The 16th Amendment: Establishing Federal Income Tax

1040 income tax form and a calculator
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The 16th Amendment to the United States Constitution gives Congress the power to collect a federal income tax from all individuals and businesses without sharing or “apportioning” it among the states or basing the collection on the U.S. Census.

Ratified in 1913, the 16th Amendment and its resulting nationwide tax on income helped the federal government meet the growing demand for public services and Progressive Era social stability programs during the early 20th century. Today, the income tax remains the federal government’s largest single source of revenue.

The 16th Amendment Explained Clause-by-Clause

The complete text of the 16th Amendment reads:

The 16th Amendment
The 16th Amendment. U.S. National Archives 
“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.”

“The Congress shall have power to lay and collect taxes on incomes…”
Congress has the authority to assess and collect a portion of the money earned by people in the United States.

“… from whatever source derived…”
No matter where or how the money is earned, it can be taxed as long as it is legally defined as “income” by the Federal Tax Code.

“…without apportionment among the several States …”
The federal government is not required to share any of the revenue collected through the income tax with the states.

“…and without regard to any census or enumeration,”
Congress cannot use data from the decennial U.S. Census as a basis for determining how much income tax individuals are required to pay.

Income Tax Definition 

An income tax is a tax imposed by governments on individuals or businesses in their jurisdictions, the amount of which varies based on their income or corporate profits. Like the United States, most governments exempt charitable, religious, and other non-profit organizations from paying income taxes.

In the United States, the state governments also have the power to impose a similar income tax on their residents and businesses. As of 2018, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming are the only states that do not have a state income tax. However, their residents are still responsible for paying the federal income tax.

Under the law, all individuals and businesses are required to file a federal income tax return with the Internal Revenue Service (IRS) each year in order to determine whether they owe any income taxes or are eligible for a tax refund.

U.S. federal income tax is generally calculated by multiplying taxable income (total income minus expenses and other deductions) by a variable tax rate. The tax rate typically increases as the amount of taxable income increases. Overall tax rates also vary by characteristics of the taxpayer (e.g. married or single). Some income, such as income from capital gains and interest, may be taxed at different rates than regular income.

For individuals in the United States, income from almost all sources is subject to income tax. Taxable income includes salary, interest, dividends, capital gains, rents, royalties, gambling and lottery winnings, unemployment compensation, and business profits.

Why the 16th Amendment Was Enacted

The 16th Amendment did not “create” income tax in the United States. In order to fund the Civil War, the Revenue Act of 1862 imposed a 3% tax on the incomes of citizens earning more than $600 per year, and 5% on those making over $10,000. After the law was allowed to expire in 1872, the federal government depended on tariffs and excise taxes for most of its revenue.

While the end of the Civil War brought great prosperity to the more industrialized northeastern United States, farmers in the South and West suffered from low prices for their crops, while paying more for goods made in the East. From 1865 to the 1880s, farmers formed political organizations like the Grange and the Peoples’ Populist Party that advocated for several social and financial reforms including the passage of a graduated income tax law.

While Congress briefly re-established a limited income tax in 1894, the Supreme Court, in the case of Pollock v. Farmers’ Loan & Trust Co., ruled it unconstitutional in 1895. The 1894 law had imposed a tax on personal income from real estate investments and personal property such as stocks and bonds. In its decision, the Court ruled that the tax was a form of “direct taxation” and was not apportioned among the states on the basis of population as required by Article I, Section 9, Clause 4 of the Constitution. The 16th Amendment overturned the effect of the Court’s Pollack decision.

In 1908, the Democratic Party included a proposal for a graduated income tax in its 1908 presidential election campaign platform. Viewing it as a tax mainly on the wealthy, the majority of Americans supported enactment of an income tax. In 1909, President William Howard Taft responded by asking Congress to enact a 2% tax on the profits of large corporations. Expanding on Taft’s idea, Congress got to work on the 16th Amendment.

Ratification Process

After being passed by Congress on July 2, 1909, the 16th Amendment was ratified by the required number of states on February 3, 1913, and was certified as part of the Constitution on February 25, 1913.

While the resolution proposing the 16th Amendment had been introduced in Congress by liberal progressives, conservative lawmakers surprisingly voted for it. In reality, however, they did so out of a belief that the amendment would never be ratified, thus killing the idea of an income tax for good. As history shows, they were mistaken.

Opponents of income tax underestimated the public’s dissatisfaction with the tariffs that served as the main source of the government’s revenue at the time. Along with the now-organized farmers in the South and West, Democrats, Progressives, and Populists in other regions of the country argued that tariffs unfairly taxed the poor, drove up prices, and failed to raise enough revenue.

Support for an income tax to replace tariffs was strongest in the less prosperous, agricultural South and West. However, as the cost of living increased between 1897 and 1913, so did support for an income tax in the industrialized urban Northeast. At the same time, a growing number of influential Republicans rallied behind then President Theodore Roosevelt in supporting an income tax. In addition, Republicans and some Democrats believed an income tax was needed in order to raise enough revenue to respond to the rapid growth in military power and sophistication of Japan, Germany, and other European powers.

As state after state ratified the 16th Amendment, the presidential election of 1912 featured three candidates who supported a federal income tax. On February 3, 1913, Delaware became the 36th and final state necessary to ratify the amendment. On February 25, 1913, Secretary of State Philander Knox proclaimed that the 16th Amendment had officially become part of the Constitution. The Amendment was subsequently ratified by six more states bringing the total number of ratifying states to 42 of the 48 existing at the time. The legislatures of Connecticut, Rhode Island, Utah, and Virginia voted to reject the amendment, while the legislatures of Florida and Pennsylvania never considered it.

On October 3, 1913, President Woodrow Wilson made the federal income tax a large part of American life by signing the Revenue Act of 1913 into law.

16th Amendment Fast Facts

  • Event Name: Enactment of the 16th Amendment to the United States Constitution.
  • Short Description: Through a constitutional amendment, replaced tariffs with a graduated income tax as the main source of revenue for the U.S. federal government.
  • Key Players/Participants: U.S. Congress, state legislatures, political parties and politicians, the American people.
  • Start Date: July 2, 1909 (16th Amendment passed by Congress and sent to the states for ratification.)
  • End Date: February 3, 1913 (16th Amendment ratified by the required three-fourths of the states.)
  • Other Significant Dates: February 25, 1913 (16th Amendment certified as part of the U.S. Constitution), October 3, 1913 (Revenue Act of 1913, imposing the federal income tax is signed into law)
  • Little Known Fact: The first U.S. tax code, as enacted in 1913, was about 400 pages long. Today, the law regulating the assessment and collection of federal income tax spans over 70,000 pages.

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