"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." Sixteenth Amendment to the Constitution
Ah, taxes… the required payment we all love and appreciate as part of our civic duty, right? 😉
The Sixteenth Amendment is a significant amendment, but seems to be one that few of us discuss or consider. Now, this amendment has admittedly been a bit harder for me to wrap my head around. It seems simple enough but upon further research I realized that what I thought I understood, I actually knew nothing about.
So, in order to grasp the context and origins surrounding this amendment, we need to first start by defining terms.
The Constitution gives Congress the power to tax in Article 1, Section 8, and further defines this power in Article 1, Section 9, Clause 4 with the following directive: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration heron before directed to be taken.” The following are what we know the founders meant by Capitation or other direct taxation.
Capitation taxes: “imposition upon each head or person: a poll [head] tax”. A tax on every citizen based on nothing other than their existence as opposed to the amount of land owned or money made. Every person pays the same. Also differs from a tariff or consumption tax levied on objects rather than people. Considered a form of direct taxation.
Other direct taxes: taxation on land/property.
Apportionment based on population for direct taxation: “a state with one-tenth of the national population must bear one-tenth of the total liability.” States bear the tax burden according to population.
Indirect taxes: duties, imposts and excises on the consumption of various goods. Taxation on products rather than individual people or even property. No apportionment rule applies, but tax rates can’t vary from state to state.
So, a direct tax is a tax on a person, head, or property while an indirect tax is a tax on the consumption of a good (sales tax). The Constitution stipulates that all direct taxes must be apportioned by the population of the states (not required for an indirect tax).
Ok, with these concepts defined, let’s jump a bit into the historical context. Upon the writing of the Constitution, the founders had numerous concerns when addressing taxation. First, operating under the fear of a powerful, centralized federal government, the framers thought that taxation should be limited to indirect taxation, with a few exceptions to allow for direct taxation. After all, Chief Justice John Marshall did say that “the power to tax involves the power to destroy”. The framers truly believed that direct taxation was dangerous–“lacked built-in protections against governmental overreaching”.
So, with this in mind, the framers heavily encumbered the federal government’s ability to directly tax the citizenry by placing the apportionment requirement on direct taxation. It’s not that they can’t directly tax, but to do so is very tedious and limited.
The other reason the founders attached the apportionment requirement on direct taxation was for the following: the Southern states were going to have a higher population than the numerous Northern states because of the many disenfranchised slaves. This apportionment clause would make sure that the Southern states shared a heavy load of tax the burden.
The Sixteenth Amendment was borne out of intense political rage sparked by the Supreme Court case Pollock v. Farmers’ Loan & Trust Co (1895). Congress enacted an income tax (which it had done before with Supreme Court approval) under the presumption that an income tax was not a direct tax but rather an indirect tax and therefore it did not need to be apportioned. If an income tax is apportioned, major issues arise, namely, a poor state with the same population as a rich state would end up carrying the same total tax liability. This would cause tax rates in poorer states to be higher than in the rich states to provide an equal tax share to the federal government.
I know this is a bit to chew on, but basically, an income tax–if it were to be considered a direct tax–would be nigh impossible and also politically untenable due to the apportionment requirement. Perhaps the goal or point of the apportionment requirement?
Essentially, taxing citizens’ income would be impossible if the Court held that an income tax was a direct tax.
Everyone expected the Court to agree with previous precedent that had allowed income tax by deeming it indirect. However, the Court ruled in Pollock that an income tax was, in fact, a direct tax and would have to be apportioned.
The Court claimed that a tax on income from property was equivalent to a tax on property itself–and taxation on property was, per the Constitution, a direct tax.
Many Americans felt this was a clearly wrong interpretation and ruling and so they set out to remedy what they saw as a wrong. Income taxes were made impossible because of the apportionment requirement made necessary by the ruling. At the time, many consumers were bearing the heaviest tax burden while big companies were able to produce and bring in money without the burden of heavy taxation due to the majority of federal taxes coming from indirect, consumer taxes. Congress, and those concerned with this issue, intended to remedy this issue with the new income tax struck down by the Court in 1895.
And so, in time, enough powerful groups, lobbyists and states, driven by presumable “good intentions”, were able to overturn the Court’s ruling with the passage of the Sixteenth Amendment in 1913. The amendment establishes in clear language that the income tax is not a direct tax and therefore not subject to the apportionment requirement. It does not give Congress the power to tax on income, Congress already had that power, just severely hampered by potential Court challenges that it was a direct tax (income tax laws in the 1800s had been upheld by the Court as indirect).
Alas, the states themselves decided to bequeath upon the federal government an immense, unstoppable wealth of power, one that has given us the beast we now know as the federal government today. Congress has no need to tax any other way. “The unapportioned, individual income tax is such a cash cow that Congress has little incentive to enact potentially questionable taxes-where classifying the tax as direct or indirect might be problematic—or to include something in the income-tax base that might not be “income.” Why risk repudiation by the courts with so many constitutionally safe revenue-raisers available?” Why indeed…
So, may you never read the following amendment the same way again. It’s not a permission slip or bequeathment of a previously unpossessed power on Congress. It’s simply a clarification of the meaning of certain concepts to circumvent a much disapproved Court ruling. It’s a the unshackling of Congress’s power to tax.
And we have “good intentions” to thank for the income tax we all know and love.
"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 Liberty Belle
Thanks. Until now, I did not understand apportionment.
Side Notes: Adam Smith’s principles of taxation should apply. With the variety of taxes I don’t think any citizen knows exactly how much they contribute to the federal government. They would be shocked if they did.
Frankly, I didn’t understand it either, til I wrote this article yesterday. Good point!
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Actually, as a “non-Filer” since for the 1st 4 Months Refund for 1983, I began learning in the 1970s that the majority of us are NOT liable for the so called Income Tax!
What we receive in payment for our labor, services, etc., does not become “Income” until “we” personally fill out the Form 1040 and personally define our funds as income. That’s one reason why Filling is “voluntary”, who pays you to do it?
Actually the Form 1040 is a work sheet for the Form 2555 “Foreign Earned Income”, for which {haven’t checked for years} liability starts around $100K before one has to File!
If you don’t participate in any Governmental Entitlement Programs, Employment, Activities, etc., you’re NOT Liable & therefore NOT required to File.
Contrary to popular belief/training, application/acquiring a Social Security Number/EIN was originally & still is Legally Voluntary, if one wishes to participate in some Governmental program! Due to the miss-education through the Decades, far too many fall for the deception that one has to get & use an SSN.
As an example, prior two WWII, only the entities actually liable for the Tax Filed & paid it. But around 1943 patriotic Americans were urged to File a Form 1040 to help pay for the War effort! Then afterward, they became apparently Liable to File from then on because “they” gave the impression that they “were Liable.
It’s not an easy road to hoe, but who said Freedom was Free?
BTW, I’m Old School & don’t use/own a Smartphone/Tracking device!