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



4 replies
  1. Marc W. Stauffer
    Marc W. Stauffer says:

    We are suffering the consequences of not listening to our forefathers……runaway tax and spend. Now, here in Oregon, they want to tax the rich at a higher rate proportionately to further fund State programs for the poor. Gee, do you think the Founders might have been wise in their idea of indirect taxes to fund the government?

  2. Ralph T. Howarth, Jr.
    Ralph T. Howarth, Jr. says:

    The dilemma of taxing the rich has to do with consumer prices, market behavior, and the money supply interest rate. Taxing the rich seems to have a great political expedient; but the end run tends to always hurt the middle class, or attaining to middle class from lower class income levels. When the rich are taxed, the costs are often deferred in the form of end user consumer price increases. These price increases of goods and services, which then effectively are another hidden value-added tax in disguise, causes demand for the product and service to go down that then tends to put somebody out of work or replaced by a machine. When investments are taxed as well, that supposed rich money that is sitting around doing nothing then gets invested in other ways that will tend to reduce the money supply. With demand for loans held a constant the cost of renting money in terms of interest rates go up causing a drop in demand of loans. These costs then effect home, property, and vehicle owners who are trying to make a living. Taxing aside, financing has its own wicked wand when US T-bills flood the market that competes again municipal bonds. These municipal bonds are used to hire contractors to pay for building of schools, roads, and public facilities. When the federal government competes with municipal government financing, then more small people are put out of work at local levels. The allusion is that the federal government is creating jobs and taxing the rich; but the actual net outcomes are something else.

    Three key amendments are needed to curtail the federal taxing power, and the spoils system that has come of it where the system of earmarks, bribes, and inducements has come about in a gamut of unconstitutional federal law making.

    1) A simple income tax amendment
    2) A state tax escrow amendment
    3) A sovereign state budget amendment

    1 makes it so that everyone files only one income tax statement with their state. The state income tax, if any, is constructed in the state’s tax code. The federal tax code becomes a secondary vestigial system that state governments negotiate with the federal government. If tax forms have energy tax credits, interest expenses deductions, or whatever, it becomes a state level affair and tax collection relegates to the federal level to become more of a flat tax entry on state tax statements, or sub-under other tax lines. This would amount to a soft abolishment of the federal tax system and IRS.

    2 makes so that taxes paid to the federal treasury are out of state tax collection escrow account. This is how taxes were collected in the olden days to the federal government by proxy of state tax collector agents. Individuals and corporation no longer pay the federal government; states do.

    3 makes it so that no federal dollars can be apart of a state budget so that taxes collected within the state stay within the state rather than those monies going out of state only to be cajoled to come back to the state.

  3. Kirk Larson
    Kirk Larson says:

    I think it is great everyone is thinking hard on this and I like what I am reading. However, I would like to point out that once more we are referring to new Amendments to address the problem.

    As I wrote under the 17th Amendments comments, I have written a lot of these preliminary documents and to fix all of the problems the liberals deliberately created to destroy the US through laws, bureaucracies, institutions, and taxes, we will need between 20 to 22 new Amendments and an additional 30 pages to the Constitution. The Liberals are counting on this as a deterrent for the people.

    Additionally, as I pointed out, the liberals have instituted two additional road blocks to prevent any attempt to undo the work they have done. The second is the political forum itself is now based in the political parties. This means that both parties now control more power than the Federal and the government is a tool form them to use at will. The third the parties control the controversies meaning they control the discussion itself. The parties will not allow the idea of Amendments to even approach any floor to either the States or the Federal government. These combined spell that end of our nation.

    We may know what needs to be done but we cannot do it. This is why the Founders did their work in secret.

    Given that we must do this work and a substantial amount of it. All the new Amendments must be identified and well defined with a uniform majority agreement to these Amendments. I estimated that between 20 to 22 Amendments are needed to address 99% of the problems. Some of these Amendments are long. As much as 10 pages or more.

    I have shared them with others with no feedback. So, I am not sharing anymore until I have it published. That will give it far more ground.

    These and other forums are absolutely needed to keep people to keep thinking this way. It will be years before enough damage is done and enough good ideas come out before the people will actually take action. Until then, keep it up.


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