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The 16th Amendment
On June 17, 1909, the 16th Amendment was proposed by Senator Norris Brown of Nebraska. The Supreme Court had previously ruled that an income tax was unconstitutional, however Senator Brown believed the Supreme Court's decision was in error, and along with others was determined to change it. Following the amendment's proposal, it was passed shortly thereafter by Congress on July 2, 1909. Then, on February 3, 1913, the 16th Amendment was ratified by the required three-quarters of states needed. The last required state to ratify the amendment was Wyoming. The Sixteenth Amendment was the first amendment to be ratified since the Fifteenth Amendment was passed in 1869, over forty years earlier.
The Sixteenth Amendment states:
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.1
A Brief History of Income Taxes Before 1913
Prior to 1913, there had been a concerted effort to implement an income tax, also referred to as a direct tax, for several decades. In fact, the income tax was first implemented in 1861 during the Civil War in order to finance the war. Just after the Civil War began, Congress implemented a flat 3-percent tax on anyone who earned over $800. In those days, this tax only affected the wealthy. Seven years after the war ended, Congress repealed the income tax in 1872, but the concept lived on. President Lincoln and Congress had created the Internal Revenue Service in 1862 in order to collect the newly created income taxes and it continued to operate after the income tax was removed.
On July 4th, 1892, a new, albeit small political party was formed, self-named "The Populist Party." In the realm of taxes, their platform advocated for inflation via monetary expansion, as well as a graduated income tax.2 President Grover Cleveland, a Democrat, passed the Income Tax Act of 1894(Wilson-Gorman Tariff Act) which imposed a federal income tax. However, in 1894, the landmark Supreme Court case Pollock vs Farmers Loan and Trust Company ruled that the income tax was unconstitutional. The court ruled that according to Article 1, Section 9 of the Constitution it was illegal to collect a direct tax from states in an amount that was not proportionate to each state's population. The Income Tax Act of 1894 failed to do this and was thus ruled unconstitutional in the decision released on April 8, 1895.3
Once this law was struck down in the Supreme Court, the Congress could have issued a new law which followed the rules of the Constitution. However, an effort to work towards the 16th Amendment began instead. The Sixteenth Amendment very explicitly made the statement that the federal government can collect taxes "without regard to apportionment."
Woodrow Wilson and the Income Tax
Woodrow Wilson became president on March 4, 1913 and was responsible for signing various income tax acts into law. Woodrow Wilson began his presidency with the expressed expectation that he would usher in a new age, "the age of administration." The Sixteenth Amendment and the tax revenue laws which Wilson enacted, certainly ushered in a new age.
Revenue Act of 1913
Following the ratification of the 16th amendment in February 1913, President Wilson signed the first Revenue Act into law on October 4, 1913. It was also known as the Underwood-Simmons Tariff Act, named for the men who proposed the law. It implemented the first legal income tax since the Civil War. Cordell Hull, who was a part of the House Ways and Means Committee was also instrumental in drafting the Revenue Act of 1913. Hull went on to serve as the Secretary of State under FDR from 1933 until 1944.
Source: Internal Revenue Bulletin4
Mr. Underwood, representing the House Ways and Means Committee issued a report in 1913 regarding the proposed Revenue Act in which he stated:
The adoption of the proposed tax, therefore, would assist in arousing and sustaining general public interest in behalf of [the] economy at all times. . .All good citizens, it is therefore believed, will willfully and cheerfully support and sustain this, the fairest and cheapest of all taxes, in order to secure to the largest extent equality of tax burdens, an adjustable system of revenue, and in all respects, a modernized fiscal system.5 emphasis added
In addition the Revenue Act of 1913 decreased taxes on tariffs. In his report Mr. Underwood also stated:
Section 2 of the bill imposes a tax upon the annual net incomes of individuals and corporations. This is in response to the general demand for justice in taxation, and to the longstanding need of an elastic and productive system of revenue. . . for fiscal year ending June 30, 1912, the government derived $311,000,000 from tariff taxation. . . these taxes rest solely on consumption. The amount each citizen contributes is governed, not by his ability to pay tax, but by his consumption of the articles taxed. . . [the poor] pays a larger rate of tax upon his cheap suit of woolen clothing than the latter[the wealthy] upon his costly suit.6
Apparently, at this point in history, the solution of taxing each suit or widget in proportion to its cost was not considered. Rather, each suit had the same amount of tax regardless of its cost. With this being the case, one can understand how the general population believed this tax system was inequitable. However, its seems very disingenuous that instead of using simple math to easily create a more equitable and proportionate consumption-based tax system, one would discard this old system in favor of an income tax. But that is what the legislators chose to do: implement the income tax.
