As you well know, you, my readers are driving the topics for this “Is It Constitutional?” series. One of the most recent requests I received: is the income tax Constitutional?
So, upon research, I’ve found the answer.
Before I give you the answer though, I’m going to build theoretical foundation upon theoretical foundation.
One: Income Tax According to Locke
Now, Locke was a staunch proponent of private property and a staunch opponent of government violating that private property. He says that: “The labor of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labor with, and joined to it something that is his own, and thereby makes it his property.”
Following this, Locke emphasizes that the purpose, the end goal, of government is to protect private property, the work of man’s hand.
Logically, then, a government that takes a portion of someone’s earnings—his private property—is violating the very reason for that government’s existence—the protection of private property.
So, according to this theoretical understanding, taking a portion of my earnings to pay for a government to protect those very same earnings from being taken violates the very principle of government itself.
Yeah. Read that sentence over again and let it sink in.
Two: Income Tax According to the Founders
The founders did not like the idea of federal (progressive) income tax, especially the idea that government could decide to tax a certain segment of the population differently than another segment of the population. They considered this highly dangerous to liberty, especially in the hands of ambitious politicians who may be allegiant to certain parties and preferences.
Madison, in Federalist 10, says: “The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice.”
In other words, giving such power to legislators merely opens the door to injustice. So, prior to the Civil War, Tariffs and sales taxes funded the federal government. Not every founder agreed with this limited method of taxation however—Hamilton, I’m talking to you.
Three: Income Tax According the Courts
The first official occurrence of a federal income tax happened during the Civil War when the federal government was financially strapped and needed more money to fund the war. Congress passed the Revenue Act of 1862 which imposed a 3% tax on annual incomes over $800. According to the U.S. Treasury, this would have been equivalent to a minimum taxable income of $16,000 in 2003.
This income tax did not last long, however. Congress repealed it in 1871. In 1894, Congress passed the Revenue Act of 1894 (also called the Wilson-Gorman Tariff Act), which imposed a 2% tax on all incomes of $4,000 ($88,100 in 2010) annually. This would disproportionally tax the income of about 5% of the U.S. population.
A year later, the Supreme Court declared this act unconstitutional in the Pollock vs. Farmers’ Loan and Trust Co. (1895). The Court declared the entire law unconstitutional. “In Pollock v. Farmer’s Loan & Trust, the Supreme Court agreed. The 5-4 decision declared that a tax on any income derived from real or personal property was an unapportioned ‘direct tax’ on the property itself, and therefore unconstitutional.” This is per the apportionment clause in Article 1, Section 2 of the Constitution. For more information on the case, read here.
Four: Income Tax According to the Constitution
The Constitution says this about taxation:
“The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;”
“No capitation, or other direct, tax shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.”
and
“Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.”
Taxation is obviously an important part of a federal government’s income. Taxes are its revenue. If we want a federal government, we must be willing to pay for a federal government. However, the Constitution is not entirely clear here that taxation must or must not come from an individual’s personal income. The Court declared that a direct tax on someone’s property (or money made off of their property—real estate investors and the like) was a violation of the phrase in the Constitution that says “direct Taxes shall be apportioned among the several states”.
In other words, direct taxes must be apportioned among the states and the 2% tax mentioned above did not do this. The Court maintained this restrictive interpretation of the Constitution for years following the Revenue Act of 1894.
However, in 1913, Congress and the states successfully passed a Constitutional Amendment, effectively nullifying the one argument the Court used to strike down income tax law—apportionment. The 16th Amendment to the Constitution says:
“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.”
According to Stanton vs. Baltic Mining Co (1916): ““[T]he Sixteenth Amendment conferred no new power of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged . . . .”
Five: Income Tax After the 16th Amendment
The Revenue Act of 1913 established a 1% tax on income of over $3,000 a year, affecting approximately 3% of the population at the time.
The federal income tax has increased and decreased dramatically over the past century, with some of its highest points reached during wartime. In WWI the tax rate jumped to 77% and then dropped back down to 25% during the roaring 20s.
During the Great Depression it jumped to 63% and during WWII, for America’s top earners, it jumped as high at 94%. (Imagine that. Working full time and only making 6% of what you worked for.)
From the 50s-70s, the tax rate never went below 70%. Today, the highest income tax rate hovers around 37 percent. However, if we include the 3.8% tax form the Affordable Care Act, the maximum federal income tax rate 40.8 percent.
Conclusion
I’m going to be honest. There’s a lot I don’t understand about America’s tax system. Based on my research, America implements a progressive tax law, meaning that as our income increases, so does our taxation on our income proportionate to that income.
As the founder’s predicted, giving such power to the legislature, is dangerous. It allows Congress to target certain groups.
On principle, an income tax is a direct violation of an individual’s private property, something the founders wanted to avoid. This means that, when you work an 8 hour day, a little over 3 hours of that day is being worked for the government…which is a violation of private property.
However, the question of “Is the income tax Constitutional?” is the most important question. The 16th Amendment effectively stopped any qualms about the Constitutionality of the federal income tax. The federal government is given the power to tax and now has no Constitutional confinements such as apportionment, census or the like.
Theoretically and hypothetically, the income tax is not ideal. It punishes more labor, ambition and growth (which do have their dark and sometimes abusive traits). However, at this point, Constitutionally, the income tax appears to be valid.
While I may not personally favor a federal income tax, I do favor the Constitutional method that Congress and the states used to remove any barriers to such a tax. Have they and do they abuse this power to tax? Most certainly. But the only way to fix such a problem at this point is through the Constitution itself—as they did before.
And that takes an educated and involved citizenry.
Something lacking in this country for many decades.
The Liberty Belle