Understanding the 16th Amendment

The Sixteenth Amendment provided for a uniform law regarding the collection of income tax on the national level. The introduction and passage of the Sixteenth Amendment would prove to be crucial, impacting the financial growth and economic standing of the United States.

The main concept of the Sixteenth Amendment is that under the new legislation, Congress would not need to apportion an income tax among the states or have it based upon the numbers produced by the Census. The Sixteenth Amendment would revise the previous Constitutional provisions regarding direct taxes and except income taxes on rent, interests, and dividends from those requirements as a result of the Pollock v. Farmers' Loan & Trust Co. in 1895. The Sixteenth Amendment would be ratified on February 3rd, 1913.

The Sixteenth Amendment reads, "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 new legislation created for Congress' right to impose a Federal income tax, which was the subject of much change and, at times, confusion prior to the ratification of the Sixteenth Amendment.

The first income tax was imposed as a result of the Civil War, which was introduced in 1861. It consisted of a three-percent flat tax on incomes greater than $800. This would be changed a year later to introduce a graduated tax ranging from three to five percent on incomes over $600. All income taxes were considered to be indirect taxes and were imposed according to geographic uniformity. Direct taxes were required to be apportioned according to the population of the states.

Prior to the Sixteenth Amendment, the income tax system was an issue of dispute between farmers and those involved in industrial professions. The argument was that the low prices set upon for their farm products and the requirement to pay high prices for manufactured goods and products was unfair. Many farmers would form coalitions and organizations to introduce their tax platforms, consisting of a graduated income.

The Pollock v. Farmers' Loan & Trust Co. case would declare that some income taxes were unconstitutional because they were not apportioned direct taxes. The case would determine that the source of income would be used in order to classify whether the income was direct or indirect, and thus, allowing for the definition of what kind of income tax would be levied. Income taxes on wages were not to be apportioned by the population numbers, while those on interests, dividends and rent were.

The growing dispute prior to the case reflected the sentiment of the Government protecting industrial and financial markets by protecting the economic elite created by Industrialization. The Sixteenth Amendment would finally address and solve the dispute as to how income was to be taxed and under what determinations such income tax is to be considered to be properly enacted and enforced.