Back To CourseThe Constitution Study Guide
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Stephen has taught history, journalism, sociology, and political science courses at multiple levels, including the middle school, high school and college levels.
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.
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.
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:
But the acceptance of the rule of apportionment was one of the compromises which made the adoption of the Constitution possible, and secured the creation of that dual form of government, so elastic and so strong, which has thus far survived in unabated vigor. If, by calling a tax indirect when essentially direct, the rule of protection could be frittered away, one of the great landmarks defining the boundary between the nation and the states of which it is composed, would have disappeared, and with it one of the bulwarks of private rights and private property.
The 16th Amendment remedied the income tax problem by eliminating the need to apportion taxes based on population and passed in the U.S. Congress in 1909. Ratification of the 16th Amendment occurred during the Progressive Era, which lasted from 1890-1920. During this period, there was a great push to reform society and improve perceived corruption in government. The 16th Amendment received widespread support among Progressive candidates and was especially popular in southern and western states, whose citizens may have been poorer than their neighbors in the Northeast and South. The 16th Amendment was officially ratified in 1913, gaining approval by 42 of the 48 state legislatures.
As a result, our income taxes today are based on how much we earn. In theory, richer people pay more taxes, while poorer people pay less. Although some members of the Tea Party might disagree, this system of taxation seems fairer than the original one proposed by the Constitution's framers.
The 16th Amendment to the U.S. Constitution allowed the federal government to directly tax its citizens by way of an income tax. In proposing the amendment, President William Howard Taft hoped to remedy a flaw in the original Constitution that levied income taxes according to how many people lived in a particular state, rather than on how much those people earned. In deciding the Pollock v. Farmers' Loan Trust Co. case in 1895, the Supreme Court overturned the Income Tax Act of 1894, which had previously established a federal flat tax. Eighteen years later, the U.S. Congress ratified the 16th Amendment, which had the support of southern and western states.
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Back To CourseThe Constitution Study Guide
4 chapters | 46 lessons
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