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The 16th Amendment: Definition, Summary & Ratification

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  • 0:02 Definition
  • 1:32 Historical Background
  • 3:11 Pollock v. Farmers'…
  • 4:22 Passage and Ratification
  • 5:25 Lesson Summary
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Lesson Transcript
Instructor: Stephen Benz

Stephen has taught history, journalism, sociology, and political science courses at multiple levels, including the middle school, high school and college levels.

The 16th Amendment to the U.S. Constitution paved the way for the federal income tax. In this article, we'll examine how the 16th Amendment addressed a fundamental flaw in the Constitution, its historical background and how it was ratified.

Definition

Most of us don't like taxes. At one time or another, we've complained about our property taxes, social security taxes and sales taxes. Every year, around April 15, we also complain about filing our federal income tax returns, an obligation resulting from the 16th Amendment to the U.S. Constitution.

The 16th Amendment was proposed by President William Howard Taft in 1909 to address the Supreme Court ruling in the Pollock v. Farmers' Loan Trust Co. case. It stated that: 'The Congress shall have 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.'

Now, before you go complaining about the 16th Amendment, it's important to note that it actually fixed a major flaw in the original drafting of the U.S. Constitution, which attempted to define the difference between direct and indirect taxes.

A direct tax is any tax taken straight from the taxpayer, such as property taxes. In contrast, indirect taxes are like sales tax, in that we don't pay them directly to the federal government. Instead, the merchant collects it for us and pays the sales tax to the government. Now, let's take a brief look at how the federal tax system worked prior to the 16th Amendment.

Historical Background

As stated in the original U.S. Constitution, federal taxes had to be collected in proportion to the number of people counted in a state. According to the men who originally framed the document, state governments could obtain revenues from personal property, poll, real estate and sales taxes. By contrast, the federal government had to support itself by levying taxes on imports, liquor, tobacco and other related goods. When necessary, such as during the Spanish-American War, the federal government could also tax the residents of all states, as long the taxes were apportioned according to the state's population.

In its historical form, this system was pretty unfair. Instead of taxing people according to how much they earned, the system taxed people because they existed! As such, it tended to favor the rich, while disadvantaging the poor. For example, if a state like Pennsylvania has five times the number of people as the state of Delaware, then Pennsylvania would have to pay five times as much in tax. It didn't matter if the Pennsylvanians were richer or poorer than Delawareans.

Americans first began paying federal income taxes during the Civil War, as required by the Acts of 1861-1870. These were apportioned taxes based upon the value of personal property and real estate. However, the Income Tax Act of 1894 allowed for a direct, peacetime levy on the personal profits gained from business transactions or employment, such as shares of stock. The result was a flat tax that no longer took into consideration a state's population.

Pollock v. Farmers' Loan Trust Co.

When the Farmers' Loan & Trust Company announced its intention to comply with the Income Tax Act of 1894, Charles Pollock, a very minor shareholder, decided to sue the company. Pollock v. Farmers' Loan Trust Co. eventually made its way to the Supreme Court in 1895, which had to decide if an income tax was a direct tax. Shockingly, the Court ruled that income taxes were direct taxes, which voided the Income Tax Act of 1894 as unconstitutional. In making the decision, the majority of the Court said:

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