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In The Supreme Court Of The United States
October Term, 1976
David C. Hakim, PETITIONER
v.
Commissioner of Internal Revenue
PETITION FOR IMMEDIATE GRANTING OF A WRIT OF CERTIORARI AND MISCELLANEOUS
MOTIONS TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
David C. Hakim
TABLE OF CONTENTS.
Statement of the case and issue presented
l) The investment tax credit (I.R.G. Section 46)
Standing to sue
Copy of the petitioner's prior Supreme Court petition (No. 76-270)
CITATIONS
Constitutional Provisions:
Firth Amendment
Statutes & Court Rules:
I.R.C. Section 46
Rule 20, U.S. Supreme Court
Cases :
Aaron v. Cooper,
358 U.S~ 1 (1958)
Miscellaneous:
Bancroft, George, History of the Constitution of the United States (1884)
IN THE. SUPREME COURT. OR THE.. UNITED· STATES:
No. ______________________________
David C. Hakim, Petitioner
v.
Commissioner of Internal. Revenue
PETITION FOR IMMEDIATE GRANTING OF
STATEMENT OF THE CASE AND
On August 20, 1976, this petitioner prior to judgment. in the Court of Appeals
filed before this Court a PETITION FOR IMMEDIATE GRANTING OF CERTIORARI AND
MISCELLANEOUS MOTIONS, No. 76-270, which petition was denied on November 1,
1976. 50 L. Ed. 2d. 300.
On March 3, 1977, subsequent to the: above named petition, the United States
Court of Appeals for the Sixth Circuit dismissed this petitioner's appeal,
calling it "frivolous and completely without merit".
Now is recapitulated and incorporated by reference each and every part or such
prior petition to this Court to enjoin the operation of five tax preferences
alleged by this petitioner to be arbitrary exercises of the taxing power and
therefore unconstitutional under the Fifth Amendment Due Process Clause of the
United States Constitution.
Jurisdiction is permitted under 28 U.S.C. 1254 and Rule 20. See;
Aaron-v. Cooper, 358 U.S. 1, 13 (1958).
1 - The Investment Tax Credit (I.R.C. Section 46).
The above section sets forth a maximum 11% credit, against the income tax for
qualified investment in depreciable or amortizable property which is used as an
integral part in a business. The tax credit generally may not exceed ..
$25,OOO.OO plus 50% of the tax liability over that amount.
1)
The dollar loss for the preferences other' than section 1014 and 1023 is
supported by "Table F-l, Tax Expenditure Estimates by Function "', Special
Analysis Budget of the United StatesGovernment, Fiscal Year 1976, 108-9; for
section 1014 and 1023 is an estimate from material in Surrey, Stanley S.,
Pathways to Tax Reform, n. 53 to Ch VI, p. 351.
2)
The above sections, 611 and 613 are the controlling sections (Section 6l3A is
cont~8ent upon their continuation) permitting percentage depletion (as opposed
to cost depletion, which is. section 612, and is similar to depreciation).
Section 611 is the enabling section, whereas section 613 permits a flat
percentage deduction of a maximum of 50% of the taxable income from the sale of
property computed without the deduction for depletion. The property for which
depletion is allowed is that property generally known as natural resources which
are extracted from the earth.
Section 6l3A, enacted after the proceedings in the U. S. District Court, limits
the percentage oil depletion allowance only to “independent producers and
royalty owners” and to a maximum output of 1,600 barrels daily, (1400 in 1978).
Depletion for gas producers is similarly limited.
3)
Section 991 is the enabling act to permit the preferential treatment accorded
corporations which meet the qualifications of a DISC, which is a type of
domestic corporation whose income is predominately (95% or more)derived from
export sales and rentals. Section 995 sets forth the deferral or effectively
eliminates from taxation 50% of the income of a DISC, which deferred income is
taxed to the shareholder, usually the parent corporation, only which is
distributed, when a shareholder sells his stock, or when the corporation no
longer qualifies as a DISC.
4)
The above section 1014 as supplemented by section 1023, added by the extremely
complex Tax Reform Act of 1976, also enacted after the proceedings in District
Court, steps up the basis of most property of a decedent passing away after
December 31, 1976, to its fair market value on that date.
The above preference is especially discriminatory in that present appreciation
of property remains untaxed by the income tax law, whereas the accumulation of
wealth from ordinary income is subject to the income tax as the wealth is
accumulated.
