Income Tax

Income Tax Questions involving federal income taxes provoked extraordinary controversy throughout the nineteenth century, most strikingly in the 1890s. The controversy ended only with the passage of the Sixteenth Amendment in 1913.

Federal income taxes raised two types of constitutional issues. First, the Supreme Court had to decide, for constitutional purposes, whether an income tax was a “direct tax” or an “indirect tax.” This distinction was critical, since the Constitution commanded that direct taxes had to be apportioned among the several states “in proportion to the Census.” If an income tax were considered a direct tax, it would be unconstitutional since it could not be apportioned. Second, even if an income tax were considered an indirect tax, it still needed to be “uniform” and had to fulfill a variety of other constitutional requirements. The latter requirement was interpreted to apply only to geographic uniformity and was held not to require that a tax be uniform as applied to different individuals with different income levels.

The Supreme Court upheld the Civil War income tax, holding in Springer v. United States (1881) that such a tax was indirect and need not be apportioned. The Springer Court followed a 1796 precedent, Hylton v. United States, which had upheld a carriage tax on the grounds that it was an indirect tax. The fact that a carriage tax could not be apportioned convinced the Court to declare the tax indirect; Justice James Iredell held that “the Constitution contemplated [no tax] as direct, but such as could be apportioned” (p. 181). In Springer, the Court held that the only direct taxes contemplated by the Constitution were “capitation taxes … and taxes on real estate” (p. 586).

In 1895, the income tax issue arose again, this time in a period of extreme political tension. In the midst of the populist movement, conservatives seized upon the tax issue as a question of great moral importance. “The act of Congress which we are impugning before you is communistic in its purposes and tendencies,” argued Joseph Choate before the Supreme Court in *Pollock v. Farmers' Loan & Trust Co. (1895; p. 537). Failure to strike down the tax, Choate told the justices, would endanger “the very keystone of the arch upon which all civilized government rests” (p. 534). The Court's first decision in Pollock, in April 1895, produced a deadlock on the key issues, with the justices divided 4 to 4 on whether the income tax was a direct tax per se and thus unconstitutional. (Justice Howell Jackson, who was ill, did not participate.)

The Court then held another set of hearings, and two weeks later produced a 5‐to‐4 decision striking down the tax on the grounds that income taxes were, per se, direct taxes. Surprisingly, Jackson was in the minority, meaning that one of the four justices who had voted to uphold the tax in the first Pollock decision had switched his vote. The political consequences of the Court's decision were significant. It energized the conservative wing of the Democratic party, providing the key momentum for the conservatives' subsequent takeover of the party at the 1896 convention.

Confusion on whether an income tax was or was not a direct tax continued even after Pollock. In Flint v. Stone (1911) the Court upheld a tax on the income of corporations as an indirect tax on the privilege of doing business in the corporate form. Finally, in 1913, the states ratified the Sixteenth Amendment, explicitly granting to Congress the 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.”

Only technical questions remained—concerning, for example, the definition of income under the Sixteenth Amendment. Federal taxing power, of course, remains subject to other constitutional requirements, including due process, equal protection, and other guarantees.

See also Taxing and Spending Clause.

William Lasser