Emergency Internal Revenue Tax Act of 1914
Less than a year after the Revenue Act of 1913 was passed, World War I began. If one understands history, then it is apparent that war and money/taxes goes hand-in-hand. Whenever there is war, greater taxes are always extracted from the people. In modern times, the majority of these taxes are waged via the money printer, resulting in inflation.
The tax act of 1914 aimed to raise $100,000,000 to make up the short-fall from customs revenue. The act implemented temporary taxes which were supposed to discontinue in December of 2015, however, the bill was extended by Congress through the end of 2016. This bill didn't involve increasing income taxes, but rather extracted taxes via nickel and diming various items.
New and increased taxes on the sale of alcohol
Taxes on the sale of gasoline
Flat taxes on theaters
Reduced taxes on financial brokers and bankers
Taxes on telegram and telephone messages
Taxes upon sea-faring transportation tickets
And more...7
Revenue Act of 1916
The Revenue Act of 1916 took the lowest income tax rate of 1 percent and raised it to 2 percent. It raised the highest income tax rate and raised it to 15 percent. Effectively, in order to increase revenue for the federal government, the graduated income tax became even more "graduated."
Revenue Act of 1917
In 1917, yet another Revenue Act aimed to raise more funds for the war effort. Prior to 1917, America only operated as an observer and not a primary participant, however, America entered World War I on April 6, 1917.
This Revenue Act lowered the 2 percent income tax bracket from starting at $20,000 down to $2,000 and the top tax bracket for those earning above $2,000,000 was raised from 15 percent to 67 percent. The income tax "graduated" once again.
Revenue Act of 1918
As the fighting in World War I was coming to an end in November 1918, yet another law was passed to increase federal income tax revenues. It was signed into law by President Wilson on February 24, 1919 and implemented a higher tax retroactively for 1918 and then "normalized" taxes in 1919-20. The top income tax bracket in 1918 was lowered to $1,000,000 with the top marginal tax rate being raised to 77 percent. In 1919 and 1920, the top marginal normal tax rate was 73 percent and the lowest marginal tax rate was 4 percent.
Challenged in the Courts
In January 2016, the 16th Amendment was challenged in the Supreme Court with the court case Brushaber vs Union Pacific. Brushaber vs Union Pacific was a case where Frank Brushaber was an owner in Union Pacific and the Revenue Act of 1913 made it permissible for the Union Pacific to withhold taxes on dividends before they were distributed. Brushaber believed this was unconstitutional according to the Fifth Amendment that stated that property cannot be confiscated without due process. Brushaber lost in this decision.8
In the case Stanton vs Baltic Mining Co, John Stanton was a shareholder in the company and argued that the Revenue Act of 1913 didn't meet the apportionment clause of the Constitution which Stanton believed still applied Baltic Mining Company in his unique case, even after the Sixteenth Amendment. John Stanton, like Brushaber, lost this case, also in the Supreme Court.9
The Immorality of an Income Tax
Income taxes have been with Americans long enough that nobody thinks deeply about the impacts of an income tax upon society at large. And there is only one tax which has a greater impact on society than the income tax and that is the inflation tax imposed on Americans by their central bank, The Federal Reserve(also started in 1913).
You may be wondering, "How can an income tax be immoral?" There are several reasons why an income tax is one of the worst kind of taxes that can be waged upon society.
First, an income tax penalizes the younger generation over the older generation. Allow me to explain. It forces young people to make a monetary sacrifice out of their little so that it can be given to the older generation. Currently, the welfare state's spending is out of control and much of this welfare goes to care for the elderly. When young people are just getting started, all they have to increase their wealth is their time. But an income tax confiscates a portion of that. As they grow older, they eventually are able to increase their income from savings and assets. Thus, when people become elderly, they should already have savings and assets to generate income. That is, if they've lived life responsibly and not frivolously. But many have not, for various reasons. No doubt, some do not live responsibly because they believe there is a safety net waiting for them at the end of their life. At best, this model is not sustainable because it is proven that those who demand welfare, always demand greater amounts of welfare. And at worst, this model does not promote goodwill between the generations. Ultimately, there are multiple religious aspects which the income tax touches upon. First, instead of the state taking care of the elderly, it should be children who mostly take care of their parents in those latter years. (Eph 6:1-3) And second, it is good to leave an inheritance to your children, which means not living frivolously but stewarding your life and assets well. (Prov 13:22)
Second, income taxes were implemented so that consumption taxes could decrease. Except consumption taxes never went away. Today, taxes nickel and dime Americans with every little thing we consume. Lest we forget, the income tax was also implemented so that lost taxes from the prohibition of alcohol could be replaced. But yet again, there are consumption taxes on alcohol. In fact, there is an entire division dedicated to levying taxes on alcohol within the United States Treasury Department.