It is interesting to note that despite the unification of the estate and gift
tax law under the Tax Reform Act off 1976, Congress allowed section 1015 of the
Code to continue the taxation to the donee of the difference between the amount
realized upon sale and the donor's adjusted basis.
5)
The above sections set forth two alternative methods ot taxation of the excess
o£ the gain or the appreciation realized upon the sale or exchange of generally
property held for investment purposes for a period longer than nine months (as
amended by the Tax Reform Act of 1976, the mandatory holding period will
increase to twelve months in 1978) less any loss realized on property held less
than the mandatory holding period. Section 1201(a) provides a 30% rate of
taxation on the net capital gains of corporations, and l201(b) provides for
individuals a rate of 25% on the net capital gain to $50,000.00 ($25,000.00 for
married individuals filing separate returns). Section 1202 permits the
exclusion of 50% of the net capital gain from gross income for individuals.
1) Standing to Sue.
The very essence of civil liberty certainly consists in the right of every
individual to claim the protection of the laws, whenever he receives an
injury. MarbuB v. Madison, 5 U.S. 137, 163.
Certainly this case can be compared with Baker v. Carr, 369 U.S. 186,
S.Ct. 691, 7 L. Ed. 2d 663 (1962), another case alleging discrimination (in the
equality of a citizen's vote). Therein Mr. Justice Brennan stated that' a person
has standing , if he has alleged "such a personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely depends for
Isn't justice to this petitioner as a taxpayer, obviously in combination with
the will of the majority in our nation to control excesses of Congress, at least
as important as the equality of his vote? But this petitioner need not end
his argument on standing with the preceding, for this Court has stated, in
Flast v. Cohen, 392 U.S., 83 (1968) that a taxpayer "may or may not have the
requisite personal stake in the outcome of the issue he seeks to litigate,
depending upon the circumstances of the case".
... It would be strange and, indeed, alarming, if there was no way in
which a question of an alleged excess of legislative power, a matter
traditionally within the scope f the judicial process, could be made the subject
of adjudication. 43 D.L.R. 3d., p. 7.
.........................................
Furthermore, after considering many tax decisions involving tax expenditures,
such as Frothingham v. Mellon (1923) 262 U.S. 447, and its "considerable
modification"; by Flast v. Cohen, supra, Justice Laskin on page 18 or
Thornton sets forth the following:
Lord Nansfield... looked upon the writ of mandamus as a public remedy
which "was introduced to prevent disorder from a failure of justice, and
defect of police. Therefore it ought to be used upon all occasions where the law
has established no specific remedy, and where in justice and good government
there ought to be one." R. v. Barker (1762), 3 Burr. 1265 at p.
1267, 97 E.R., 823. The expansion of the declaratory action, now well
established would with a consequent denial of its effectiveness if the law will
recognize no one with standing to sue in relation to an issue which is
justiciable and which strikes directly at constitutional authority.
2) The Problem.
On December 11, 1968, the Honorable Henry H. Fowler, Secretary of the Treasury,
commented. upon the inequities in the tax laws, wherein low income families are
faced with for them is a heavy tax burden, whereas many individuals with income
of $1 million or more pay the same effective rate of tax as do the latter; that
"our social and economic needs can better be served through direct measures
outside the tax system, rather than by tax credits and other forms of
incentives." Tax Reform Studies and Proposals, U. S. Treasury
Department (Joint Publication, Committee on Ways and Means of the U. S.
House Of Representatives and Committee)
Furthermore, in 1975 it was acknowledged by the Honorable William E. Simon,
Secretary of the Treasury, that increasingly burdensome taxes are "so high that
the average worker has difficulty making ends meet," and that "our economy is
suffering from a reduction in the purchases of homes and consumer durable
goods... The principal buyers of (such goods) are the middle income classes."
Obviously there is a tremendous need for government revenue (the government
cannot continue to forever print paper money to pay for its debts without our
nation suffering the consequences). And with the need of further government
revenue so great, and the middle class already so overburdened by taxes, it is
obvious that such revenue must come from those most able to pay their fair
share. "Welfare" for the wealthy, tax
3) Common Features of the Alleged Unconstitutional Tax Preferences.
A. They do not and cannot benefit those outside the tax system who are acting in
a manner consistent with the unrealized philosophical principles behind their
enactment. Surrey, Stanley S., Pathways to Tax Reform (Mass.:
Harvard University Press, 1974) at 134 (hereafter referred to as Surrey).,
B. They are worth more to the high income taxpayer than to the low. Ibid.
C. They benefit taxpayers by paying them for doing what they would anyway!
Because of this there is no adequate measure of achievement possible. Ibid.
