The U.S. Supreme Court has ruled dozens of times that the term “income” has a specific constitutional meaning.
Stratton’s Independence, Ltd. V. Howbert, 231 U.S. 399 (1913)
for 'income' may be defined as the gain derived from capital,from labor, or from both combined
Doyle v. Mitchell Bros. Co., 247 U.S. 179(1918)
Whatever difficulty there may be about a precise and scientific definition of' income,' it imports, as used here, something entirely distinct from principal or capital either as a subject of taxation or as a measure of the tax;conveying rather the idea of gain or increase arising from corporate activities
Eisner v. Macomber, 252 U.S. 189 (1920)
Here we have the essential matter: not a gain accruing to capital; not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital,however invested or employed, and coming in, being 'derived'-that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal- that is income derived from property.
Merchants’ Loan & Trust Co. v. Smietanka, 255 U.S. 509 (1921)
The Corporation Excise Tax Act of August 5, 1909 (36 Stat. 11, 112), was not an income tax law, but a definition of the word 'income' was so necessary in its administration that in an early case it was formulated as 'A gain derived from capital, from labor, or from both combined.' Stratton's Independence v. Howbert, 231 U.S. 399, 415 , 34 S. Sup. Ct. 136, 140 (58 L. Ed. 285).
Bowers v. Kerbaugh-Empire Co., 271 U.S. 170(1926)
After full consideration, this court declared that income may be defined as gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital. Stratton's Independence v. Howbert, 231 U.S. 399, 415 , 34 S. Ct. 136; Doyle v. Mitchell Brothers Co., 247 U.S. 179, 185 , 38 S. Ct. 467; Eisner v. Macomber, 252 U.S. 189, 207 , 40 S. Ct. 189, 9 A. L. R. 1570. And that definition has been adhered to and applied repeatedly.
Taft v. Bowers, 278 U.S. 470 (1929)
Also, this court has declared: "Income may be defined as the gain derived from capital, from labor, or from both combined,' provided it be understood to include profit gained through a sale or conversion of capital assets.' Eisnerv. Macomber, 252 U.S. 189, 207 , 40 S. Ct. 189, 193 (64 L. Ed. 521, 9 A. L. R. 1570). The 'gain derived from capital,' within the definition, is 'not a gain accruing to capital, nor a growth or increment of value in the investment, but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested, and coming in, that is, received or drawn by the claimant for his separate use, benefit and disposal.'
Commissioner v. Glenshaw Glass Co., 348 U.S.426 (1955)
Here we have instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.
Commissioner v. Kowalski, 434 U.S. 77 (1977)
In the absence of specific exemption, therefore, respondent’s [Trooper Kowalski’s] meal-allowance payments are income within the meaning of 61 since,like the payments involved in Glenshaw Glass Co., the payments are“undeniabl[y] accessions to wealth,clearly realized, and over which the [respondent has] complete dominion.”
For Additional Perspective On The Constitutional Definition Of Income…
A way to understand what the above U.S. Supreme Court cases mean is to picture in your mind an apple tree. A fruitful apple tree has a trunk, branches, leaves and apples. The trunk, branches and leaves of the apple tree are like the"capital" described in the court opinions above and this"capital" of the trunk, branches and leaves of the apple tree enable an "income" of apples to grow, ripen and be picked year after year.The apples plucked from the apple tree represent the "income" or"gain" derived from the capital of the apple tree. The apple tree's trunk and branches and leaves remain unharmed, intact and alive even though the apples are picked off of the branches. If the trunk, branches and leaves were plucked along with the apples,there would obviously be no more apples next season because the"capital" of the tree was destroyed - no more capital obviously means no more income can be derived from that capital. Whereas, if only the"income" or "gain" of apples derived from the capital of the trunk and branches is separated from the trunk and branches, the capital of the trunk and branches remain able to produce additional apples in the future. Hopefully, this illustration helps to explain why differentiating between "capital" and "income" is so important - capital is not income and income is not capital. Only "income" is taxable and even then only if some federal law has been passed making you liable to pay a tax on such income, which as explained above, has not occurred.
If you would like additional perspective regarding the absence of a statute making the average American liable for the federal income tax, please review the research and analysis authored by (the late) Attorney Tom Cryer here and here.
Watch this video where similar perspectives are presented by myself and 5 attorneys.
