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Amendment XVI – Income Tax (1913)

According to USCS Const. Amend. 16, 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 ratification of the Sixteenth Amendment was the direct consequence of the Supreme Court’s decision in Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601 (U.S. 1895), whereby the court held that the attempt of Congress the previous year to tax incomes uniformly throughout the United States was unconstitutional.  In Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429 (U.S. 1895), the Supreme Court disallowed a federal tax on income from real property.  The tax was designed to be an indirect tax and the states need not contribute portions of a whole relative to its census figures.  However, the Court ruled that the tax was a direct tax and subject to apportionment.  The Court declared that a tax on incomes derived from property was a ‘‘direct tax’’ which Congress could impose only by the rule of apportionment according to population, under the terms of Article I, § 2, and § 9.

The Court gave evidence of a greater awareness of the dangerous consequences to national solvency which the holding in Pollock threatened, during the period between the Pollock decision in 1895 and the ratification of the Sixteenth Amendment in 1913.  The court partially circumvented the threat, either by taking refuge in redefinitions of ‘‘direct tax’’ or by emphasizing the history of excise taxation.  However, the adoption of the Sixteenth Amendment put an end to speculation whether the Court, unaided by constitutional amendment, would persist along the lines of construction until the reversal of its holding in the Pollock case.  In the initial appraisal of the Amendment, it classified income taxes as being inherently ‘‘indirect.’’  The command of the amendment that all income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed income may be derived, forbids the application of the rule applied in the Pollock case to taxes by which they were placed under the other or direct class.

The Sixteenth Amendment prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning, by taking it out of the category of indirect taxation to which it inherently belonged.  Apart from this, the amendment did not confer any new power of taxation.

Between 1895 and 1909, when the amendment was passed by Congress, it became clear that the solvency of the nation was in jeopardy.  Subsequently, the definition of “direct tax” was modified, bent, twisted, and coaxed to allow more taxation efforts that approached an income tax, in a series of cases.

Finally, the text of the Amendment makes it clear that although the categories of direct and indirect taxation still exist, any determination that income tax is a direct tax will be irrelevant, because taxes on incomes, either from salary or from real estate, are explicitly to be treated as indirect.  The Congress passed the Amendment on July 12, 1909, and it was ratified after 1,302 days on February 3, 1913.

Inside Amendment XVI – Income Tax (1913)