D. They bring about unfair competition within industries by being a source of
revenue to those whose livelihood is not directly dependent upon the success in
terms of the profitability of the enterprise. Surrey, p.138.
E. They acknowledge the risk in certain .endeavors and discriminate in favor of
them, dis-acknowledging that there is inherent risk in any human endeavor, even
in the work of the common laborer.
F. They keep the tax rates high by constricting the tax base: and thereby
reducing revenues. Ibid., at 139.
G. They require the Internal Revenue Service to regulate programs that other
agencies should. Ibid., at 144.
H. They conflict with other laws designed to maintain our democratic
institutions, such as the Anti-trust laws.
4)
A. The Investment Tax Credit.
The investment tax credit hastens the replacement of men's jobs with machines,
and with discriminatory treatment against used machinery and equipment (Code
Section 48(c)), natural resources are more easily depleted.
B. Percentage Depletion.
The above deduction discriminates against most other industries and even
against industries in the same field (such as energy production) Tax Reform
Studies and Proposals, U. S. Treasury Department, supra, at 426. An
allowance or deduction can in effect be bought from a business to whom the
allowance has absolutely no direct benefit. Stern at 247-248. There is
risk in any enterprise (for example, inventions may become obsolete), and
generally there is no write off of profits as there is in the favored
enterprise. And furthermore, this tax preference discriminates against
industries that recycle natural resources and encourages their depletion,
thereby denying them from future generations.
C. The DISC Deferral of Income.
The above preference initially enacted to grant similar benefits to
domestically based corporations as were provided to American foreign based
corporations, actually discriminates against the latter corporations and also
violates international trade agreements to which the United States is a party.
"DISCs' Validity Is Challenged by GATT Panel," Wall Street Journal, Vol. LVII,
No. 17, Fri., Nov. 5, 1976, p. 7. Only the larger corporations can afford the
legal fees needed to create and continue DISCs. Stern, p. 273.
Furthermore, the preference:
(1) Gives foreign nations tools and machines they cannot use. Schumacher, E. F.,
Small is Beautiful (New York:. Harper & Row, 1973) at 57 (Hereafter
referred to as Schumacher).
(2) Is not needed if the U.S.. adopted sound economic policies. Ibid at 55-6.
(3) Encourages the rapid depletion of the national resources of other nations,
which in exchange receive a technology which creates mass unemployment of their
inhabitants. Schumacher at 7.
D. The Stepped-Up Basis ot Property Acquired from a Decedent.
The estate tax should already be considered a preferential tax, permitted by
Code section 102(a), for otherwise inherited property could be considered income
to the recipient under Section 61. The estate tax is further loaded with so many
preferences that it taxes large estates with expert estate
E. The Capital Gains Exclusion.
It wasn't enough that Section 1001 (a) was enacted to avoid the annual reporting
of the appreciation of property, equivalent to a deferral of taxes or an
interest free loan. Congress further enacted the above preference or expenditure
which
(1) Benefits only one taxpayer in ten. Stern at 95.
(2) Creates a meaningless distinction between qualified property. Stern at 102.
(See also Section 1245).
(3) Is further supplemented by the deduction of interest on loans to purchase
qualified assets under section 163, accelerated depreciation under section 167,
permissible treatment of the proceeds as capital gains even if received in
installments, and the five year income averaging provision of section 1302.
Because of the above, preferential capital gains treatment has been called the
"greatest cause of complexity as well as unfairness in our tax system." (Stern
at 102).
5)
From the days of the Pilgrims to the present, equal protection has been part of
the historical principles of the American people. Liberty has been defined as
the absence of arbitrary action wherein no class is to be preferred over another
and the right of revolution recognized by at least the State of New Hampshire if
class preference occurred. Article 10, Right of Revolution, in the New Hampshire
Bill of Rights, 1784, (quoted in Great Quotations Compiled by George
Seldes, New York: Pocket Book Edition, 1972 at p. 448). Although the United
States Constitution did not initially have a Bill of Rights, it was stated in
1788 by Delegate Parsons of Massachusetts that "No power is given to Congress to
infringe on anyone of the natural rights of the people." Bancrof't, George,
History of the Constitution of the United States (1884), 388.
The United States Supreme Court has recognized the principle of equality in
Traux v. Corrigan, 257 U.S. 312, 331, and Bolling v. Sharpe, 347 U.S.
