In a ruling, the high court decided that the income tax was forbidden by Article I, Section 9, of the Constitution. This prohibits direct taxes on individuals unless apportioned on the basis of the population of each state. The majority of justices ruled against the tax law even though the Supreme Court had earlier upheld the similar Civil War income tax. Farmer's Loan and Trust Co. As the progressive reform movement began to gain strength at the turn of the century, interest in the income tax revived.
One of the supporters of the income tax was Cordell Hull , a Democratic congressman from a poor rural district in Tennessee. Hull who later became President Franklin D. Roosevelt 's secretary of state put together a coalition of progressive Democrats and Republicans. They tried to attach income tax bills to tariff legislation making it more difficult to pass. Most Americans disliked tariffs since they drove up the price of many goods. Hull and his allies promised not to stall the passage of tariff laws, while Taft came out in favor of a corporation tax and a constitutional amendment authorizing Congress to enact a federal income tax.
A constitutional amendment was necessary because the Supreme Court had struck down the earlier income tax as unconstitutional. But the process of amending the Constitution made this difficult. First, the income tax amendment would have to pass both houses of Congress by two-thirds majorities. Then, three-fourths of the state legislatures would have to ratify it. Only after ratification would Congress have the clear power to pass an income tax law.
At first, few thought the income tax amendment had much of a chance surviving a vote in Congress. But the unpopularity of high tariffs eased the amendment through both the Senate and the House. In just a few days during the summer of , the proposed 16th Amendment was approved by the Senate and the House Thirty-six state legislatures had to ratify the 16th Amendment before it could go into effect. The public and most newspapers seemed to favor it.
The main argument for ratification was that the amendment would force the wealthy to take on a fairer share of the federal tax burden that had in the past been largely carried by those earning relatively little. Only a few critics spoke out forcefully against the amendment. John D. Rockefeller , one of the country's richest men, stated: "When a man has accumulated a sum of money within the law. Ratification moved slowly but steadily through the state legislatures.
Some of the states had already passed income tax laws of their own in seeking new ways to finance public schools and other social needs. Surprisingly, the income tax amendment drew widespread support in cities and in rural areas alike, from both Democrats and Republicans, and in all geographical regions.
Even New York ratified the amendment despite the state's reputation as the capital of "money power" with numerous millionaires among its residents including John D. By early , 42 states six more than needed had ratified the income tax amendment. Only six states rejected it. Cordell Hull introduced the first income tax law under the newly adopted Sixteenth Amendment. These corporations were more powerful than state governments.
The dynasties that owned them had great political clout and more concentrated wealth than Americans had ever seen. Inequality was rising to the point that many Americans began to fear that our constitutional democracy might be lost, replaced by an economic and political oligarchy. In response, waves of reformers sought major changes. One was a change to the tax code. Instead of relying exclusively on consumption taxes that fell most heavily on ordinary people, the Populists and later the Progressives wanted a federal income tax that would fall most heavily on the enormous new fortunes of the era.
At the time, few thought there was any constitutional problem with an income tax. Precedents from as far back as and as recently as made that clear. As lawyers, they had handled the work of the new large corporations and monopolies. They feared the federal income tax as a form of socialism, and in Pollock they found a way to strike it down. The decision in Pollock provoked enormous popular outrage.
Rarely in American history has a single Supreme Court decision been so clearly and decisively rejected by the American people in this manner. What the Sixteenth Amendment rejected was a vision of a weak federal government that could subsist only on what were essentially consumption taxes—a government that could never be powerful enough to confront, regulate, and break up the enormous new fortunes and monopolies of the Gilded Age.
But the conflict over the main constitutional powers of the federal government—the power to tax, the power to spend, the power to regulate Commerce, and the Reconstruction power to promote liberty and equal citizenship—has never really ended.
Conflict over the power to tax could rear its head again. For instance, suppose that in response to rising levels of economic inequality, Congress passes a tax on wealth.
Like the income tax a century ago, a wealth tax would undoubtedly provoke outrage from wealthy people. No tax has been apportioned since It makes absolutely no sense, in terms of fairness or politics, to apportion any tax other than a head tax. So requiring apportionment would mean Congress cannot tax wealth. It should be up to the people, through their representatives, to decide whether to impose any other tax, such as an income tax, a wealth tax, a carbon tax, etc.
Few people like being taxed, so the best check on excessive taxes is not lawsuits, but democracy. The simplest and best reason is that this bit of constitutional text is part of a compromise over slavery that Americans later decisively rejected, on the battlefields of the Civil War. The ratio would be the same: three-fifths. The constitutional debates make this clear. You can also see it in the text of the Constitution itself. So to summarize: For a century after , the Court read the limitation on direct taxes very narrowly.
In the middle of that period, we eliminated slavery, and with it the point of the original apportionment compromise. This failed. Through the Sixteenth Amendment, the People reversed the Court. After a few feints the other way in the s, such as Eisner v. That is how it ought to stay. Still, in constitutional politics, old ideas—even bad ideas—have a way of coming back around again. We agree with Professor Jensen that we may not yet have seen the last of claims arguing, Pollock -style, that the direct apportionment clause blocks the federal government from enacting some future tax.
Authors and experts join a Town Hall for a discussion on what made Marshall, Harlan, and other influential Supreme Court justices. Here is a round-up of the latest from the Battle for the Constitution: a special project on the constitutional debates in…. Amendment 16 Collapse Text Menu 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.
Amendment The Sixteenth Amendment by Joseph R. Fishkin, William E. The 16th Amendment was passed in response to this court case.
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Investopedia does not include all offers available in the marketplace. Related Terms What Is the U. Created in , the U. Treasury is the government Cabinet department responsible for issuing all Treasury bonds, notes, and bills. Discover more here. Direct Tax A direct tax is a tax paid directly by an individual or organization to the entity that levied the tax, such as the U. Tax brackets are set based on income levels. Taxation Taxation refers to the act of levying or imposing a tax by a taxing authority.
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