The Congress shall have 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.

Passed by Congress July 2, 1909. Ratified February 3, 1913.

Note: Article I, section 9, of the Constitution was modified by amendment 16.


Guest Essayist: James D. Best, author of Tempest at Dawn, a novel about the 1787 Constitutional Convention, and Principled Action, Lessons from the Origins of the American Republic

Amendment XVI:

The Congress shall have 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.

Reform or Revision?

The infamous XVI Amendment gave the national government the authority to tax income … from whatever source derived. Income tax has always been divisive. In the early twentieth century, the amendment was promoted with the phrase “soak the rich,” and the level of progressiveness in the tax codes has been contentious ever since. Many feel that it is only fair that those with more money should pay the lion’s share, while others think fairness means that every American should contribute at least something to the national coffers.

In Federalist 10, James Madison wrote, “The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice.” For the hundred years that the XVI Amendment has been in place, exact impartiality has been a rarity.

There are many odious aspects of our current income tax. T. Coleman Andrews, commissioner of the IRS under Eisenhower said, “It opened up our homes, our papers and our effects to the prying eyes of government agents.” An IRS appeal is through tax courts without juries, and if a taxpayer loses, the individual must pay before suing the government. Congress relishes playing three-card Monte with the tax code by deftly moving taxes up, down and sideways, while slipping loopholes to favored constituents. Tax policy seldom has any relationship to economic growth, keeping markets free, or preserving personal liberty. For those of us who are recordkeeping impaired, the laws are a nightmare and a huge waste of valuable time. And last, we work and struggle to make ends meet, and instead of getting thanks for all the money we send to Washington, there’s always some politician trying to make us feel guilty because we didn’t send more.

Should the XVI Amendment be reformed or revised? Probably. Revision of the XVI Amendment could potentially fix many issues about the application of income tax, but it would not resolve our growing debt issues. The federal government spends about a quarter of our national production, much of it financed with debt that has climbed to unfathomable levels. Reforming or revising the XVI Amendment might squeeze the revenue side, but it won’t guarantee spending restraint. The government has no restrictions on borrowing or printing money.

Congress has shown that it won’t fix the tax code or spending. As we’ve witnessed since the Tax Reform Act of 1986, tax cuts and simplification only buy a short recess from offensive rates and burdensome regulations.

Without an ironclad restraint, government will continue to tax and spend recklessly. If permanent change is desired, it will require amending the Constitution. The real question is what kind of constitutional reform is needed. It’s possible we could have a public debate and resolve the fairness issue once and for all. For example, a flat tax would be good for the individual and boost economic growth, but most Americans have come to believe progressive rates equate to fairness. Another proposed reform would repeal the XVI Amendment in favor of a national sales tax—sometimes called the fair tax. Critics have pointed out that these reforms have their own problems, but even if they present an improvement, they seem unlikely to get out of Congress or be ratified by thirty-eight state legislatures.

If the goal is to make income tax fairer or trade it for a different tax, then a revision of the XVI Amendment could do the trick. However, if the goal is to collapse the deficit—and eventually the debt—then reform needs to address both the income and spending sides. This means that revision of the XVI Amendment should probably be done in conjunction with a Balanced Budget Amendment. A consolidated reform approach would provide the best chance of ratification and fixing our country’s finances. Alas, that would take leadership. Where is Alexander Hamilton when you need him?

James D. Best is the author of Tempest at Dawn, a novel about the 1787 Constitutional Convention, and Principled Action, Lessons from the Origins of the American Republic.

May 11, 2012

Essay #60


Guest Essayist: Marc Lampkin, Shareholder at Brownstein Hyatt Farber Schreck and graduate of the Boston College Law School

Amendment XVI:

The Congress shall have 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.

Power to Tax Incomes

The 16th Amendment is an excellent example of why it is important to act judiciously and cautiously when it comes to amending the Constitution.  Most Americans recall that when our nation was founded, the framers did not agree to allow the federal government to tax the income of its citizenry.  In fact they specifically included a proviso that provided that neither income taxes nor any other type of direct taxes could be collected by the federal government.  Instead of collecting taxes in that manner, up until passage of the 16th Amendment the federal government was funded primarily by indirect taxes – duties and sales taxes.

One of the reasons that the founders wanted to limit the type of taxing authority of the federal government was that it was a way to ensure that the individual citizen was protected from an overbearing federal authority.  The consensus was that if Congress had the power to assess taxes directly on individuals they could single out certain individuals or all individuals for excessive taxation and there would be no upper limit on the amount assessed.

Sales taxes or import duties were indirect taxes that while affecting the livelihoods of individuals could be more readily avoided if individuals felt they were unfair or unwise.  Nevertheless, a direct tax combined with Congress’ power to control the military meant that taxation power could reach any individual for any reason and it was for that reason viewed as a threat on liberty.

Although this understanding waned after the first 50 years or so of the Constitution’s ratification, the Supreme Court acted vigilantly to ensure that federal lawmakers accepted the restraint on Congress’ taxing power.  However, there was at least one period when the Court relented – the Civil War.  The Supreme Court upheld the Revenue Act of 1861.  This law assessed a 3% flat tax on almost all income.

Nevertheless, subsequently the Court returned to form and refused to allow Congress to continue income taxes or other direct taxes.

Around the turn of the century far more conversation among policy makers focused on ways to increase revenues for the treasury.