497, 499-500, as inherently contained within the 5th Amendment Due Process
Clause: "No person shall be... deprived of life, liberty, or property, without
due process of law."
The income tax act of 1894 was held unconstitutional in part because it was held
to be discriminatory against professional persons, tradesmen, and other
employed persons. Pollack v. Farmers Loan & Trust Co., 157 U.S. 429, 158
U.S. 601 at 637, and quoted in Brushaber v. Union Pac. R. R., 240 U.S. 1,
17, 36 S. Ct. 236, 60 L. Ed. 493 (1916). The Sixteenth Amendment provides that
"Congress shall have the power to lay and collect taxes on income, from
whatever sources derived'" (emphasis added). The progressive rate structure
was stated to be "more just and equal than a proportional one."
Knowlton v. Moore, 178 U.S. 41, 109 (1900). And Mr. Chief JusticeWhite in
Brushaber, supra, recognized that there might develop a case where, although
there was a seeming exercise of the taxing power, the act complained of was so
arbitrary as to constrain to the conclusion that it was not the exertion of
taxation but a confiscation of property; that is, taking of same in violation of
the Fifth Amendment; or, what is equivalent thereto, was so wanting in basis
for classification as to produce such a gross and patent inequality as to
inevitably lead to the same conclusion. 240 u.s. at 24-25.
Yet perhaps the closest case to this is Green v. Kennedy, 309 F. Supp.
1127, which enjoined the granting of exempt status under section 50I(c)(3) to
private schools maintaining racially discriminatory admissions policies and
that contributions to such schools would no longer be tax deductible (The
subsequent affirmation of Green v.Kennedy, Green v. Connally, 330
F. Supp. 1150 (D.D.C. 1971) was affirmed mem. sub nom Coit v.
Green, 404 U.S. 97l [I97l] )
[T]he general expenses of government should be distributed among persons on the
basis of ability to pay. [T]axes should be progressive -- that is, high-income
people should pay a larger fraction of their income in taxes than low-income
people, because people with high-incomes give up luxuries to pay taxes while
those with low-incomes give up necessities. [T]he poor should pay no taxes,
since by definition they have less than enough money to buy the bare essentials
and no way of contributing to the general costs of government. Accordingly, the
ideal tax would be a progressive income tax from which the poor were
exempt.Fried, et aI, Setting National Priorities: The 1974 Budget
(Washington: Brookings Institution, 1973), at 45-6.
Unfortunately, the above is not the present situation, for many of the very rich
arrange their financial affairs so they pay little to nothing for what they
receive from their nation, whereas many of the poor pay a tax rate of 25% or
higher. Pechman, Joseph A., and Okner, Benajmin A., Who Bears the Tax Burden?
(Washing: Brookings Institution, 1974) at 59.
Even though wealth is the product of labor, the earnings of the laborer are
taxed more heavily than the property of the wealthy through the retention of
the alleged unconstitutional tax preferences.,
Some state that a "lack of incentive" would result if the wealthy are required
to pay their fair share. Certainly this argument works both ways. However, since
the average effective tax rate of the wealthy is presently only 26% (Stern at
12), the probable effective rate of' 40% without the continuing legality of the
preferences under attack should not be viewed as confiscatory, since obviously
the wealthy benefit more from our social system than do the poor.
However, even James Madison in the earliest days of our Republic recognized that
the self interests of the wealthy tend to trample upon the rules of justice with
respect to the apportionment of taxes upon the various forms of property. James
Madison, The Federalist, No. 10 quoted in Great Quotations,
op. cit., p. 904.
Therefore, this Court for reasons as set forth above and previously, should find
that a substantial Constitutional issue exists by the plaintiff's allegation
that Internal Revenue Code Sections 46, 611, 613, 613A, 991, 995, 1014, 1032,
1201 and 1202 are arbitrary exercises of the taxing power and are
unconstitutional under the 5th Amendment Due Process Clause and the Article I,
Section 8, [l] General Welfare Limitation with their inherent equal protection
limitation and the requested injunction should be issued or this cause should
be remanded to the United States District Court for the convening of the
requested Three Judge Court.
