We may have said once or twice on this blog that
the Sixteenth Amendment did not make a previously unconstitutional income tax
constitutional. Rather, the Sixteenth
Amendment made a direct tax constitutional without apportionment among the
states on the basis of population.
Before that, however, the Congress had already enacted an income tax
twice, only the second of which was challenged in court.
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| The Civil War brought an income tax, not the other way around. |
This was in Pollock
v. Farmers’ Loan & Trust Co.
(157 U.S. 429, 158 U.S. 601 (1895).) Before Pollock, Congress had avoided the question whether an income tax is
a “direct” or an “indirect” tax because during the Civil War it would have
interfered with raising the money needed to fund the war effort, and afterwards
it was a moot point. The key legal and constitutional point, however, is that an
indirect tax can be imposed uniformly on everyone, regardless of state or
territory.
In Pollock
the U.S. Supreme Court decided that an income tax is, after all, a direct tax.
As a direct tax, per Article I, § 2
of the Constitution, the income tax therefore had to be apportioned among the
states according to population: “[D]irect Taxes shall be apportioned among the several States which may
be included within this Union, according to their respective Numbers.”
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| Representative Arsene Pujo |
In 1908 the Democratic Party again included an income
tax in its platform. Following the Panic of 1907 and the findings of the Pujo
Committee that investigated concentrated control over money and credit, the
Sixteenth Amendment was enacted in 1913, permitting a direct tax to be imposed
without apportionment.
Conspiracy theory to the contrary, the Sixteenth
Amendment did not illegally give Congress the power to tax incomes. Congress
has had the power to levy a tax on income since 1789 with the ratification of
the U.S. Constitution.
What the Sixteenth Amendment did was allow the
imposition of a tax on incomes without apportionment. This removed the problem
resulting from the Supreme Court’s interpretation of the indirect versus direct
nature of an income tax. As the United States Court of Appeals for the Third
Circuit explained in Penn Mutual
Indemnity Co. v. Commissioner (32 T.C. 653 at 659 (1959)),
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| An income tax is not unconstitutional per se. |
It did not take a constitutional amendment to entitle the
United States to impose an income tax. Pollock
. . . only held that a tax on the income derived from real or personal property
was so close to a tax on that property that it could not be imposed without
apportionment. The Sixteenth Amendment removed that barrier. Indeed, the
requirement for apportionment is pretty strictly limited to taxes on real and
personal property and capitation taxes.
It is not necessary to uphold the validity of the tax imposed
by the United States that the tax itself bear an accurate label. Indeed, the
tax upon the distillation of spirits, imposed very early by federal authority,
now reads and has read in terms of a tax upon the spirits themselves, yet the
validity of this imposition has been upheld for a very great many years.
It could well be argued that the tax involved here [the income
tax] is an “excise tax” based upon the receipt of money by the taxpayer. It
certainly is not a tax on property and it certainly is not a capitation tax;
therefore, it need not be apportioned. We do not think it profitable, however,
to make the label as precise as that required under the Food and Drug Act.
Congress has the power to impose taxes generally, and if the particular
imposition does not run afoul of any constitutional restrictions then the tax
is lawful, call it what you will.
Thus, if you think an income tax is
unconstitutional per se, and
repealing the Sixteenth Amendment will rein in government and let people keep
all their income, think again. All it
would do is replace an income tax that has a fundamentally just structure with
a heavily regressive substitute, such as a consumption tax of some sort, which
always — yes, always — falls heaviest
on people with lower incomes.
Now, about that claim that an income tax is
fundamentally just and other taxes are (by implication) unjust. First, we didn’t say that an income tax is
inherently just and all other taxes are unjust.
That would be stupid.
No, all taxes are inherently just. Government provides a service, and citizens
can expect to pay for it. How they pay for it is another matter,
and one we’ll investigate tomorrow.