The Sixteenth Amendment to the Constitution

Taxing All Types of Income Becomes Constitutional

Aug 19, 2009

When April 15th rolls around, the government's power to impose an income tax is taken for granted. There was a time some forms of income tax were unconstitutional.

For the first the first 86 years of the United States there was no income tax. In 1861 to pay for the Civil War Congress enacted the first income tax. In 1862 the income tax was given a structure that is familiar today: a higher rate of taxation on higher incomes and collection of the tax at the source of earnings.

The Civil War Income Tax Abolished

In 1868, something happened that is totally unfamiliar in today’s world. The Civil War was over and the need for government revenues sharply decreased. The Congress, rather than find something else to do with the established revenue stream, abolished the income tax.

The Constitution, Direct Taxes, and Apportionment Among the States

In 1894 a new flat rate income tax was imposed by the Wilson-Gorman Tarriff Act. There was a problem with this tax. Article I, Section 2 provided:

“Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers ... “

Elements of the income tax imposed by Wilson-Gorman were direct taxes, and revenues generated from the income from different States were varied. This meant that the income tax revenues were not apportioned equally among the States in relation to their populations. Taxes imposed upon incomes derived from property, real estate or rents were direct taxes.

Taxes on Income From Property Found Unconstitutional

In 1895, the year after it was passed, the United States Supreme Court, in the case of Pollock v. Farmers' Loan & Trust Company, ruled that the taxing incomes derived from property or rents was unconstitutional. The Court said those taxes were direct taxes and not apportioned among the States according to population.

While Congress retained the power to impose indirect taxes on incomes derived in other ways, particularly labor, the inability to tax income derived from property ownership made taxing other income politically unpopular. The only alternative was to amend the Constitution to allow taxation of all types of income.

There was a movement to amend the Constitution, but it was slow in developing. Though taxing certain incomes was found unconstitutional in 1895, it was not until fourteen years later, on July 12, 1909, that Congress sent the proposed 16th Amendment to the States for ratification. When Delaware ratified the amendment on February 13, 1913 being the thirty-sixth State to do so, the following became part of the Constitution:

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Making April 15th a Universal Day of Pain

The Sixteenth Amendment took away two prior constitutional distinctions regarding the taxation powers of Congress and income. The direct tax issue was erased and the need to have the tax equal among the States according population was no longer required. The legal problems with taxing some incomes and not others. This allowed the enactment of laws taxing any type of income, solving the political problem.

The Amendment overruled Pollock and set the stage for making April 15th a date universally disliked by most Americans.

The copyright of the article The Sixteenth Amendment to the Constitution in Law is owned by David J. Shestokas. Permission to republish The Sixteenth Amendment to the Constitution in print or online must be granted by the author in writing.