Sixteenth Amendment

Sixteenth Amendment. This 1913 amendment to the Constitution empowers Congress to “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states,” specifically exempting income taxes from the constitutional mandate governing “direct taxes.” Even though an 1881 Supreme Court decision had upheld the constitutionality of the Civil War income taxes, a sharply divided Court in Pollock v. Farmers’ Loan and Trust Company (1895) invalidated the income tax inserted into the 1894 Wilson‐Gorman tariff by the Democratic‐controlled Congress.

In the years after Pollock, a variety of groups and concepts interacted to produce a broad‐based consensus in favor of federal income taxation. Increases in government spending mandated a significant flow of revenue, especially if tariff reformers achieved their goal of major downward revision. The West and the South, regarding themselves as colonial regions exploited by the industrial Northeast, embraced the income tax as a weapon to redress the sectional balance. Believing that customs duties and excise taxes fell heaviest on the great mass of workers and consumers, largely missing the huge fortunes accumulated by the principal holders of financial and industrial assets, a growing number of Americans advocated income taxation as a matter of “tax equity.” The conviction that taxation should be based on “the ability to pay” and that it should come “from whatever source derived” increasingly united southerners and westerners, economists and tax experts, social reformers, urban machine politicians, organized labor, agrarian groups, socialists, and mass‐circulation newspapers and magazines.

The Democratic party platform of 1908 called for a constitutional amendment to overturn the Pollock decision, while the Republican presidential candidate William Howard Taft proclaimed that a properly drafted tax bill would be sufficient. In 1909, however, when the Republican leaders in Congress sought Taft's aid to prevent a coalition of Democrats and insurgent Republicans from inserting an income tax into the Payne‐Aldrich tariff, Taft proposed both a corporation excise tax and a constitutional amendment. Despite initial denunciations of the amendment as a ploy to defeat the income‐tax clause of the tariff bill (a charge the Republican leadership freely admitted), the amendment process went forward. Congress proposed the Sixteenth Amendment to the states in September 1909, and by February 1913 the ratification process was complete. Every state except Virginia, Florida, Utah, Rhode Island, Connecticut, and Pennsylvania eventually concurred, as political upheavals in several urban, industrial states of the Northeast and Middle West produced unexpected Democratic control of their legislatures. Ratification was staunchly opposed by conservative politicians, both Republicans and Democrats, and by prominent industrialists and financiers.

Urged on by President Woodrow Wilson, majority Democrats swiftly added an income tax to the 1913 Underwood‐Simmons tariff. It levied a tax of 1 percent on incomes over $3,000 for single persons and $4,000 for married couples, thereby exempting over 95 percent of Americans. An “additional tax,” graduated to 6 percent on income over $500,000 reinforced the concept of taxation according to “ability to pay.” Quickly emerging as the federal government's chief source of revenue, the income tax also become a major political battleground between those who viewed it as an instrument for the redistribution of wealth and those who favored lower rates to stimulate economic growth.
See also Income Tax, Federal; Progressive Era.

Bibliography

John D. Buenker , The Income Tax and the Progressive Era, 1985.
W. Elliott Brownlee , Federal Taxation in America: A Short History, 1996.

John D. Buenker