Third, if the income tax is such a bad thing, why did politicians and Americans favor ratifying the income tax in 1913 in the first place? This is a valid question. Ultimately, it pits the haves and the have-nots against one another. Frank Chodrov published a book ahead of its time in 1954, called The Income Tax, Root of All Evil. In it, he writes:
Income taxation appeals to the governing class because in its everlasting urgency for power, it needs money. Income taxation appeals to the mass of people because it gives expression to their envy; it salves their sense of hurt. . . The have-nots who support the politicians in the demand for income taxation do so only because they hate the haves. . . So that, the sum of all the arguments for income taxation comes to political ambition and the sin of covetousness.10
Fourthly, the income tax draws people's attention away from their local government. J. Bracken Lee, the Governor of Utah in 1954 writes this in the forward to Chodrov's book:
The Constitution, then[pre-1913], kept the federal government off balance and weak. And a weak government is the corollary of a strong people. . . The Sixteenth Amendment changed all that. . . by enabling the federal government to put its hands into the pockets and pay envelopes of the people, it drew the people's allegiance away from their local governments. It made them citizens of the United States rather than of their respective states. . . They became subject to the will of the central government. . . For those of us who still believe that freedom is best, the way is clear: we must concentrate on the correction of the mistake of 1913. The Sixteenth Amendment must be repealed. Nothing less will do.11 emphasis added
J. Bracken Lee makes the point that the income tax pulled people's attention away from their local government. He is absolutely correct. And it was no mistake that also in 1913, the 17th Amendment was ratified, granting the people the ability to popularly elect their state's United States senators. On the surface, this seems harmless. However, this also strived to draw people's attention away from their local government and to focus their attention and thus their allegiance onto the federal government.
Finally, the income tax confiscates a percentage of people's incomes. If the government is able to confiscate a percentage of your income, how long will it be before they increase that percentage to nearly all of your income via taxation and/or inflation? If a person works for someone, and all of the fruits of their labor are taken from them, that person is what we call a slave. So whatever percentage of your income they demand in taxes, that is what percent slave you are to the state. Are you a10 percent slave? 20 percent slave? 50 percent slave? This is what an income tax does. It makes a percentage of your labor, slave labor that is owned by the state.
Interestingly, Connecticut, Rhode Island, Vermont and Utah still have not ratified the Sixteenth Amendment. However, their residents are still required to pay federal income taxes each year.12
Sources:
“Sixteenth Amendment,” Constitution Annotated, accessed October 18, 2023, https://constitution.congress.gov/constitution/amendment-16/.
“Populist Party Platform of 1892 | The American Presidency Project,” accessed October 18, 2023, https://www.presidency.ucsb.edu/documents/populist-party-platform-1892.
“Pollock v. Farmers’ Loan and Trust Company,” Oyez, accessed October 23, 2023, https://www.oyez.org/cases/1850-1900/157us429.
Internal Revenue Bulletin: Cumulative bulletin. United States: U.S. Government Printing Office, 1939. 3.
Internal Revenue Bulletin. U.S. Government Printing Office. 3.
Internal Revenue Bulletin. U.S. Government Printing Office. 1-2.
Internal Revenue Bulletin. U.S. Government Printing Office. 8-10.
“Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916),” Justia Law, accessed October 18, 2023, https://supreme.justia.com/cases/federal/us/240/1/.
“STANTON v. BALTIC MINING COMPANY,” Library of Congress, accessed October 23, 2023, https://tile.loc.gov/storage-services/service/ll/usrep/usrep240/usrep240103/usrep240103.pdf.
Chodorov, Frank. The Income Tax, Root of All Evil. United States: Devin-Adair Company, 1954. 38.
Chodorov. The Income Tax. Forward, vi.
Alan Greenblatt, “Yes, You Still Have To Pay Income Tax In New England,” NPR, February 21, 2013, accessed October 23, 2023, https://www.npr.org/sections/itsallpolitics/2013/02/20/172495803/failure-to-ratify-during-amendment-battles-some-states-opt-to-watch.