries, photographs appear on screen of J. P. Morgan, Paul Warburg and John D. Rockefeller.

The documentary includes interviews with a host of people who are presented as experts, scholars and whistle-blowers. All deny the legitimacy of the income-tax laws, including Irwin Schiff, now serving his third prison term for tax crimes.

The cornerstone of Mr. Russo’s case is whether any law requires Americans to pay income taxes on wages.

Near the film’s beginning Mr. Russo says, and others appear on screen asserting, that the Internal Revenue Service has refused every request to show any law making Americans liable for an income tax on their wages.

Yet among those thanked in the credits for their help in making the film is Anthony Burke, an I.R.S. spokesman. Mr. Burke said that when Mr. Russo called him asking what law required the payment of income taxes on wages, he sent Mr. Russo a link to documents, including Title 26 of the United States Code, citing the specific sections that require income taxes be paid on wages. Title 26 says on its face that it is law enacted by Congress, but Mr. Russo denied this fact.

“Title 26,” Mr. Russo said in an interview last week, “is not the law, it is I.R.S. regulations and to be a law it has to be passed by Congress.” Mr. Russo added that he had studied the matter closely and was confident that he had the facts.

Arguments made in court that the income tax is invalid are so baseless that Congress has authorized fines of $25,000 for anyone who makes them. But even though the penalty was quintupled, from $5,000, it has not deterred those who assert this and other claims that Congress and the courts deemed “frivolous arguments.”

The film also states repeatedly that people are tricked into paying income taxes because no law makes them liable for taxes. The tax code uses the word impose, whose definition includes the concept of liability, courts have held in published decisions.

The film includes the voice of this reporter, off camera, asking the I.R.S. commissioner, Mark W. Everson, to answer protesters outside the Treasury building who wanted to know what law makes them liable for taxes. Mr. Everson then makes rambling comments without, as the film notes, answering the question.

Mr. Russo also said that “Congress has no authority to tax people’s labor.” Article I, Section 8 of the Constitution begins with the phrase “The Congress shall have the power to lay and collect taxes.”

Only three limitations are placed on that power, none of which bars a tax on wages. One limitation, however, was a requirement that taxes be “apportioned among the several states.”

The 16th Amendment repealed apportionment, but Mr. Russo says in the film that the 16th Amendment was never properly ratified and thus a tax on wages is unconstitutional. This claim has been made in various forms by thousands of tax protesters since 1913, and so far their batting average with the courts is .000.

To buttress the claim that the 16th Amendment is invalid, the film displays a quotation from a federal district judge, James C. Fox. But the transcript from which the judge’s words were taken shows that while he spoke those words, they were in the context of laying out issues and that the conclusion he reached was the opposite of the words quoted.

Judge Fox, the transcript shows, concluded that no court would accept any argument that the 16th Amendment was not properly ratified and therefore invalid.

The film includes a brief interview with Sheldon Cohen, who was I.R.S. commissioner in the Johnson administration. Mr. Cohen said Mr. Russo used editing that “twists my views” to create a false impression. Mr. Russo said he considered the assertion laughable.

Mr. Russo was Bette Midler’s manager for seven years early in his career and has produced music as well as films. He also sought the Libertarian Party nomination for president in 2004 but dropped out because of ill health.

Despite hundreds and perhaps thousands of tax protesters going to prison, and many more losing their homes and life savings, the movement appears today to be more widespread than ever.

“The tax protest movement is like a cult,” said J J MacNab, a Maryland insurance analyst who is writing a book about protesters and who has sat through six trials of people prosecuted for refusing to pay taxes under the theories espoused by Mr. Russo’s film.

One tax protester featured in the film, Irwin Schiff of Las Vegas, is now serving his third prison sentence after being convicted of tax evasion crimes. Mr. Schiff introduced into his criminal case the notes of his psychiatrist, who wrote that Mr. Schiff was a successful tax shelter salesman until a con artist ripped him and his clients off. The psychiatrist concluded that Mr. Schiff became delusional, believing he alone could properly interpret the tax code, as a way to avoid acknowledging reality.

Later, one of Mr. Schiff’s confederates, who was also later convicted and sent to prison, sent e-mail messages to supporters saying that the psychiatrist’s notes were introduced as part of a ruse to help Mr. Schiff escape prosecution.

Ms. MacNab, who has testified before Congress, said that at each of the trials prosecutors showed how the accused took out of context sections of the law and court decisions while ignoring other sections, including those shown to them by I.R.S. agents.

“People who are drawn into this movement just refuse to acknowledge facts that show their beliefs have no basis in fact,” she said. “Most of them have failed, their business has failed, their marriage has failed, and instead of taking responsibility for it they want to blame the government.”