Story by Fred Horne '18
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.
It is said that the only things certain in life are death and taxes. The ratification of the Sixteenth amendment in 1913 made “taxes” just a little more certain. It expanded Congress’s power to allow direct taxation of income. But the first income tax Congress levied was during the Civil War, long before the passage of the 16th. The constitutionality of the income tax was upheld in Springer v. United States in 1881, so why was the 16th necessary? The Court changed its mind.
The Constitutional problem of the income tax arose because of a clause in Article I, section 9, that required direct taxes to be levied in proportion to population, determined by the Census. All other taxes were indirect, levied uniformly across the states. Springer v. United States was based on the early precedent of Hylton v. United States. In Hylton in 1796, the Court ruled that the only direct taxes were capitation and land taxes. Direct taxes were tied to population to protect richer, more commercial states from disproportionate taxation. Springer’s classification of income tax as an indirect tax stood until Pollock v. Farmer’s Loan and Trust Co. in 1895. Chief Justice Field overturned a century’s worth of precedent on the meaning of “direct taxation” because the Court believed the income tax was communism, and that by it “our political contests will become a war of the poor against the rich.”
It took nearly twenty years and a Constitutional amendment to overturn this decision. Congress cared enough about income taxes to reverse the Supreme Court. It cared so much because it needed to fund a modern government. Tariffs, excises, and land taxes sufficed in the 1790s when 95% of American were farmers. By 1865, however, the American economy had changed almost beyond recognition from Jefferson’s America of small independent farmers. The Market Revolution began industrializing America as early as 1815, and by 1865 industrialization had become the engine that would transform America into the industrial powerhouse of the world. Land taxation could not cover in 1895 what it did in 1795. Industrialists controlled vast sums of money related not to land but to industry, a type of asset that barely even existed in 1787. A tax on incomes “from whatever source derived” was the only way to supply Congress with adequate revenue.
At first glance, redistributing income from the rich to the poor seems like an unfair Communist plan. Why should the rich be taxed to pay for the poor? The answer lies in the nature of the American government. According to John Locke, taxes are a gift given by the people to the government. The people elect representatives to whom they entrust the power to dispose of the people’s lives and property, within legal limits. So long as the money is levied and used for the general welfare, it does not make sense that income derived from one source should be subject to taxation but not income derived from another. The rich should pay more because our government is a cooperative venture. All the people come together, work together, for the common good and defence. Any cooperative venture requires sacrifices from its members based on a sense of fairness. A century after the passage of the amendment, we dispute over details of specific tax codes, but Americans unite on the principle that we support the government out of our own incomes and pay what the tax codes say we owe. The income tax has become integral to the American system of government.