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