Congress creates the Commissioner of Internal Revenue and enacts the first national income tax to pay war expenses. The Confederacy also adopts an income tax. After the war, in , Congress repeals the income tax. The Supreme Court rules in Pollock v.
These taxes affect only a very small portion of the population. Constitution said that no direct taxes could be imposed unless made in proportion to the population, as measured by the census. Congress therefore sent to the states the Sixteenth Amendment, which specifically gives Congress the power to impose a direct income tax. This amendment greatly expanded the scope of federal taxing and spending and has been the basis for all subsequent federal income tax legislation.
At first, Congress used the commerce clause, with its control of interstate commerce, to ban the shipment of goods made by child workers. But the Supreme Court struck this plan down in the case of Hammer v. Dagenhart for exceeding congressional authority.
Then the opponents of child labor turned to the power of taxation. Congress enacted a steep tax on the profits of any manufacturer that hired children under certain ages.
The amount of the tax was not the issue. Instead, what the court found objectionable was that Congress was using a tax to serve as a form of regulation. Taxes cannot be substitutes for penalties or regulations, the Court decided. In later years, however, the Supreme Court has accepted high taxes on certain items that the community wishes to control, such as drugs, gambling, and some forms of weapons. In the case of United States v. Congress creates the Commissioner of Internal Revenue and enacts the first national income tax to pay war expenses.
Session I. Internal Revenue Service. Bulletin, Volume 13 ," Page 4. Session II. National Archives. Accessed March 25, The Tax Lawyer. Moore, U. Income Tax. Tax Laws. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.
These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Taxes Income Tax. Table of Contents Expand. What Is the 16th Amendment? In the meantime, the Sixteenth Amendment matters most because it has forever changed the character of the United States government, from a modest central government dependent on consumption taxes and tariffs on imports to the much more powerful, modern government that fought two World Wars and the Cold War with the vast revenue that came from the federal income tax.
It was intended to be a real limitation on the congressional taxing power; it worked by making direct taxation cumbersome, and often impossible. Many Founders thought direct taxation was dangerous—it lacked built-in protections against governmental overreaching—and it was therefore to be used only in emergencies like war, when revenue needs outweigh other concerns. And no apportioned direct tax has been enacted since The Sixteenth Amendment is often said to have given Congress the power to tax income, but Congress always had that power.
The question answered by the Amendment was whether an income tax is a direct tax that has to be apportioned. An apportioned income tax would be absurd; one hopes Congress would never enact such a tax. The Supreme Court in Pollock v. Pollock had been a surprise because the dictum in Hylton v. United States —that the only direct taxes are capitations and land taxes—had been accepted throughout most of the nineteenth century.
But, buried in its bombastic language, the Pollock majority actually did a nice job of tying its conclusion to Hylton : a tax on income from property is equivalent to a tax on the property itself. United States , largely reached income from services, not property—as if that made a difference. Because of Hylton and Springer , almost all commentators at the time thought Pollock was clearly wrong. Nevertheless, with the case on the books—whether rightly decided or not—an unapportioned income tax was impossible without a constitutional amendment.
If Pollock was wrong, the Amendment was legal surplusage. If Pollock was right, the Amendment changed the law. What direct taxes remain subject to apportionment? In any event, the Supreme Court has had no recent occasion to focus on the Amendment. But that view would permit Congress to define the limits on its own power. The preeminent example is Eisner v. Macomber , where the Court struck down an unapportioned income tax as applied to certain stock dividends.
Although the income tax as a whole was valid—it was direct, but exempted from apportionment by the Amendment—the Court held that the tax on stock dividends effectively fell on property, not income. Rejected though they are by most scholars today, those old cases might still have life.
By citing Pollock , the Court accepted the proposition that a tax on any property including the income from that property , not just land, is direct. That was a slight, but reasonable, expansion of Hylton. Interest on bonds should be treated the same as rents from land. But Chief Justice Roberts may not have been thinking about any of this; the citation to Macomber might just have been a throwaway. And, even if the distinctions between direct and indirect taxes and between taxes on income and other taxes retain constitutional significance, and I think they do, characterization issues have declined in importance because of the Sixteenth Amendment.
If Congress does look to new sources of revenue, however—because of burgeoning budget deficits, say—the old interpretive issues may return.
The Constitution does not exist in a vacuum, sealed off from the Court and the People who interpret it and reason from it over time.
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