Congressional Power to Tax Income 1909
The 16th amendment, passed by Congress on July 2, 1909, and ratified on February 3, 1913, established Congress’s ability to levy a Federal income tax.
The income tax change, which has far-reaching social and economic implications, was enacted into law through a strange chain of events that culminated in a bungled political manoeuvre.
The first American income tax was enacted in 1861 in response to the financial demands of the Civil War. Congress first imposed a flat 3-percentage-point tax on all incomes above $800, but subsequently changed this premise to include a tiered tax. The income tax was repealed by Congress in 1872, but the notion remained.
The rising industrial and financial markets of the eastern United States flourished after the Civil War. Farmers in the south and west, on the other hand, faced poor prices for their agricultural products while being compelled to pay exorbitant costs for manufactured items. Farmers founded political groups such as the Grange, the Greenback Party, the National Farmers’ Alliance, and the People’s (Populist) Party in the 1860s, 1870s, and 1880s. All of these organizations called for a number of reforms (see the Interstate Commerce Act), including a progressive income tax, that were deemed radical at the time.
Congress levied a 2-percent tax on income above $4,000 as part of a high tariff package in 1894. Even though the Supreme Court had just confirmed the validity of the Civil War tax in 1881, the levy was nearly immediately knocked down by a five-to-four decision.
Despite the fact that farm organizations blasted the Court’s judgment as a clear example of government and business colluding against farmers, a general return to prosperity around the turn of the century tempered the need for reform. However, under the leadership of three-time Presidential candidate William Jennings Bryan, Democratic Party platforms constantly featured an income tax plank, as did the progressive wing of the Republican Party.
Progressives in Congress again attached an income tax provision to a tariff package in 1909. Conservatives advocated a constitutional amendment instituting such a tax, expecting to put a stop to the concept for good; they felt such an amendment would never be ratified by three-fourths of the states.
The amendment was adopted by one state legislature after another, and the 16th amendment went into effect on February 25, 1913, with Secretary of State Philander C. Knox’s certification. Despite this, fewer than 1% of the population paid income taxes at a rate of under 1% of net income in 1913, because to extensive exemptions and deductions.
This text answered the constitutional dilemma of how to tax income and, in the process, changed the American way of life dramatically.
Celebrity Tax Prosecution (1989).
The Law Book: From Hammurabi to the International Criminal Court, 250 Milestones in the History of Law (Sterling Milestones) Hardcover – Illustrated, 22 Oct. 2015, English edition by Michael H. Roffer (Autor)