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.
|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.”
|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)),
|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.