RESPECTFULLY SUBMITTED,
DAVID C. HAKIM, Plaintiff
_______________________________
IN THE
No. 76-270
DAVID C. HAKIM, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE SERVICE,
PETITION FOR IMMEDIATE GRANTING OF CERTIORARI AND MISCELLANEOUS MOTIONS
The petitioner requests certiorari before final judgment in this cause as
permitted by 28 V.S.C. sections 1254(1), 2101(e) and sets forth the following in
support of such request:
The tax preferences that are alleged in the plaintiff's complaint and analyzed
by his brief and reply brief for the Court of Appeals are briefly explained on
pages 3 - 5 of the complaint and are summarized below:
The irreparable injury allegations on pages 2 - 3 of his complaint were stated
to be that this plaintiff, being a member of the middle class, is subject to the
duty of paying more than his fair share of taxes because he does not benefit
from such preferences; that his taxes would be approximately one thousand
dollars less per year if the alleged discriminatory provisions were eliminated
and the progressive rate structure adjusted accordingly to yield the same amount
of revenue currently obtained. He also alleged that he believes such tax
preferences to be a violation of the mores of his nation as embodied in his
Federal Constitution (or. to be a violation of public policy). Therefore, a
further argument against the validity of the alleged unconstitutional tax
preferences implicitly contained in the plaintiff's complaint is that they are
per se discriminatory, that they inherently violate public policy whether or
not the taxpayer benefiting from them is a member of the wealthy class.
2) That on October 21, 1975, United States District Judge Thomas P. Thornton
denied this petitioner's motion for a Three Judge District Court and dismissed
the action upon hearing of the defendant's motion to dismiss, stating in his
order that this plaintiff did not allege a substantial constitutional issue;
3) That an amended notice of appeal to the United States Court of Appeals for
the Sixth Circuit, No. 76-1009, was filed timely under 28 U.S.C. section 1291 on
November 24, 1975, with the cause docketed shortly thereafter and with all
required briefs filed before April, 1976;
4) That on or about June 1, 1976, this petitioner filed an amended motion for
temporary and permanent injunctions and expedited hearing by the Court of
Appeals, which motion was denied on June 24, 1976
5) That to this date the hearing on the merits of this cause by the Court of
Appeals has not been scheduled.
Wherefore, assuming the truth of this plaintiff's allegation that the above
named preferences are unconstitutional exercises of the taxing power, there is
consequently a daily loss of approximately seventy million dollars
($70,000,000.00). Now then this petitioner (plaintiff) requests the United
States Supreme Court to assume immediate jurisdiction because of the
exceptional importance of this action, to determine that this plaintiff raised
a substantial issue by his pleadings, and:
1) To issue a temporary injunction, and/or to grant and to expedite the hearing
and afterwards to issue a permanent injunction to restrain the operation of the
aforementioned tax preferences, or
2) To remand this cause to the United States District Court for the Eastern
District of Michigan for the immediate convening of a Three Judge District Court
under 28 U .S.C. sections 2282,2284, or to the United States Court of Appeals
for the Sixth Circuit under 28 U.S.C. section 1291 for the immediate convening
of its usual Three Judge Court.
DAVID C. HAKIM, Petitioner in pro se
___________________________________________________________________________________________________________________
Appeals or the United States District Court for the Eastern District of
Michigan, it is requested that the Court issue the requested temporary
injunction first.
No. 76-1009
DAVID C. HAKIM,
v.
COMMISSIONER OF INTERNAL REVENUE
ORDER
BEFORE: PHILLIPS, Chief Judge, PECK
Upon examination of the
ENTERED BY ORDE:R OF THE COURT
John P. Hehman,
Filed March 3, 1977
_______________________________
UNITED STATES DISTRICT COURT
DAVID C. HAKIM,
v.
COMMISSIONER OF INTERNAL REVENUE
CIVIL ACTION 5-70334
ORDER
This cause having come on before the Court upon defendant's Motion to Dismiss,
and the Court having read the filed briefs and hearing argument thereon, and
being fully advised in the premises, the Court finds that the plaintiff does not
have standing pursuant to the requirements established by Flast v. Cohan,
392 U.S. 83, (1968):
NOW, THEREFORE, IT IS HEREBY ORDERED AND ADJUDGED that the plaintiff has not
raised a substantial constitutional issue, and it is not necessary to convene a
three-judge court:
IT IS FURTHER ORDERED that since plaintiff does not have standing the
plaintiff's Complaint is dismissed with prejudice.
THOMAS P., THORNTON
CERTIFICATE OF SERVICE OF PETITION FOR IMMEDIATE GRANTING OF A WRIT
It is hereby certified that three copies of the Petition for Immediate Granting
of a Writ of Certiorari and Miscellaneous Motions to the United States Court of
Appeals for the Sixth Circuit, including an appendix, was served by mailing in
the United States Mail , with postage prepaid., on May 5, 1977, to:
David C. Hakim |