Fairly quickly a rift was revealed.  More Democrats than Republicans supported the idea of an income tax.  Moreover, when the measures were introduced GOP Senators would delay or filibuster action on the measure.  This practice over about a decade led to some of the first campaign themes that one party – the Republicans – was “the party of the rich.”

By the time President Taft came to office, due to the failure of the GOP to explain to the public why it thought a federal income tax as a concept was a bad idea, most Americans generally held favorable views about the income tax and were suspicious that the Republicans were solely motivated by a desire to protect wealthy individuals from taxation.

Additionally due to the shellacking the GOP took in the federal elections of 1892, it was felt by party leaders that the GOP’s position advocating steady increases in tariff rates on household goods was a non-starter.  It was in this environment that President Taft began publicly advocating alternatives to tariff funding for the federal government including advocating an income tax.

Some of his critics in the Democratic Party thought they saw an opening to once again push the income tax but the same pattern of the last decade continued.  A bill would be introduced and then quietly killed in the Senate.  Only difference was that now the bills being introduced were by Republicans and but since nothing changed in terms of enactment the Republicans were given a pass in the political arena.

In April 1909, Texas Senator Joseph W. Bailey, a conservative Democrat who also opposed income taxes, came up with a plan that would ultimately upset the apple cart.  He decided to embarrass the Republicans by trying to get them to publicly admit that they actually opposed income tax bills.

The progressives within the GOP including Teddy Roosevelt, Hiram Johnson, and Robert La Follette waxed enthusiastically on behalf of the bill.  This placed President Taft in an awkward position.  He wanted to be seen as being for an income tax, yet he wasn’t ready to actually enact one.

Perhaps his plan was too clever.  In any event, the strategy that he came up with to once again kill the measure would ultimately fail.  Recognizing that the same plan of having GOP members block it wouldn’t work with so many “progressive Republicans” supporting the measure, the new strategy was predicated on making the income tax measure a Constitutional amendment.  Taft and his team counted on conservative state legislatures refusing to go along with the idea and letting it stall out in the hinterlands.

As part of the plan, President Taft formally requested the amendment and the House and Senate duly acted.  The House vote was 318-14 and the Senate voted unanimously. However, the states didn’t balk as anticipated.  In February of 1913 it was ratified just 4 years after Congress has submitted it to the states.

Today income taxes are the principle source of income for the federal government.

Marc Lampkin is a Shareholder at Brownstein Hyatt Farber Schreck and is a graduate of the Boston College Law School

May 10, 2012

Essay #59



Guest Essayist: Horace Cooper, legal commentator and a senior fellow with The Heartland Institute

Amendment XVI

The Congress shall have 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.

At the founding of our nation, the framers decided not to allow the federal government to assess income or other direct taxes unless they were apportioned according to population.  A direct tax is simply any tax that is paid directly to the federal government by the individual.  Commonplace today, these types of taxes were frowned upon when the nation began.  Instead of income or other direct taxes, the founders thought that indirect taxes – sales taxes, import duties and the like – were legitimate means for the federal government to raise money.

The consensus of the founders was that the power of direct taxation would shift the dynamic between the individual and the state in a powerful and oppressive way.  With direct taxing power, it was feared that Congress could assess a tax on all persons with no limits on the amount.  Whether assessed as a percentage or a fixed amount, these taxes couldn’t be readily avoided or evaded by the citizens.  For instance, a person couldn’t simply not engage in the behavior that was subject to taxation the way you could with a sales tax or other transaction style tax.  A direct tax could apply to income, land, cattle, securities transactions etc. and force people to either pay the tax or have their property confiscated.  In addition, with Congress’ power of the purse over the army and the militia, the people would be powerless to prevent collection.

Although not consistently, the Supreme Court struck down several attempts by Congress to establish so-called “direct” taxes.  However, during one critical period – the Civil War – the Supreme Court upheld a temporary income tax established to fund the war effort.  The Revenue Act of 1861 levied a flat tax of 3% on annual income above $800 (or roughly $20,000 in today’s dollars)

In 1893, after the war was over and the temporary tax expired, Congress adopted another income tax law.  In this case, the Congress attempted to assess a federal tax on income derived from real estate.  In 1895, in Pollock v. Farmer’s Loan and Trust, the Supreme ruled that the income tax was unconstitutional.  This view prevailed through the turn of the century.

Historians suggest that the growing needs of the Federal Government necessitated a regular and more lucrative revenue source and increasingly politicians in both parties eyed the direct or income tax as a solution.  Nevertheless, it wasn’t until 1909 that the effort to push for an amendment began.

President William Taft sent a formal message to Congress requesting that an amendment be adopted that would allow Congress to have this power once and for all.  The Senate approved the Sixteenth Amendment unanimously 77-0 and the House approved it by a vote of 318-14.  After being ratified by 36 states in February of 1913, it became law.  Ultimately, 42 of the 48 states would ratify the amendment.

Within a few years, it had become the principal source of income for the federal government.  Nevertheless, its impact wasn’t obvious.  In the beginning, hardly anyone had to file a tax return because the tax did not apply to the vast majority of the people in the U.S.  For example, in 1939, 26 years after the Sixteenth Amendment was adopted, only 5% of the population, counting both taxpayers and their dependents, was required to file returns. Today, nearly all adults and even some youths must file an annual income tax form.

Horace Cooper is a legal commentator and a senior fellow with The Heartland Institute